March 31, 2008

Why popcorn prices are going up.

Popcorn prices are rising. Is ethanol to blame?Popcorn price are on the rise at movie theaters around the country. According to several articles that I have seen over the last month and another one today, the rise in popcorn prices is due to the demand that ethanol has put on the corn crop. As one article put it.

As a consequence of booming demand for alternative fuels, farmers are replanting acres of popcorn with more profitable crops that go into ethanol and other biofuels.

This has, in their opinion, caused prices to go up dramatically.

Prices went up about 40 cents this winter at the Saginaw 8 and Quad complex in Kochville Township, putting the popular medium tub at $4.50, said Shift Manager Josh R. LaFond.

That is about a 10% increase and it is because the price of popcorn from suppliers has gone up.

At the Hemlock-based Lloyd C. Zastrow Wholesale Popcorn and Supplies, which supplies the Court Theatre in Saginaw, the cost of a 50-pound bag rose to $16 from $15, said Joyce Zastrow, a Michigan Farmers Hall of Famer with her husband, Lloyd, since 2006.

At $16 for a 50 pound bag, that equates to 31 cents per pound. There would have to be a lot of popcorn in a medium tub for it to go up by 40 cents just based on the cost of popcorn.

Another article offers some additional insight.

But if audiences worry that movie snacks are too expensive, they need to know that those $5 buckets of popcorn are what keeps the average national admission price around $7.

"If we didn't charge as much for concessions as we did, the tickets to the movies would cost $20," said Mike Campbell, chairman and chief executive of Regal Entertainment Group, the nation's largest theater chain with 6,300 screens.

Concession sales are a theater's lifeblood, accounting for as much as 45 percent of profits at the nation's largest chains. Popcorn offers one of the biggest returns on investment for exhibitors, because the unpopped kernels used to make a bucket of popcorn cost just a few pennies.

So although the cost of popcorn has gone up, the amount of popcorn in a $4.50 tub would still only be a very small percentage of the final price. In this way, theaters are using the money gained from high profit items to cover other costs of operations.

That would also mean that as these other costs of operation, such as labor, electricity bills, etc. rises, the amount of profit from high profit items such as popcorn would need to rise as well. And that has nothing to do with ethanol.

Update : 5/28/08

A recent article in Advertising Age added a unique perspective on this situation.

And the price of the paper pulp to produce popcorn tubs has jumped 40% in the past 36 months, making the tub more expensive than the corn inside it.

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