sticky downward

i've always enjoyed reading P.Gunasegaram's column since his days in the Edge, although it seems to me now in the star, his words are not as 'sharp' as his the Edge day.

Sticky downward is the phenomenm he recited on saturday. An example he gave is the fresh milk that he buys. As milk price is dominated in US dollar, when US dollar is strong or price of raw material up, the business people increase the price of fresh milk. But when raw material price drop or as Malaysia ringgit strengthen, like right now, the milk price is not going down as fast, or not going down at all. Milk price is one thing that i can feel the diminshing buying power of Ringgit. When i was in university, i loves to consume 1 litre of goodday fresh milk per day. At that time, it was selling at around RM2.99. Nowaday, it easily fetch a RM6.45 price tag, an increase of over 100%. surprisingly, during rare occassion, it is sold at discount at RM4.99. How come such huge different? A 'sticky downward' theory can explain it. The business owner simply having a very high margin, and hike up the price to maintain their margin when price of raw material goes up, but after that keep maintaining the price on an elevated level. Another example related to this is that while goodday is selling at RM6.45, dutch lady fresh milk, most of time, is sold at RM4.99. Is it the raw material price of goodday is so much higher? Since both of them source their milk locally, i don't see why the price of raw material is the answer to this.

My babies are consuming dutch lady frisolac. Again, since less than 2 years ago, price has increase almost by RM15 for frisolac 1. that is almost 40% price increase. Despite that currently RM is very strong, frisolac's price is still high upon the sky.

i have never buy stock based on this sticky downward theory. However, it is interesting to see if i should buy into a company that has such business occurance. Let's buy into Dutch Lady!