Vista Outdoors CEO keeping capacity low prices high

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Bear Paw Jack

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this will "fire" you up ...................

https://www.zerohedge.com/political/what-great-ammunition-shortage-says-about-inflation



What The Great Ammunition Shortage Says About Inflation

Tyler Durden's Photo
by Tyler Durden

Friday, Jan 07, 2022 - 11:20 PM



Authored by Matt Stoller via BIG Substack,

Concentration is increasing prices and keeping them high. The ammunition duopoly and the "Great Ammunition Shortage" is just one example.


Covid has done a lot of things to our society. But talk to anyone who enjoys hunting, and they’ll tell you one of result is the ‘Great Ammunition Shortage of 2021.’ "5.56 ammunition for an AR-15 used to be about 33 cents a round," said Mark Oliva, director of public affairs for the National Shooting Sports Foundation. "Now you're looking at closer to almost a dollar a round. So it is much more expensive and it is much more difficult to find ammunition."

One of the more interesting questions in the discussion over inflation is the relationship between concentration and pricing changes. Most economists believe that supply shocks are increasing profits, but that this increase will serve as an inducement to more productive capacity. "Capitalism is on our side,” said economist Alan Blinder in the Wall Street Journal. “Shortages raise prices, but high prices create opportunities for profit, which attract capitalists to alleviate the shortages." If Blinder were correct, then one would expect lots of new productive capacity and new entrants into this market.

Ammunition is a highly concentrated industry. There are many ammo brands, like CCI, Federal, Remington, Winchester, and Speer, but they are all controlled by two firms - Vista Outdoor and the Olin Corporation. As Elle Ekman wrote in the American Prospect, Vista and Olin rolled up the industry through mergers, as well as taking advantage of the privatization of government facilities making ammunition and government contracts.

During the pandemic, a lot of people decided they wanted to buy and use guns, either for hunting or personal protection. The 12 million new gun owners, plus existing activity, meant that the industry experienced the same demand shock that lots of outdoor activity segments saw. The result has been a shortage of ammunition, and higher prices.

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.

According to Blinder, and most economists, competitors should enter the market and invest in new factories, or existing firms should expand existing capacity to seize market share, eventually leading to reduced prices. But the industry hasn’t experienced such competitive dynamics. Profits, said Priyadarshi, have gone to share repurchases and paying down debt.

There are several reasons for this, but the main ones are consolidation and high barriers to entry in the industry. Ammunition is difficult to produce, as it requires careful manufacturing processes to safely handle explosive materials. Vista recently bought its competitor Remington out of bankruptcy, lowering the number of firms in the industry that could even build a factory and distribute ammunition effectively. And the limits on capacity were explicit. The head of ammunition for Vista, Jason R. Vanderbrink, explained that the “most important” reason for the Remington acquisition was “added capacity to Vista without increasing the overall market capacity."



This isn’t purely a story of informal cartel engaged in profit-seeking, but also risk-management. Like a lot of commodity businesses, the ammunition industry is cyclical, with shortages and price hikes when demand increases, followed by collapses as capacity increases and demand stays level or declines. Industry executives know this, and are intent on that not happening again. Here’s Christopher T. Metz, the CEO of Vista, talking about their purchase of Remington, a competitor in the industry.


Because of some of the consolidation we've done with Remington, even if you look long term, we don't see the same type of price compression the industry may have experienced in previous times.

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.

In other words, Vista executives are planning to ensure that prices won’t come down. They have expanded some capacity on the margins, but because there are only two real firms now, they can easily pull that extra production offline if necessary. We’ve seen the management of pricing across economic cycles in other concentrated industries. Chris Leonard wrote about Tyson Food’s control of the poultry business, and how during the financial crisis this meant the entire industry could raise prices by all cutting production at once.

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Apparently, democrats are being successful, destroying capitalism.
 

