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Catering, Vending and Cooking For The Masses. this forum is OnTopic. A resource to help with catering, vending and just cooking for large parties. Topics to include Getting Started, Ethics, Marketing, Catering resources, Formulas and recipes for cooking for large groups.


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Old 12-18-2017, 05:15 PM   #1
longwayfromhome
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Default Pricing premium grade meats

Hi there

SIL and daughter just opening a regular B&M restaurant and I will be helping with periodic BBQ events, a weekly special and the like. Such a learning curve! Anyway, we were having a separate discussion on how to price premium meats, namely organic anything, but particularly chicken and pork.

So, you guys and gals running outfits, what do think about the following line of logic?

Food cost example with premium product - problem being, how to supply premium but not price yourself out of the market.

Proposed solution: don't increase margin on same sales, increase # of sales (this is a B&M location, not vending which it isn't really logical to apply this method to) ...

Note: Pricing, costs, serving size, etc will be quite different to what you are used to - understand that - the discussion is really about the approach to pricing, it is a question of proportionalty.

1. Product cost: Whole hog $/kg
Organic pork 12.00kg
Regular pork 6.00kg (free-range pork about 6.50/kg)

2. Using rule of 3 x cost is retail price (not saying we will be doing this, but for this discussion, a method that is applied to all approaches)
3. Say we get three sandwiches from a kilo of raw pork
4. Sandwich extras are (say) $1 (bun, rubs, dressing, coleslaw)

A. Retail price using 3x cost rule ...
Organic pork sandwich: [1/3 x 12.00 + 1.00] x 3 = $15.00
Regular pork sandwich: [1/3 x 6.00 + 1.00] x 3 = $9.00

B. Now, looking at the contribution, that is the absolute $'s we make (vs the relative % we make)
Organic pork sandwich selling at $15.00: $15.00 - [1/3 x 12.00 + 1.00] = $10.00 To make $100 we need to sell 10
Regular pork sandwich selling at $9.00: $9.00 - [1/3 x 6.00 + 1.00] = $6.00 To make $100 we need to sell 17
............the problem here that we have to overcome the reluctance to fork out an extra $6 over the normal price.

C. But if we decide that we make the same absolute $ on the premium offering as we do on the regular offering...
Organic pork sandwich: [1/3 x 6.00 + 1.00] x 3 + [6 - 1/3 x 12] = $11.00
Regular pork sandwich: [1/3 x 6.00 + 1.00] x 3 = $9.00
.... then the price gap is much smaller ...

This shows our gross margin is $6 on a $9 regular pork sandwich and $6 on an $11 organic pork sandwich.

So, the logical approach would seem, for us to sell an organic product for $11 vs regular at $9 ... the difference is not great price-wise. We feel that the attraction to many people of organic meat will cause the # sales to be at least the same, though in all probability it will be higher, at which point we start getting better unit sales (can't improve margin) - and provided the existing infrastructure (goods, chattels, staff) remain the same with the extra quantity, then we are doing good. It may be a hard case to prove, but anecdotal may the best we can do .... Also, the downside is the requirement for larger working capital, but since that is only the cost of funding for a few days the incremental difference in cost, I haven't factored that in here.

Thoughts?

TIA

PS: Interestingly there is no true, certified organic pork in New Zealand, as the outfits doing it are too small to be able to afford the certification, or if they are large enough, on the wholesale margins pork is getting, they cannot afford to import organic-grown feed supplement (NZ has no substantial locally-grown organic feed!).
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Old 12-18-2017, 08:17 PM   #2
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You could certainly do it. There are many items like beef ribs that people find it hard to get a full cost x 3 price for. You will ultimately take more of a loss on it than you plan for though I think but it won't hurt to try.
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Old 12-18-2017, 09:48 PM   #3
longwayfromhome
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Quote:
Originally Posted by HBMTN View Post
.... You will ultimately take more of a loss on it than you plan for though I think but it won't hurt to try.
Apropos your comment on the 'more of a loss', can you explain your thought there?
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Old 12-18-2017, 10:34 PM   #4
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Is your price in your formulas based on raw or cooked weight prices?
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Old 12-19-2017, 01:57 AM   #5
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The $6.00 and the $12.00 are the cost of raw, dressed pork, approx. I took it down to cooked weight by dividing by the three 4-5oz servings got from a kg ... but it wasn't a question about whether that was right or not, irrespective of the amounts, it is the relativity that matters. I just chose nice round figures to make it easy for me.

