Matt Stoller on the Economics of the Ammo Business & Pricing

[wvsig]

Zerohedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com

It makes a lot of sense. The comparison to Tyson in the chicken industry is spot on. This seems to be a pretty objective economic not emotional analysis of the pandemic, market factors, regulation and loose collusion in the ammo industry. The way prices for 9mm have bottomed out to $.30 a round for brass cased ammo which is now available everywhere just about everyday seems to support what he is saving. We have hit the floor and that floor is right be artificial and not really tied to supply and demand. I pulled a few quotes from the article that are illustrative of the gist of what the author is saying.

Like a lot of industries, there are cost pressures in ammunition; the price of raw materials, like brass, have gone up. Additionally, the State Department has blocked imports from Russia, adding to the pricing pressure. But the cost story is really a sideshow; the pricing increase is going almost entirely to profit. For Vista, margins skyrocketed in 2020, and continued to increase in 2021. As the CFO of Vista, Sudhanshu Shekhar Priyadarshi, told investors in November, margins rose to a record 27% in Q2 of 2021, on top of an already extraordinary 2020....

Vista has set up two pricing programs to ensure high prices and stability. The first is a subscription service for ammunition, which gives them a steady flow of ammunition demand and lets them plan production more easily. The second is, well, an informal form of price-fixing, or output reduction. They aren’t totally explicit about it, but they use code words to make the point. Here’s Metz explaining that they collude with their competition to keep capacity lower than it should be.

"Now with ammunition being the largest part of our business. I mean, clearly, buying a Remington, we've created what we feel like is an even more disciplined industry now as we go forward. We've got, I think, like competitors in the sense that they watch growth, they watch their margin profiles. And we feel like we've got a disciplined industry." And I've mentioned previously that we studied, as best we can…industry capacity and making sure that we're not only managing our capacity, but very mindful of what's being brought into the industry, so we don't get over our skis, if you will.

 

[surgicaltool]

Of course this is going to happen … this was one of my biggest worries when Vista ended up acquiring Remington ammunition. I was really hoping PSA would beat them to it, and I think they made an effort if I remember correctly.

I think the best recourse for us is to be diligent to seek the lowest price we can for practice rounds (I’m usually a fan of buying American Made, but in this case willing to buy some imported stuff to put the pressure on industry) and especially support smaller manufacturers such as LAX Ammo/Freedom Munitions. There are a number of even smaller ammo manufacturers, I know of Precision One ammo in SC and have been very happy with their products and prices. I would love to see a thread listing all the boutique ammo manufacturers we can find and support to help push prices down.

Big boys:
Olin = Winchester
Vista = Federal, CCI, Speer, Remington, Estate, Hevi-Shot
Sig - I think they make their own?
Hornady


My list of smaller, independent ones:
LAX Ammo/Freedom Munitions (same company)
Underwood Ammo
Buffalo Bore
PrecisionOne (SC)
Defender Ammunition (NC)

 

[blanddrywall]

Of course this is going to happen … this was one of my biggest worries when Vista ended up acquiring Remington ammunition. I was really hoping PSA would beat them to it, and I think they made an effort if I remember correctly.

I think the best recourse for us is to be diligent to seek the lowest price we can for practice rounds (I’m usually a fan of buying American Made, but in this case willing to buy some imported stuff to put the pressure on industry) and especially support smaller manufacturers such as LAX Ammo/Freedom Munitions. There are a number of even smaller ammo manufacturers, I know of Precision One ammo in SC and have been very happy with their products and prices. I would love to see a thread listing all the boutique ammo manufacturers we can find and support to help push prices down.

Big boys:
Olin = Winchester
Vista = Federal, CCI, Speer, Remington, Estate, Hevi-Shot
Sig - I think they make their own?
Hornady


My list of smaller, independent ones:
LAX Ammo/Freedom Munitions (same company)
Underwood Ammo
Buffalo Bore
PrecisionOne (SC)
Defender Ammunition (NC)

Psa is getting into steel case but that's years away

 

[Walkabout Dan]

It’s all about profit.

 

[surgicaltool]

If PSA starts selling ammo I’ll be all over that!

 

[wvsig]

This exact same marketing is now being used in the auto industry....The American Big 3 are all more profitable than from 2019 back. With Far less vehicles being made.

Everyone is realizing that the volume sales model is a race to the bottom. We as consumers have been reaping the benefits of that race. Now it is time to pay the piper.

 

[VA_GENTLEMAN]

Everyone is realizing that the volume sales model is a race to the bottom. We as consumers have been reaping the benefits of that race. Now it is time to pay the piper.

Man you nailed it. I can remember in Econ, Intermediate, Advanced, all of them said, Once MC = MR, = STOP PRODUCING!!!

Yet, in terms of the biggest impact to our pricing is a transitional dance of Demand and Supply trying to find balance. Noticed how SGAmmo's 9mm and .223 suddenly went up 150+ a case in 1 Day? That's a price shock... as to why... we don't know. We are not industry insiders..... which is my next point:

The second is, well, an informal form of price-fixing, or output reduction. They aren’t totally explicit about it, but they use code words to make the point. Here’s Metz explaining that they collude with their competition to keep capacity lower than it should be.

Whoaaaaaa!!!! Noooooooooo! Collusion amongst competitors????? Never! Nein! Not in PURE capitalism? Okay, okay... <sarcasm off> Every industry has their own form of sending messages to their competitors about their intent. In certain Industries.... well, lets just say it pushes the boundaries of the law. (Like 11 FTC Price Fixing suits in 40 years... all won by the defendants.)

The key is that there are certain industries that the FTC doesn't turn their eye.... they clearly shut it. Mostly it's industries that may subscribe to certain political views, generous benefactors on the board or in certain industries that collaboration amongst competitors is in the National Interest.

For industries the FTC/.gov DOESN'T like... they will bust them every time they can if it is profitable for them, or gets them a pat on the head. OR They do not think it is profitable for them to do so AND they do not think the American consumer should be a consumer of that industry's product.

So.. I tend to go with the latter... .gov KNOWS what is going on right now... but they like that Ammo is expensive and it is not readily available as it was a decade ago. (or cheap).

@wvsig is all over it tonight.