The Case Of The Pricey Frito : The Indicator from Planet Money Corn prices are falling, but the price of Fritos in the White House press corps break room is up by 20%. What's going on? Team Indicator is on the case!
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The Case Of The Pricey Frito

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The Case Of The Pricey Frito

The Case Of The Pricey Frito

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STACEY VANEK SMITH, HOST:

Here at NPR, we are lucky to work with some of the smartest coolest people around, I think.

CARDIFF GARCIA, HOST:

Yeah, that's true. I mean, we have some splendid colleagues. And so when one of them comes to us for help, we help.

SCOTT HORSLEY, BYLINE: Hi, my name is Scott Horsley. I am a White House reporter for NPR News.

SMITH: It sounds so glamorous to, like, hang out at the White House all the time.

HORSLEY: Oh, it is glamorous. Let me tell you. I mean, there are - right now I'm standing in sort of the press corps break room, which is a little anteroom just off the Brady Briefing Room. There's a drinking fountain and a couple of restrooms, and there are a couple of vending machines here.

GARCIA: And those vending machines were at the heart of Scott's query to us. He was writing a piece about how corn prices were falling.

HORSLEY: And in the middle of writing that, I came up to the employee break room to buy myself a bag of Fritos. And I noticed that the bag of Fritos had gone from a dollar and a quarter, the old price, to the new price of a buck and a half. And I had just written that corn futures had fallen 12 percent since May. So this was kind of puzzling to me. That's why I reached out to the smart people at Planet Money to try to solve this mystery.

SMITH: Scott Horsley's a smart man.

GARCIA: Yeah, that's a good choice.

SMITH: He knows what to do.

GARCIA: Could have done worse.

SMITH: So, Cardiff, hear at THE INDICATOR, we have our mystery. Why are corn chips getting more expensive at a time when corn is getting cheaper?

GARCIA: And by the way, that's a lot more expensive. I mean, it's only a quarter, OK, but that quarter represents a 20 percent increase, right? In any other part of the economy, that would be criminal.

SMITH: I would say that this Fritos thing is criminal. And, Cardiff, THE INDICATOR is on the case. This is THE INDICATOR, I'm Stacey Vanek Smith. And I'm Cardiff Garcia. Today on the show - the case of the pricey Frito.

(SOUNDBITE OF HALLOWEEN LIBRARY'S "HALLOWEEN SCARY SPOOKY HORROR SOUNDS")

UNIDENTIFIED ACTOR: (As character) Tonight, the story of how perhaps the smallest of items can be the cause of unbelievable terror and hardship - in this case, the lack of a little loose change.

SMITH: We followed the Fritos.

GARCIA: Fritos.

SMITH: Fritos.

(SOUNDBITE OF HALLOWEEN LIBRARY'S "HALLOWEEN SCARY SPOOKY HORROR SOUNDS")

SMITH: So we are on the case for Scott Horsley following the Fritos. Clue number one - Fritos is owned by Pepsi. Pepsi owns Frito-Lay which makes Fritos. In fact, the vending machine Scott uses in the White House is all Pepsi products. And all of the products in the machine - not just the Fritos - got more expensive. So we called Pepsi. They would not comment. They declined to comment - OK, fine, dead end.

GARCIA: No thanks.

SMITH: I know.

GARCIA: Well, luckily there was a second clue - a note left at the scene of the crime.

HORSLEY: There is a note on the vending machine from the people that stock the machine. (Reading) To our valued patrons, effective in the next couple of weeks, the prices in the vending machine may be adjusted to offset increases we have received in product costs from manufacturers. So presumably, the wholesale cost of the Fritos have gone up, and they're passing those along to us. But it is kind of curious at a time when corn prices are down. And, you know, there's only three things in a Frito. There's corn. There's corn oil and salt.

CAROLYN DIMITRI: Woah, how naive to think that's all that's in a bag of Fritos.

SMITH: Carolyn Dimitri is an applied economist at NYU who specializes in food studies.

GARCIA: And seemed kind of offended by the idea that Fritos might only have three products in them.

(LAUGHTER)

SMITH: Who would think corn prices had anything to do with the price of corn chips - fools.

GARCIA: Right. By the way, we tried calling the vending machine company.

SMITH: So many times.

GARCIA: Yeah, but they would not call us back. Nobody wants to give us a comment. So we turned to the experts, and Carolyn is an expert. She says the price of a processed food like Fritos has almost nothing to do with, well, food prices.

DIMITRI: Just break that idea that you have that food actually - the food costs are an important component of any food product that you buy in the grocery store.

