Lesson 3

Lesson Topic: Price per unit and comparison shopping (40-50 mins)

Goal: For students to understand what the Price per unit number on grocery store price tags is telling them and how they can use it to ensure they are getting the best value when shopping. Students will learn how to do the price per unit calculation themselves.

Lesson Overview:

1. Class discussion – comparison shopping and figuring out price per unit

2. Lecture/class share – The brief history of (grocery) retail in North America.

3. Video – Middle School Money Matters Video 7-3 : Price per unit at the grocery store.

4. Consumer Math lesson and student work – calculating price per unit and comparing prices

5. Wrap-up or Extension activity

Class Discussion/Initial question – Name a few retail stores and what they sell, make a list on the board. Categorize them based on what they sell (Food, Clothing, Household Items….) How do retail stores make money? How and Why have big box stores and online stores like Amazon threatened smaller, more traditional retailers? Is this OK? Should we protect smaller local retailers or is it simply down to competition and price? Do they feel there might have been more of a sense of community when we had smaller retailers? How many people here regularly shop at stores like Costco or Walmart? Would they be willing to pay more for goods if you knew that the money was supporting a small local retailer? Or is price the only thing that matters?

*What do students think about this complex topic?

Background Information/Lecture – The history of retail in North America and the rise of big box stores

A hundred years ago, the retail landscape of North America looked very different. Most retailers were small, family run businesses that dealt in specific goods. When you went food shopping you stopped at the grocery store for dry goods, the produce store for fruits and vegetable, the butcher for meat, the baker and so on. The consolidation of goods into one retailer started with the grocery business as stores began to expand and include their own bakery, their own produce department so that shoppers could get all their grocery needs in one place without having to visit 4 or 5 different stores. This then trickled over into clothing stores and other household goods and the creation of larger multi-department stores. Then around the 1960s and 70s, a new brand of store emerged, Kmart, Walmart, Target, Home Depot. These stores figured if they offered a huge variety of items and if they bought in bulk and negotiated better, lower prices with their suppliers, then they could pass those savings onto consumers which would attract more customers and allow them to expand quickly. And expand they did. Many people felt the big box store market was over saturated but then along came Costco in the 1990s with a slightly different business model, charge people a membership fee to shop there. Many people thought this was crazy, why would I pay just to shop at a store, but their model worked, because they charged this fee and operated in large quantities of items (people buy in bulk, for example a 5 pack of loaves of bread, or huge 2kg bags of chips) they were able to cut their margins very low. Having membership fees also created loyal customers, and had another unforeseen benefit. Because people needed to pay a minimum $60 membership fee just to get in the door, it actually drastically reduced shoplifting and theft because thieves tended not to want to pay $60 just for the privilege of stealing there (also the items are usually so big it would be hard).

While Online shopping had seen a steady increase since its inception in the early 2000s, the Covid-19 pandemic really thrust online shopping into the forefront with sales skyrocketing on almost every online shopping platform. While giants like Amazon made billions of dollars, there was also a movement by some people to not buy from Amazon and to use Canadian platforms like Shopify to ensure they were supporting Canadian businesses.

Consumer Math Lesson - Per Unit Pricing

But even without shopping at Costco, when you go into a regular grocery store, there are a number of items where you can buy essentially the same item but it might be a different brand name, or come in a variety of sizes. Think of the example of cereal. At any given larger grocery store, usually you can buy Rice Crispies in two to three different sized boxes, a small (maybe 300 grams) a medium ((600 grams) and then a large or double pack (1kg to 1.2 kg). Then there are also likely at least one if not more other brands of puffed rice cereal in various sizes. In order for consumers to make sense of different sized boxes of the same item and comparing similar items, grocery stores were mandated to put ‘Per Unit’ pricing on their shelf tags. These tags tell the customer how much that item is by weight or volume depending on whether it is a solid or a liquid. If the per unit price is listed by weight it is usually listed per gram or per 100 grams. So if a 300g box of Rice Crispies costs $4.29, we simply divide 4.29 by 300 which equals 0.0143. So the cereal costs 1.43 cents per gram. If you buy the larger 600 gram box for $6.49 then divide 6.49 by 600 which equals 0.0108 so if you buy the larger box the per unit cost is lower, only 1.08 cents per gram, so it’s a better deal right? Well technically yes, as long as you think you will be able to eat all that cereal before it goes stale.

Video – Middle School Money Matters ‘Per Unit Pricing’

Activity/In-class work

How does buying in volume affect price? Determining the best deal, comparing price per unit.

When buying items that come in different sizes (like cereal, juice, chips, crackers) often it is more cost effective to buy the larger volume unit as the general rule is that the more you buy, the cheaper the per unit cost. But not always. Let’s learn where you can find the per unit cost at the grocery store and then determine whether buying the larger size item is actually a better deal.

**Have students work through problems on Price per unit activity sheet. Review answers.

Wrap-up/Extension

Calculating margins. How do retail stores make money? Calculating margins and the amount earned on different products. Below are some typical products people buy and the margins that are generally charged. The margin in retail refers to the difference between the wholesale amount the retailer pays and what they sell it for. Things like groceries and electronics tend to have a very small wholesale to retail margin because there is so much competition if one retailer charged much more for a common item, people would not buy it from that retailer. Things that have higher margins tend to be things like fashion, designer items or things that are considered more unique/rare. Why can one restaurant charge more for a very similar dish, perhaps the restaurant is waterfront and people are willing to pay more to be able to enjoy that view while they are dining. Why would someone pay $1000 for a pair of designer shoes when you can likely get something similar for much less? People value that exclusivity, the name brand, the new fashion, the trend.

Let’s calculate the margin on some common items. To calculate the margin on an item, you simply need to know the wholesale cost of the item and the retail sale price.

If you own a skateboard shop and purchase skateboards wholesale for $75 and sell them for $100 you make $25 gross profit on each sale. $100 - $75 = $25.

To find the margin, divide gross profit by revenue. 25 / 100 = 0.25

We end up with a decimal, which we then turn into a percent so the margin is 25% .

Examples:

3) Cheerios: Wholesale cost $4.29 , retail sale price $4.79

4) Scooter: Wholesale cost $110 , retail sale price $149.99

5) New car: Wholesale cost $22,500 , retail sale price $27,999