At 40% yield on whole hog, 1kg raw dressed yields 400gms of cooked food which is 14oz. So my guess of 3 sandwiches isn't far off! The actual prices are NZ$ and are close to what we pay (rounded). Two weekends ago I cooked a 70kg Duroc pig and that was $5.95 + tax (15%) per kg raw (dressed). That is NZD 2.72/lb (before tax) = USD $1.91 per pound. It also took nearly USD$70 of charcoal to cook for the 20 hours :-).
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... but for all that, I left my heart along the Chief Joseph Scenic Byway ...
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Old 12-19-2017, 06:21 AM   #6
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Just wanted to make sure you were accounting for yield. There is no magic number for food cost and calculating a sales price. What matters at the end of the day is did you pay your bills and did you make enough money to make it worth your while. 30% is starting point not an end point. If you have high labor costs, then you need low food cost, and vice versa. I've worked at places that budgeted 42-45% food cost, because we didn't pay anything for rent, utilities or maintenance. And I've worked at places with 15% because it was very labor intensive.
I don't know the market in NZ, but here usually if you are advertising a premium product like locally produced/all natural/free range/grass fed/organic/heritage breeds, then you can usually charge at a higher price point and people will be willing to pay. So going the opposite direction you're going. But that's all about the customer base and what they value, and I'm sure you have an idea of where you need to be.
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Old 12-19-2017, 09:44 AM   #7
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To me, the first rule of marketing any product is making sure there is a demand. Would advertising you are selling anything "organic" draw enough clientele to justify the higher product cost/selling point? Can the average customer tell the difference between quality pork and organic? Also, what does "organic" really mean? I'd be shooting at serving a quality product at an affordable price I can make a fair profit on.
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Old 12-19-2017, 11:37 AM   #8
longwayfromhome
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Thanks guys. I guess the question simply boils down to margin vs volume. I think my maths showed it can be done either way, it is a judgement call as to what is the right way.

Part of the decision lies in making the right read on repeat business. When this particular set of customers have choices, what is the best way to retain them - price or quality? We are in an area undergoing gentrification and are focussed on the local business/population. So we have customers who need a decent price, at the same time as some of them are very conscious of food quality, GMO, pesticides, growth hormones, antibiotics etc.

I suppose the maths shows we can do quality with a not unreasonable and probably acceptable hike in price.

The question isn’t so much on straight BBQ items where there is no local competition. It is more on competitive items like rotisserie chicken etc where price points are well known - will they accept the increment for food quality.

Either way, quality and realism need to coexist.
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... but for all that, I left my heart along the Chief Joseph Scenic Byway ...
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Old 12-19-2017, 08:34 PM   #9
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Quote:
Originally Posted by longwayfromhome View Post
Apropos your comment on the 'more of a loss', can you explain your thought there?
Through things like refrig failure and you loose meats or unsold product or you find that an employee puts 1oz too much meat on sandwiches for 6 hours straight. All of which will happen and those are things that hit you in the pocket under normal circumstances but when they hit you with prime meats they are even bigger.
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Old 12-19-2017, 10:21 PM   #10
longwayfromhome
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Quote:
Originally Posted by HBMTN View Post
Through things like refrig failure and you loose meats or unsold product or you find that an employee puts 1oz too much meat on sandwiches for 6 hours straight. All of which will happen and those are things that hit you in the pocket under normal circumstances but when they hit you with prime meats they are even bigger.
Yes, I see what you mean. With shaved margins, a problem is magnified and cannot be offset by volume because the problem is still occurring. Mmmm....
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Ralph in Auckland... with a WSM 22", a FireMagic 24S, a BQ Grills pig cooker, an LSG 24 x 60 offset ... and a hopeful attitude.
... but for all that, I left my heart along the Chief Joseph Scenic Byway ...
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Old 12-21-2017, 03:35 PM   #11
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As an aside...let me add to the train of thought on another issue.

"If" you decide to go with a 3x cost/price scenario, you are going to lose your drawers (that's your underwear) if you only charge cost for the bun & condiments. If you go with 3x, then you need to cost out everything and go 3x on it ALL.

Personally, I don't do 3x on anything these days other than my highest cost items.

It doesn't seem like a big deal until you actually write it down. My prices are in USD so I'll stick to the % increase over cost.

My BBQ sandwich comes with french fries and on a full food cost analysis I can say that I increase my TOTAL costs by 3.16x (lower than I want, but I had a couple of price increases and menu price is the same).

Sounds pretty close to 3x, right? Well not if you're doing 3x on your meat, then adding in cost for everything else.

If I take my sales price and break out the cost of my bread, codiments, & fries...then figure the Cx of my meat-only increase over cost...get this now...my meat is multiplied on a 9x factor. THEN I would add in my other items at cost to come up with the price I sell a sandwich for.

So if you're figuring your meat on 3x & adding everything else in at cost, then you're going to go broke pretty fast...and none of us want that to happen.

The safest way is to cost everything per menu item. Then do your 3x (or 4x...or whatever "x"). But doing 3x only on the meat is not the correct way.
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Old 12-22-2017, 03:16 PM   #12
longwayfromhome
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Thanks Cook

A very good point, but one I have avoided I hope. I think if you look you will see I am recovering the extras with the x3 factor. Take the $9 sandwich, that is $2 meat + $1 extras = $3, then x 3 for $9 retail.

With the premium offering, I am starting with the same basis as the regular offer, which is $9 (and includes the x 3 factor on the extras), then adds the differential in the meat cost ($6/3 = $2) at cost so the final price = $11.

HTH. Not saying it’s right, just trying to see the downsides, as I see it as a reasonable middle course to the challenge of premium product at an economical price.
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Ralph in Auckland... with a WSM 22", a FireMagic 24S, a BQ Grills pig cooker, an LSG 24 x 60 offset ... and a hopeful attitude.
... but for all that, I left my heart along the Chief Joseph Scenic Byway ...
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