Sunday, November 04, 2007

Firecracker arbitrage

It's Diwali time and that of course means firecrackers. Everybody wants to make money on those who are willing to splurge on firecrackers. The amazing thing is that firecrackers are available throughout the year, but during Diwali the demand for it goes up (in the absence of a sufficiently turbocharged word) like crazy. Prices also, typically go up with the demand. (Interesting question: Does anyone know how firecrackers came to be associated with Diwali?)

This year, prices seem to be substantially higher - and there is a "fair price" element in them. The bigger brands sport a "no child labour" sticker on them. (Not sure if this was prevalent before). Interestingly, even all products from a manufacturer do not necessarily carry this label. (Then, if your factory employs children, how can you isolate a product and claim it is child labour free?)

But this is about something called firecracker arbitrage in Bangalore. (It is a serious source of income for many college youth in Bombay - exploiting the difference between wholesale and retail prices - I will leave that for a different post.). So, if you buy firecrackers in Tamil Nadu (a short ride away from Bangalore), you get a, hold your breath - 85% discount on the MRP. Many families pool together and get a car load of crackers and save money despite spending some on the petrol. So, those who sell in Bangalore, atleast some of them, offer a 60% discount (or more, but always less than the 85% in Hosur - since presumably, thats where they source from). Customers are happy getting a 60% discount, obviously, so are the sellers. So, in any case you can make 25% by buying crackers in Hosur and selling it in Bangalore (Ceteris Paribus).

Which leads me to a few thoughts.
If you have paid the MRP on any firecracker, you have been ripped off considerably, especially since the MRPs seem to be outrageous - I did hear that prices would be higher this year, but they are really crazy. (For instance, a box of 10, small, zameen chakkars, are marked at 170 rupees).

Once you factor the discount, the prices seem saner. So, why not put in the actual prices upfront?

If the dealer gives an 85% discount (you pay 15 rupees for an item thats marked as 100 rupees, so the above mentioned zameen chakkar would cost you just about 25 odd rupees) , how much money does he make? How much money does the factory make? So, what is the actual mark up?

Why is the mark up so much in crackers? Any ideas? Is it because people like Diwali discounts? Any other products that have outrageous mark ups or do all products have huge mark ups? (I had heard shirts have a 100% mark up at the dealers and at the factory level.)


ankurg said...

Now it would be difficult for manufacturers to mark a price on the pack that they really want to sell because people have become too used to buying crackers at 60% discount. So if even one seller marks 100 and sells at 40 he would get much more publicity that some one else marking at 40 and selling at 40.

So if that had to be done then the whole industry will have to follow it up, that is least probable!

Pawan said...

can anyone please let us know the exact place in Hosur (tamilnadu) where i can get the fire cracker with 85% discount