The Economics of Vanilla Beans in Cambridge

Here is a real life example price variance and inefficiency in the market place:

Nicole found this Cherry Vanilla Bean Milkshake recipe in a recent issue of Eating Well.  It says that you can use vanilla extract, which we have, but she wanted to try it with an actual vanilla bean.

So, while I am doing the grocery shopping, I go to the spice aisle in our chain grocery store which carries a nationally known spice brand.  They will sell me two vanilla beans in a glass jar for $16.  I think that is an expensive milkshake, and I don't buy them.

The next week, we are in the neighborhood of our amazing locally owned spice store, Christina's (they also make great ice cream next door).  We go in to restock our regular spices, but also to see how much they charge for vanilla beans.  They offer us a single bean for $3 or five beans for $10 (wrapped in plastic bags).  We buy five.

So instead of paying $8/bean at a huge company that has notable economies of scale, we pay $2/bean at a tiny spice store with likely razor thin profit margins.  Perhaps the jar is made of crystal?

More likely, product specific economies of scale are at work.  Very few people who visit the big grocery store would buy vanilla beans at any price.  The store stocks a few anyway, but they have an expiration date (they have to throw some out sometimes) and the store buys them already packaged from the spice manufacturer.  The costs for that store to provide vanilla beans are fairly high.  Christina's, on the other hand, probably has people buying vanilla beans fairly often, provides spices to local restaurants, and uses vanilla in their own ice cream business.  They probably buy vanilla beans in bulk, and package them on-site for their retail customers.  They pass their lower costs onto us.

Now we just need to buy the cherries and ice cream.