SMITH: Carolyn says a much bigger part of the cost of a food like Fritos is in things like labor and rent and transportation.

GARCIA: Transportation.

SMITH: Yeah.

GARCIA: This has been in the news a lot lately because trucking companies are complaining that they cannot find enough drivers to keep up with all the shipping needs that they have.

SMITH: So companies are kind of fighting for space in trucks right now, which pushes up the price of the space in those trucks. And all of that means that trucking is getting more expensive for companies.

GARCIA: Coke, Pepsi, Hershey, General Mills and Procter & Gamble have all come out saying that higher shipping costs were going to be hard on their profits and possibly even affect prices. So that could explain why Fritos, and all the other snacks in the White House vending machine, might suddenly cost a lot more.

SMITH: Yeah, but we were not totally satisfied. I mean could trucking account for the whole 25 cent increase? We suspected that the shipping costs were not acting alone. So on a hunch, we called Amit Sharma at BMO Capital Markets. Amit analyzes food companies, including Pepsi. And he gave us another clue about why the price of Fritos might have gone up.

GARCIA: Yeah, and this was kind of an unexpected suspect - aluminum tariffs.

AMIT SHARMA: If you think about the soft drink companies, aluminum because the tariff has gone up as well...

SMITH: Because of, like, the aluminum in the cans?

SHARMA: Yeah.

GARCIA: Coca-Cola has already come out saying that the aluminum tariffs would hit them really hard and increase their costs. If the U.S. is not importing cheap aluminum from overseas, it will have to get aluminum from U.S. suppliers. And those U.S. suppliers no longer have to compete with overseas aluminum suppliers. So the domestic suppliers in the U.S. can raise prices.

SMITH: Of all the companies Amit looked at, Coke and Pepsi were a couple of the hardest hit by aluminum tariffs - right behind Monster and Coors. So you would think that maybe Pepsi and Coke could just raise the price of their drinks to offset this more expensive can. But they can't really do that right now because people are not drinking sugary drinks like they used to. Sales of soda have been falling.

GARCIA: Woah, woah, woah. Would you say that demand for soda has been flat?

(LAUGHTER)

SMITH: Yes, I would say the demand for soda has been flat - falling, worse than flat, concave. So Pepsi and Coke are just not in a position to be making those drinks more expensive right now.

GARCIA: Yeah, that's true. Americans are consuming less soda. But you know what we are consuming more of?

SMITH: What?

GARCIA: Snacks.

SHARMA: We are simply snacking more than full meals. So snacking is a growing category, unlike many of the other food categories, right? And that allows companies that make snacks - Frito-Lay is the leader in this segment - it gives them potentially more pricing power.

GARCIA: Pricing power - in other words, the power to raise prices. Pepsi might not be in a position to make its soda more expensive right now, but it knows that it can raise the price of its delicious snacks because Americans love snacks so much.

SMITH: We love snacks.

GARCIA: Yeah, so we'll pay the extra cash for those sweet, sweet - technically salty, salty - Fritos.

SMITH: (Laughter) So all of the stress eating we're doing is actually causing the price of snacks to go up - potentially?

SHARMA: Yeah, one could argue that.

SMITH: (Laughter).

GARCIA: Suspect number three - I guess we'll call it love.

SMITH: Aw, the greatest suspect of all.

GARCIA: People love their Fritos, you know. We love all the snacks. And we're eating more of them. And we're replacing meals with them. And Pepsi knows this, and it knows that we will pay for that love. And so they charge more because they can.

SMITH: OK, so Scott Horsley, there you have it. In the case of the price of Fritos, we have our killer - or killers.

GARCIA: Yeah, more like suspects though, right, Stacey?

SMITH: OK, fine, suspects.

GARCIA: Yeah, yeah.

SMITH: So, Scott, what do you think?

HORSLEY: The price of my Fritos has very little to do with the corn in the corn chips and everything to do with the aluminum, not in the foil package of the Fritos, but in the Pepsi can...

SMITH: Yes.

HORSLEY: ...And the truck it took to get the Pepsi can and maybe the Frito bag to my vending machine...

SMITH: Yes.

HORSLEY: ...And my own inability to deny my taste buds satisfaction from a salty snack in the middle of the afternoon.

SMITH: I hope that's satisfying a little - I don't know.

HORSLEY: It's not as satisfying as the bag of Fritos I'm going to go get right now.

SMITH: (Laughter).

(SOUNDBITE OF BAG RUSTLING, CRUNCHING)

HORSLEY: That's good corn.

(SOUNDBITE OF MUSIC)

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