At Costco, you can purchase a ¼ pound Hebrew National brand hot dog or polish sausage and a refillable 20 oz. soda for $1.50. The soda alone is $0.55. It would stand to reason that the price of the hot dog alone would be $0.95. Although Costco does not sell the hot dog separately, for the sake of argument, assume that the hot dog would sell for that price alone.
Is the profit margin on the hot dog or the soda greater? I suspect that the profit margin on the hot dog is greater than the margin on the soda. In other words, it costs Costco more in percentage terms more for the drink, than it does for the hot dog. Include in the equation the cost of the cup/straw/lid/syrup/carbonated water/royalties for the soda, and the cost of the foil wrapping/hot dog/bun for the hot dog. Unless there is material reason to not do so, I think labor and electricity should be left out of the equation.
My off the cuff estimate is that the soda probably costs about $0.15, and the hot dog costs $0.25. That would make the profit margin on the soda is about 73%, and the profit margin on the hot dog would be about 74%.
**The question is, is the profit margin on the hot dog or the soda greater? **
I’m sorry I can’t give you an up to date answer but I remember when I was working at Wrigley Field talking to a concessions supervisor. He said their cost for a 32 oz. Coke was less than 9 cents, including the ice and MAYBE even the cup!
Soda (and popcorn) are the only things keeping most movie theatres going. It’s about as close to pure profit as you can get without stealing underpants.
Soda from a soda dispenser is normally going to have a much higher profit margin than any hot dog. I think you are sustantially underestimating the total wholesale cost of the delivered hot dog at sale. I think it would be more in the region of 55 to 65 cents, not 25 cents. Costco and SAMS club do not make vast amounts on their little food courts. It’s more of a customer draw than anything else. They are not appropriate models for margins in the retail food business as a whole since they use these operations as kinda/sorta loss leader draws.
I believe that your initial premise is flawed. A Soda alone may be $0.55, but that doesn’t imply the hotdog goes for $0.95. If they sold a hotdog alone, it would go for more than $0.95. Is it $1.25? I dunno, but that sounds like a reasonable number. and that extra 30 cents is a huge margin booster.
I don’t know the actual costs of the labor, electricity (and equipment depreciation) per item, but they must be much higher for the hotdog. ( I suspect that these costs are large enough (percentage wise) that you should include them if you want a “real” answer.
Assuming labor goes for $5/hour, is utilized at 75%, and throw in an extra 25% for taxes, insurance, etc., a worker makes around 16 cents per minute. How long does it take to carry hot dog boxes in on delivery, unpack, cook, wrap, clean up? I dunno, 1 minute? So there’s 16 cents into your costs for hot dogs.
Soda on the other hand is self-serve, so the labor is keeping the machine stocked with syrup and ice, which is considerably less labor-intensive.
Philster, the OP is correct in ignoring fixed costs for this evaluation. The cost of rent is the same whether one hot dog is sold in a day or a million.
As is the case with most (if not all) food-service-type-things (restaurant, fast food, concessions and the like), it’s the drinks where most of the profit is made. As explained above, at least 45 of the 55 cents you pay for that 20-oz drink is profit (over variable food & packaging costs alone, as described above, not counting overhead or employees’ salaries), a margin better than 80%.
The hot dogs, assuming the 55-65 cent cost above, would have a profit margin less than 50%. Bill H.'s proposal to price the hot dogs a la carte at $1.25 will still have a lower profit margin than the drinks.
D
It may be a mistake to assume that the cost of a hot dog alone would be $0.95, but I don’t have data about the cost of the hot dog alone. I know that there are Costco’s that sell the hot dog alone, and I’m asking a friend what the rate is at those places.
I agree that fixed costs like rent should be ignored. However, you wish to include variables as labor. I would take the position that the difference is diminimus. The time it takes to unload a truck of hot dogs should be comparable to the time it takes to unload a truck of syrup. Dumping hot dogs in a vat of boiling water would be comparable to dumping a load of ice into the fountain drink machine. I just thought that these things were roughly close in time consumption, therefore would be a wash. The same goes for electricity. Heating hot dogs could be comparable to keeping ice frozen and making ice. That’s a big assumption, but for the sake of argument, the question could be rephrased to include something like, “ignoring the cost of labor and overhead…”
It was just a shot in the dark, but $0.25 is too low for a hot dog? I am also making the assumption that there is a profit made on each item, sold together and if sold individually.
The reason that I suspected the cost of the soda to be higher, was from purely anecdotal observation. A friend who worked at a theater offered to get us free tickets to a show once. He said we could have free drinks and popcorn, but because the cups for the drinks and the bucket for the popcorn were the most expensive part, we would have to bring our own. We ended up drinking soda out of a ziplock bag and eating popcorn out of a hat.
