Convenience Value = Big Profit for Frito-Lay

I recently visited the local Costco to stock up on some Thanksgiving Day supplies and two of my purchases were a 28 oz bag of Frito-Lay Ruffles and a 30oz bag of Frito-Lay Doritos. I have purchased these products from Costco before, but I never noticed the retail price printed on these bags, $7.59 for Ruffles and $7.69 for Doritos.

I imagine these huge bags of chips are made specifically for Costco and I don’t really understand a need for a printed retail price on the bag, particularly when Costco charges $4.99 for these chips, everyday. I think it is interesting that Costco charges a price that is approximately 35% lower than the retail price printed on the bag.

I am certain Frito-Lay is not loosing money on each bag of chips they sell to Costco and I have to assume Frito-Lay is making some sort of profit. Since Frito-Lay is making a profit on 28oz and 30oz bags of chips they sell to Costco, what kind of profit are they making on the smaller bags of chips they sell to other stores, particularly convenience stores?

It’s safe to say that you can expect to pay full retail price for any bag of Frito-Lay chips you purchase at a convenience store. If you compare the price per ounce of Costco purchased and convenience store purchased chips, the minimum profit over Costco numbers are huge. These numbers range from a 67% increase for an 18oz bag of Doritos to 196% increase for a 1.875oz bag of Ruffles.

Ruffles
28oz at Costco = 4.99 = .18 per oz
14oz at conv store = 4.99 = .36 per oz = 100% minimum profit increase
10.5oz at conv store = 3.99 = .38 per oz = 113% minimum profit increase
2.75oz at conv store = 1.29 = .47 per oz = 177% minimum profit increase
1.875oz at conv store = .99 = .53 per oz = 196% minimum profit increase

Doritos
30oz at Costco = 4.99 = .17 per oz
18oz at conv store = 4.99 = .28 per oz = 67% minimum profit increase
12.5oz at conv store = 3.99 = .32 per oz = 92% minimum profit increase
7oz at conv store = 2.29 = .33 per oz = 97% minimum profit increase
3.625oz at conv store = 1.29 = .36 per oz = 114% minimum profit increase
2.125oz at conv store = .99 = .47 per oz = 181% minimum profit increase

It is fairly obvious to see that Frito-Lay is making very large profits from convenience store sales, smaller the package, greater the profit.