Mobuck

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Well, it appears that supply is catching up with demand(at least until it warms up enough for recreational shooters to get back in the market).
5.56/223 and 9mm FMJ ammo prices have dropped noticeably in the last 2-3 weeks. The 'good stuff' is still holding the high ground price wise although certain items have at least become available if you can afford it.
Nosler must have turned loose some backlog/backorder inventory as I got 3-4 notifications of 'back in stock' on Nosler ammo--still $50-60/box.
 

bobski

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no fooling. its basic eco 101.
ive been preaching this and people on the net just blew me off.
fact is, the holiday is over....prices now go up as demand is oppressed once again.
I said it once, ill say it again. stop buying and pressure them to release inventory cheaper.
 

txramfan

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Raw material costs are up.
Transportation costs are up.
Supply chain problems slowed raw materials.


Vistas CEO specifically addresses rising costs and supply issues in the release that is partially quoted in the op.
It can be read at the Investor Relations of VSTO.

Its impossible to maintain prices from 3 years ago or 20 under these conditions.
 

Johnnu2

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bobski said:
no fooling. its basic eco 101.
ive been preaching this and people on the net just blew me off.
fact is, the holiday is over....prices now go up as demand is oppressed once again.
I said it once, ill say it again. stop buying and pressure them to release inventory cheaper.

AMEN MY BROVVA.... we BOTH have been preaching this.

If it's not CRITICAL to life i.e. food and water

DON'T BUY

J.
 

contender

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I'm headed to the SHOT Show next week. Looking at the floor plan lay-out,, I see the biggest booth space for the entire show belongs to Vista Outdoors. HUGE as compared to many others. Of course,, it's covering all the different "brands" (companies) they have. Gonna be interesting.
 

Lost Sheep

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August 1, 2020 Olin's stock price was $11.25 Today over $58.
VISTA Outdoors' stock went from $5 in summer of 2019 ($7 at end of 2019) to $39 today ($47 on Nov 19 2021)


Interesting.

In the link in the original post, an executive is quoted as using the term "disciplined industry". Isn't that just another way of saying "monopoly"? Not that every monopoly is bad, but the temptation for a monopoly to maximize its own welfare at the cost of others' welfare is substantial. Price stability for ammunition and its components is a good thing unless allowed to run rampant. We, as consumers in a free market are the controls over such rampant abuse by (effective) monopolies.
 
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kmoore

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About 2 months ago a gun shop had CCI small rifle primers and would sell by the carton at 179.99 2 weeks ago another store just blocks away that one had CCI small rifle primers at 5.09 per 100 with 2 being the limit. Not sure what what means about the market just pointing it out.
 

peachhead

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At least some of you are seeing them. I haven't seen primers anywhere near here for sale in at least a year. My wholesale distributors have not had ANY since at least January 2021.
Note that I am not counting gun shows, where I do see some and they are priced upwards of 150/1000, and I refuse to pay that. Likewise with the ones from overseas that I have seen online recently for 495/5000.
 

planetcat

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As a small business owner, I charge what my customers are willing to pay for my services. If you're still buying ammo at the current rate, then I don't see anything wrong it. It's called supply and demand.
 

dannyd

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I still buy primers when I can because I like to reload. Started reloading on February 5, 1989; primers have gone up every year almost. Because the cost of living as also gone up; what you purchased in 1989 for 100 dollars will cost you 233.15 dollars today. When I started reloading it was for economic reasons now it's just for fun.
 

27 Man

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I started reloading around 1972. The local gun shop in the small town I lived in was the only place to buy reloading supplies. Alcan/S&W primers were 99 cent per hundred or $9.90 per thousand. I normally bought a hundred or so at a time because my reloading equipment was a Lee Hand Loading kit. Slow but effective.
 

Biggfoot44

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Usta be most LGS had reloading components , but 30 - 40 years ago most of them mostly or completely got out of that , because they couldn't compete with the big Mail Order outfits for price or selection .
 
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