I’ve read on some websites selling hot-dog carts that the cost per hot dog, including toppings and packaging, is about 35 cents. I’d say that 25 cents isn’t unreasonable considering the volume that Costco must buy in. Hot dogs have a very high profit margin, but I doubt it’s as big as for fountain soda.
Another Web search showed that the cost per unit of a 16 oz. serving of fountain soda is about nine cents. I would imagine that larger servings represent a negligible increase in cost, and that ‘Best Value!’ on the price boards at places that sell fountain drinks probably refers more to the seller’s profit than to the benefit to the customer. =) Incidentally, making the drink refillable must contribute only a small fraction to the cost.
If the soda costs 55 cents for the customer and 9 for Costco, the profit is 5.1 times the cost. If the hot dog costs 99 cents for the customer and 30 for Costco, the profit is 2.3 times the cost. So the drink is probably more profitable, given these prices - I’m not sure how accurate they are, because I’ve never in my life seen a 20 oz. soda being sold for less than a (Canadian) dollar.
Since we’re discussing total costs of operating a concession, I’ll chime in with a data point.
I saw a Subway owner discuss his financials one time on a Franchise BBS. He mentioned having food costs of around 26%.
Some places of business claim to track inventory (and attempt to curtail theft) by counting serving containers. Whether the management is actually counting containers is irrelevant, so long as employees think they’re counting containers.
Costco® already owns the space, the electricity, water, and employee are already paid for. The employee does other stuff. My husband speculates that they utilize the position for light duty employees, whenever possible. We figured out the * retail* price for the dog and its blanket and toys (we just bought a pack of Hebrew National Hotdogs,™ buns and relish at Costco®) That comes out to $0.17 They sell the single foil sheets as well at 1000 for $10.00 or $0.01 per sheet. That, remember is the price I paid. Figure $0.10 per dog. So you have $0.85 profit on the dog.
They already have the ice machine, the soda dispenser is leased for approximately $50.00 per month, they probably sell 1000 dog combos a day, they’re open 9 hours, that’s just about 2 per minute, so the cost of the dispenser is $0.05 per drink. Cups are included in the dispenser lease, CO2 is also included . Surup is about $5.00 per box for 500 drinks. which comes to $0.01 per drink. So Profit on the drink is $0.49
Profit percentage on the Dog is 89.47%, and on the drink is 89.09% so the dog wins by a nose.
BTW The dog and soda price at Costco® and/or Price Club® has been $1.50 for over 20 years. They used to give you soda in cans, so the profit was a bit lower.
It is not you who is missing anything, it was me and my friend at the time who were missing brain cells. We forgot the cup, but found a bag in the car. Highschool kids, I have no excuse.
Pincurse,
You bought the Hebrew National dogs at Costco for that price? $0.17 each? Wow that’s low. I never thought to think what they sell the materials retail for. Gotta look at that next time, and win a bet!
No, in movie theatres the most expensive part of the food for the theatre is indeed branded containers. Many theatres are owned by franchisees and said franchisees are required to sell their foods in “approved” containers that have to be bought from the home office - just as McDonalds always serves their drinks in McDonald’s-branded cups. The cost to the theatre owner is somewhere between 25¢ and 65¢ - but don’t take these as gospel, because it’s been a while since I knew anyone in the business. So although the theatre owner is making decent money off the concessions, it’s not nearly as much as you might think. It’s also why the theatre won’t “give” you a cup of water for free.
The amusement park I worked in the cashier supervisor at each concession station had to match up her PLU hits on the Z tape (shift totals for each type of item rung up) against inventory and any discrepancies were doublechecked. Its really not all that hard or complicated, 10-15 min of paperwork tops. Day shift and night shift both had starting and ending inventories.
Whenever there were irreconcilable discrepancies we made a note of what cashiers were on shift. It was amazing how in a couple weeks 1 cashier was always on duty when the discepancy occurred and was found to be giving freebies to a couple friends. It was a frighteningly simple and accurate method at pointing out where our issues were.
To get around it you would have to have 3 different people, on 3 different shifts consistently miss the short items in such a way that it matched the # of that item sold that day. That would just point us at the wrong people. Over a couple weeks, we always had 1 suspect out of 30-35 cashiers.
Don’t forget that compared to the soda, hotdogs are relatively perishable and there will be an element of waste (primarily unsold product at the end of a shift) that must be included in the costings.
Is Costco really all that concerned about making a profit on the hot dog and soda? I would have thought that their main issue would be to keep people around to do serious shopping instead of going for lunch, and that they wouldn’t be too worried about anything other than a large loss on the dogs and drinks.
