Grocery Arbitrage

Grocery Store

In the Personal Finance community, a term that gets tossed around sometimes is Geo-Arbitrage: the idea that you can relocate to places with lower costs of living to make your money stretch farther when paying for the things you need on a day-to-day basis. This comes from the finance term, Arbitrage, which is essentially taking advantage of the same investment being priced differently in two different places. Investors can quickly buy it at the low price and sell it at the high price and turn an instant profit. Now, in efficient markets, arbitrage opportunities are hard to come by and quickly disappear. However, in the real world you’ll notice them all over the place, once you open your eyes to it.

For example, think about the last time you had to fill your car up with gas…In the wealthy part of town, or maybe by a highway exit, the prices are always a bit higher, but in the middle of nowhere the same tank of gas could be significantly cheaper. When you up the distance to cross state or national borders, the price disparities for equivalent goods/services become even more obvious. This is where the geo-arbitrage crowd takes advantage. From food to housing to medical services, looking outside your home country can mean significant cost savings.

Now, none of this is true arbitrage because I’m only talking about buying things, not buying and then selling for a profit. However, I think the term still works because you are profiting when you buy something that you already needed, but for a cheaper price. The profit is just in the form of keeping more dollars in your pocket (or bank account). So let’s talk about an area where my wife and I found some unexpected arbitrage- with groceries.

Grocery Arbitrage

Food is a constant area of discussion when it comes to frugality and personal finance because it’s one of “The Big Three” areas where we typically spend the most money (the others being housing and transportation). For most people, cutting back what they spend on food can make a significant difference in their budget.

Now, the first area to strike within “Food” before worrying too much about groceries is usually going to be restaurants and bar spending. This is where tons of people are just constantly bleeding money. Especially in major metro areas like where I live, it’s easy to spend multiple hundreds of dollars every month so that other people will prepare your food and drinks for you.

However, I’m not suggesting people abandon socializing and sit alone in their homes. A few years back I was eating almost all of my meals at restaurants or as takeout, even when it was just for myself. That’s an obvious place where cooking just makes common sense; I was paying extra mainly out of laziness. Then, when it comes to meeting up with friends, things like potlucks and house parties can often be way more cost effective than always going to bars or restaurants. Plus, when you do go out, does it really need to be something fancy and expensive or is it more important to see and chat with your friends/family?

Once we trimmed the fat in those areas, that’s when the price for groceries started to really count. My wife and I now eat almost entirely food that we (okay, she) prepare(s) at home, including lunches during the week. This has been a great situation both in terms of nutrition and the monthly food costs.

So, I had gotten fairly complacent that I didn’t need to worry about the actual grocery costs. That is, until my wife decided to switch it up and grab groceries at the Trader Joe’s near her work instead of Wegmans where she had been regularly shopping for over a year.

The Numbers!

(I love numbers)

On a whim I decided to grab what data I could from various emails and receipts about our grocery spending. I split the bills into the time when we were mainly shopping at Wegmans and when we were mainly shopping at Trader Joe’s. The dollar amounts are per person, per week, and they exclude most meat purchases which are done less frequently in bulk from another source. The data isn’t super precise, but is enough to paint a very clear picture.

I certainly knew that Trader Joe’s was a bit cheaper, but I had no idea how significant the difference was. Wegmans was costing us just under double what Trader Joe’s now does. This is while buying essentially the same ingredients for mostly the same regular rotation of meals. The groceries in this table are mainly organic and vegetarian and we’re in a major metropolitan area, which probably raises the cost vs other areas of the country.

Pretty incredible, given that the only major difference is buying the food from one building a few miles down the road from another building. On average this switch is going to save us almost $3,000 each, every year and, using the 4% rule of thumb, means we’d need $70,000 less in net worth (again, per person) to sustain that spending indefinitely. That could mean achieving financial independence a full year earlier than if we stuck to shopping at the more expensive store.

So, I’m definitely not saying that everyone needs to shop or eat a certain way and I’m not trying to disparage Wegmans, they’re a great store. I just wanted to give a glimpse into the value that can come from checking your assumptions and looking into areas where you may already be doing pretty well. I thought our food spending was pretty great, since we weren’t spending much on bars or restaurants, but it turned out there was a bunch of free money available just by switching something as simple as the location where we buy our groceries.

Other areas where this sort of easy savings can be common is in looking for other cell phone service providers or getting quotes from different companies for insurance. I wrote about my experience with the latter here.

 

Post Script: My wife is amazing for doing almost all of the shopping and cooking. I’m trying my best to never assume this is how it should/must be and remember how grateful I am that she’s interested in putting in that extra work to take care of our little family.

 

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6 Comments, RSS

  1. Arrgo December 27, 2017 @ 10:48 am

    Very true Aardvark and I agree. When you start paying attention, you’d be surprised at what you are spending in certain areas. Its easy to just stay on auto-pilot and assume everything is fine until you realize what you are really spending every year on it. Bars and restaurants is a good example. Of coarse, not saying you shouldnt go out and socialize or have fun sometimes, but the cost really adds up for what you are getting. I try to look for specials, coupons, credit card cash back etc and stack them. I use that as a screen when deciding if I want to go or not. It makes it a better value and helps keep things in check. The same with groceries. I generally memorize a lot of prices on things I normally buy and know where I can get them for less. Over time, the small things really do add up. I’m always looking for ways to fine tune and tweak my spending/ expenses. Never just accept it. You always have to be willing to do battle with these companies!

    • aardvarkadvisor December 27, 2017 @ 11:58 am

      Thanks, Arrgo! I’m generally pretty terrible at keeping track of the normal prices of things and since my wife does most of the food shopping it mainly just comes down to which store we go to. I think that’s why this switch ended up having such an impact. If we were to try taking it to the next level, I think following your lead would be the way to go: Hit multiple stores and buy items at the place they’re cheapest. Coupons and specials are another area where we could definitely do better. Oh well. Small wins over time, right?

  2. Angela @ Tread Lightly Retire Early December 28, 2017 @ 8:19 am

    The difference between those two stores is staggering. Another grocery arbitrage trick that we use is to buy bulk meat. We bought a quarter cow back in July from a local farm (grass fed, pasture raised, we have gotten to know the farmer). Amazingly, the cost is cheaper per pound than if we bought grocery store meat, and the quality is so much higher.

    • aardvarkadvisor December 28, 2017 @ 8:26 am

      Great idea! That is something I’d love to try at some point. I imagine it’s good to have a chest freezer for that sort of thing? I’ve also never been hunting, but I’ve heard of people stockpiling quite a bit of great quality meat for essentially no cost that way.

  3. Kristine December 29, 2017 @ 11:04 am

    This is a great observation. It’s crazy how easy it is to fall into habits and then just continue our creature-of-habit paths.

    We have two grocery shops close to where we live. One smaller and cheaper one, and one larger and (much more) expensive one. The small one is our main target, but the big one is good for when we want something specific or a tad more exclusive. We also buy a lot of stuff like legumes and rice in bulk and stock up our pantry. It is staggering to notice the difference in the grocery spend when you don’t have to go to the shop every day, because there’s always something you could make in the pantry.

    • aardvarkadvisor December 29, 2017 @ 11:08 am

      Great point! I didn’t even talk about bulk buying, but such a game changer. With things that have a long shelf life and you use frequently it’s totally a no-brainer to buy in bulk and save a ton.

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