Rise of the $5 Pizza: Embracing Deflation with 99-Cent Stores and Discount Movies

By Cavanaugh, Tim | Reason, November 2012 | Go to article overview

Rise of the $5 Pizza: Embracing Deflation with 99-Cent Stores and Discount Movies


Cavanaugh, Tim, Reason


[ILLUSTRATION OMITTED]

IF YOU BELIEVE inflation is under control, then answer this: Where can you get a dozen eggs for a buck?

For decades economists have warned about the dangers of deflation. The ongoing double-digit, multimarket decline in real estate prices should horrify us, we are told. Even our language has been edited to reflect this mentality; the phrase real estate recovery is a happy-sounding euphemism for a reinflation of housing prices. Yet everywhere you look, Americans are happy to do the deflation dance.

Deep-discount stores, usually with the word dollar in their names, are enjoying a boom that dates back to the turn of the 21st century but has been invigorated by the continuing credit unwind. Also expanding during the recession/recovery have been discount and second-run movie houses, which offer audiences big-screen thrills at the Reagan-era price of $3 a ticket. And although Federal Reserve Chairman Ben Bernanke told the Senate in July that "we would certainly want to react against any increase in deflation risk," chain restaurants all over the country have drawn a 14-inch line in the sand in the form of the $5 pizza.

This nationwide return to value has been missed by most media outlets. In a July cover story illustrated by a muscular Uncle Sam with pasties attached to his nipples, the British magazine The Economist posited a "Comeback Kid" American economy but used as its prime example Ethan Allen, an upscale furniture maker based in Connecticut. Now it's true that in the first quarter of 2012 Ethan Allen saw 8 percent growth in net sales over 2011. And furniture is a perpetually overpriced industry that strongly encourages its customers to take on debt. (In many store windows you see prices listed in monthly installments.) Yet even here the real growth is, literally, in the cheap seats. Wisconsin's Ashley Furniture Industries sells loveseats for about a third of what Ethan Allen charges and pulls in about six times as much money. If Ashley's too rich for your blood, 15 percent of Americans shop in consignment stores and another in 18 percent favor thrift stores, according to America's Research Group, a consumer behavior research firm.

This growth is largely due to Americans from higher income quintiles who are sinking to discount shopping. Dollar General Chairman Rick Dreiling reported in 2011 that half of his chain's new customers come from "non-core, higher-income families," with 22.4 percent of new Dollar General customers earning $70,000 or more.

"You see this flight to value that accelerated during the recession, which ended three years ago," says Craig Johnson, president of the Connecticut-based consulting firm Customer Growth Partners. "But the growth in deep-discount stores has held up." The North Carolina-based Family Dollar chain saw net sales increase 10 percent between 2011 and 2012. Tennessee's Dollar General grew net sales 13 percent in the first quarter of 2012.

In a January 1991 memo advocating a modest "singles and doubles" marketing strategy, Jeffrey Katzenberg, then chairman of the Walt Disney Company, warned that "when times get tough . …

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