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Foolish Money Lab: Can a Price Book Save You Money?

Welcome to the Foolish Money Lab, where a Fool dons her jester's hat and puts common personal-finance advice to the test. This month, I experiment with using a price book to lower the cost of groceries.

The theory
As eloquently explained in a FAQ accompanying the Fool's Living Below Your Means discussion board, "Price booking is a practice of keeping track of commonly purchased items with focus on unit price rather than shelf price." Over time, you get better value for your grocery dollars by buying food for the best price per gallon, ounce, pound, etc. Using this intensive comparison shopping, you can spot a true bargain and stock up when food costs the least.

It's a popular method among the budget-savvy for maximizing food dollars. Those who become experts say they can purchase most or all of their groceries when they're loss leaders -- food sold at money-losing prices in the hopes of getting you in the door to buy more profitable items.

The experiment
My comparison shopping took me to Supervalu's (NYSE: SVU  ) Shoppers Food & Pharmacy, Safeway (NYSE: SWY  ) , Whole Foods Market (Nasdaq: WFMI  ) , and our local food co-op. I also looked at household goods sold through Amazon's (Nasdaq: AMZN  ) "subscribe and save" program.

Following standard price-booking advice, I rotated among local grocery stores for weekly shopping trips to get an idea of how much my regular purchases cost at each store. I decided to keep my records in a computer spreadsheet, so I could more easily calculate the unit prices. (You can find several templates on the Internet.) This raised the first of many esoteric questions: Should toilet paper costs be computed by roll or by sheet? (I settled on sheets.)

Setting up the spreadsheet almost immediately brought out a certain obsessive-compulsive need to know where I could get the cheapest cans of black beans. I can see why price-book devotees swear by their carefully accumulated notes.

I would not recommend following the price-book advice that you start your records by shopping around town for a while, saving your receipts, and then sitting down on one rainy Sunday to enter all your data at once. I had a hard time deciphering some of my grocery receipts just 45 minutes after I'd gotten home. You'll also need to accumulate some extra data (like weight or volume) about food that will have been eaten long before you get around to creating your records.

The results
I scoured the grocery-store fliers for bargains, but that strategy just didn't work for me. A deep-freeze full of cheap steak won't help me feed my vegetarian husband. Otherwise, I found the experiment fascinating. No single store had a lock on the lowest prices. In the end, I did spend a little bit less than average on groceries this month.

I went into this experiment expecting my local Shopper's Food & Pharmacy to beat the pants off of all the other area grocery stores. For some items, it did. In other cases, I was surprised to find that a certain fine-food purveyor -- known among some shoppers as "Whole Paycheck" -- had the lowest prices.

I found astounding variation for identical products. The cost of our regular veggie burgers varied from $2.50 to $6.89 depending on the store. Identical frozen pizzas cost $4.79 at one grocer and $6.29 at another. Looking at my food costs per unit, I realized I spent too much on salsa that seemed like a bargain. I also started buying milk by the gallon, instead of the half-gallon, and bought it less often.

The Foolish bottom line
The best part about a price book is that you can customize it to your eating and budgeting preferences. You can find the lowest prices for the brands you prefer and not change your grocery habits at all. Or, you can experiment with different brands (especially store brands) and shave every spare cent off your food spending.

The disadvantage is that price books aren't an instant answer to a bloated grocery budget. Don't take on this project unless you have some time to devote to it. And don't expect to slash your food spending overnight. I saved more than I expected, mostly because recording the prices for my groceries made me more price-sensitive. To make a real dent in your food costs, you'll need to keep it up for a while. I'll keep working on mine and report back in a future column.

In the meantime, you can learn more about food spending strategies by reading these other Foolish articles:


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