Clearly ordinary low-complexity sheet cakes are a very high mark-up item in at least some US supermarkets / grocery stores. I haven’t checked mine but we have plenty of anecdote up-thread.
The OP’s title question was “Why?”
Obviously throughout capitalist society, overall enterprise costs form a floor under overall enterprise revenue. Total Cost > Total Revenue --> Eventual Bankruptcy.
But any given item can be (should be?) priced at the highest price the seller can get away with. Unless the seller is deliberately using the item as a “loss leader” to drive customers into the store. In which case it should be priced low enough and advertised heavily enough to generate a “Wow” factor in the customers. Individual item cost is real close to irrelevant. And non-trivial to compute completely and accurately as all the up-thread bickering indicates.
The result of these two things is a tendency towards a bi-modal distribution of mark-ups. IOW, individual items across the store are either stupid-cheap, or stupid-expensive.
The greater the competition the lower-priced or fewer the stupid-expensive items will be.
What we see is evidence there’s not a lot of competition between stores for sheet cakes. Certainly almost all grocery stores / supermarkets sell them. But individuals don’t buy them often enough to form a price expectation, nor apparently do they comparison shop. So they go to their usual store, buy all their party food, and pay the price unquestioned.
The other possibility, never to be entirely discounted (hehe), is explicit or implicit collusion. When the marketplace presents a collection of ostensibly competing retailers with a golden goose product category, smart retailers who can think beyond next month can choose to passively leave the prices high & (mixed metaphor alert) milk the goose for all it’s worth.
Urgent purchase special-occasion one-off purchases often paid for by grouped funds sounds like a perfect place to observe market failure followed by implicit collusion.
Aside: while previewing it just popped into my head that “Urgent purchase special-occasion one-off purchases often paid for by grouped funds” also describes all things funeral-related. Which is also an area of high markups and widespread market failure. QED perhaps?
Excellent post, LSLGuy, but I think it still prematurely assumes facts not in evidence: that is, that the markup on cakes is “stupid-expensive,” or that’s it’s more stupid-expensive than other grocery store mark ups.
I just don’t see it. I think it’s right in line with most of the other premade, ready to eat foods that my stores sell. The rotisserie chicken, 2 pounds for $7 - I can get a chicken for 89cents a pound, so why doesn’t it cost $2 for the rotisserie chicken? A pound of guacamole for $6 - I can get avocados 3 for a buck. My local store has a “hot bar” of foods for, I think, $6.99 a pound. That includes things like fried chicken and pot roast…and also things like potato wedges and mac and cheese. A potato wedge for $6.99 a pound is “stupid-expensive,” except that it’s awfully convenient to grab a couple when you’re building a hot meal that isn’t technically fast food on your way home after a double shift.
Seems like a markup of ingredient cost X3 to X6 is pretty common. If we’re leaving labor out of it entirely.
And I don’t think it’s a lack of competition - there are literally a dozen grocery stores and restaurants on my way from that grocery store to my home that offer the same things, often with drive throughs. It’s just more convenient for me to get it at the store while I’m picking up a gallon of milk anyway. (And it’s probably worth noting that I never stop at the store specifically for the Hot Bar, nor do many other people, to judge by the full carts that circle the Hot Bar. I will just occasionally take advantage of it when I’m there for something else. )
Maybe we’re talking about the same thing. Maybe I just provided additional examples to support your theory. If so, you’re welcome. But then I think that the answer of “convenience” says the same thing, from the consumer perspective, and was offered very early in the thread.
Thank you! I had that number in my head, I just couldn’t remember where it got there from! Yes, sir, all due credit - yours was a very excellent and well informed post.
So…can we work on gettin’ that guac a little cheaper?
How much does this vary? I can see how “Consumer Price = 3X price of ingredients” but does this go up for some cases? I remember a restaurant owner (who had no reason to lie) telling me that he multiplied by 4. He had an old, tourist-attracting restaurant in the tourist-y part of town so perhaps that’s why.
Are there types of food businesses that multiply by 2? How about above 3?
And why multiply by the cost of ingredients? They have to be included in the retail cost but I don’t see what’s so critical about them when so many other costs are involved and that, as noted above, you should charge what maximizes profit.
Times four is also the number I’ve heard (or one of the numbers. I’ve heard times three, as well, and–more importantly–that this is a loose rule of thumb that it will produce an out-of-whack price for very cheap and very expensive items), and that’s what’s mentioned in this Wall Street Journal article. But my numbers are from the early 2000s, so all that may have changed since then. (Or it varies by type of restaurant, location, etc.) It seems to me like raw ingredient costs (especially meats) have gone up more than restaurant prices.
