Supply and demand factors affecting Auntie Anne's pretzel franchises

PRETZELS

Supply and demand of Auntie Anne's hand-rolled pretzels

Supply and demand of Auntie Anne's hand-rolled pretzels

What are some things that would change the demand for your product?

Demand for food, particularly non-necessary food items, can be extremely volatile. When the economy sours, consumers frequently cut back on eating out. Soft pretzels decidedly fall into the category of 'treat' food. However, many fast food restaurants may see improved sales during a recession, as customers that would traditionally dine at mid-priced convenience food restaurants like Applebee's shift their buying habits to lower-end restaurants. Bur Auntie Anne's serves a limited array of meal-type items, and customers might simply buy pretzels in the supermarket to cut costs. Tastes can also change, like the low-carb craze hampered sales for Krispy Kreme doughnuts. The new gluten-free craze could likewise inhibit demand for pretzels that contain wheat.

What are some things that would affect changes in supply?

Scarcity of input goods such as wheat, butter, or sugar due to problems with the agriculture system could make it more difficult for Auntie Anne to buy these materials and produce pretzels. Increased prices of input goods and reduced supplies would force Auntie Anne to pass these expenses on to the consumer and raise prices to sustain profits. Increased prices in fuel due to scarcity could also affect supply, forcing Auntie Anne to raise prices and reduce supply as a result of increased shipping costs and being forced to lower quantities of pricier inventory items.

What if the government raised the minimum wage? How would this policy affect your firm?

As a fast food franchise, Auntie Anne is highly dependent upon low-wage and seasonal workers to staff its stores. Raising the minimum wage would mean that one of the most important input goods for the firm (labor costs) would increase.

Do some research on your own and explain the advantages and disadvantages to price controls? In general, do you think the government should intervene in the market?

When prices cannot rise above certain levels, consumers initially experience lower prices. This can be important, particularly regarding staple goods during a time of economic crisis. However, this can also lead to lower supply, as producers have less of an incentive to meet consumer demand. But this is not always the case. For example, in the case of rent controls, landlords often "have monopoly power and supply is very inelastic. In this case a maximum price may make renting cheaper without reducing supply" (Pettinger 2012). Rent controls are often cited as an important component in making housing more affordable. In the case of minimum wage increases, producers often complain that they must raise the prices for consumers to offer higher wages. However, on a macro level studies reveal that "states with higher minimum wages saw, on average, about the same unemployment rate as states with low minimum wage. Furthermore, high minimum wage states saw a greater decrease in the unemployment rate than low minimum wage states" (Cascio 1999). Experience indicates that wages will tend to be lower than what can support an individual above the poverty line without some minimum wage threshold. Thus, some type of government intervention in the economy is often necessary.