I’m sure a tourist place will charge more. Remember, they rely more on getting money out of your wallet and less on repeat business. If you go to Niagara Falls for your 5 year anniversary and stop at a restaurant and buy a $40 12oz steak there’s a good chance you’ll never eat there again…because you’ll probably never be back in that city again.
Every industry has their own markup (margin? I get them confused). Plus they all deviate on some items. In the grocery world we use 33%, but we double (x2) on specific items. Some people call that a keystone markup. (If you Google “Standard _______ Markup” you can often find the markups that those industries use).
Don’t forget, it’s not just the retailer that marks things up. Produce, for example, starts as a seed that the farmer buys, the farmer sells it to the distributor who sells it to the wholesaler who sells it to me and I sell it to you. Each step of the way it gets marked up and presumably each person has their own industry standard markup.
I couldn’t tell you all the reasoning behind it but it works.
If my restaurant makes you a steak with meat that costs me $5 or meat that costs me $10 all the overhead is exactly the same so, in theory, you should only pay $5 more for the second one, but in practice you’re going to pay $15 more.
I think it’s two fold. One is, because you will, it’s what you expect to pay and what the industry has taught you to pay.
Two, and probably the more important one, the business’ financial statements tend to rely on percentages. A business needs to be able to show specific percentages in specific places on their Balance Sheet and Profit & Loss Statement. To do that, you need to charge more for things that cost more.
If I take my financials to the bank and they ask why I’m only taking home 2% last quarter instead of 3% like I did last year and I tell them it’s because the price of steaks went up and I took that out of my pocket (which is what would happen if I raised the customers price by the same dollar amount as my price went up), they’re not going to be happy about that.
Also that the grocery store should make no profit on top of that or to help pay the marginal value of the electricity/gas/water to run the kitchen and the wages of the stockers, checkout personnel, janitors, etc that keep the place running.
It’s almost like markup serves some kind of purpose.
She was some kind of an assistant in the FCOs office. No idea what her actual duties were, and she’s a bit too dead at the time to ask for more details.
I already answered the question to this. “because they can”. I’m just surprised people will pay $29 for a rectangle cake they could make at home for a fraction of the price.
Back when I was a paralegal, I’d heard my billable hours were based on thirds: 1/3rd to cover my pay & benefits, 1/3rd for overhead, 1/3rd for the partners.
However, most people could NOT make it at home for a fraction of the price, and certainly not if they value their time at any reasonable value.
I do a fair amount of baking, but I don’t even own a half-sheet pan, and relatively few home kitchens have one. Buying all of the ingredients and equipment makes sense only if you are going to be using them regularly; for a one-off or rare event, why would you want to have the money tied up in the pan and the mixer and the decorating bag/tips and all of the rest? Moreover, if you are going to be doing piping as in the illustrated cake, you are likely not using frosting from the can, and will need to make your own. How much time will that take? How much time will you spend spreading the crumb layer, spreading the final layer, piping the trim, etc.? What’s your hourly rate?
Yeah, wouldn’t want to take away a moment from drinking beer and watching breaking Bad. :rolleyes: How long does it take to make a cake from a mix for kripes sake?
Not sure, but I don’t think any of the pictures I linked to even count as a half sheet cake. Who doesn’t have a pan to make a lousy rectangle cake? That’s all those $29 cakes were, rectangle cakes that 1 mix makes.
But if I don’t bake regularly (and I don’t), why would I own a rectangular cake pan? (Although I have a cookie sheet, but it’s mostly used for reheating pizza.) Or a mixer? Or those decorating tip and the bag you need to decorate a cake? Or the skill needed to do so well? (For that matter, the interest in [del]wasting[/del] spending the time to learn to do so well.)
In other news, I don’t change the oil in my car, or even wash it myself. Instead I pay other people to do these things.
I got my oil changed 2 days ago. Full service oil change with a free car wash. $27 including tax and oil disposal fee. Changing oil is a lot harder and much bigger pain in the ass than baking a cake, yet having someone else do it is cheaper!
I’m positive there is not a factory somewhere performing 200 oil changes an hour like there are bakery factories making cakes!
Making frosting, filling the bag, putting on two layers of frosting, piping the trim, writing the words, and then cleaning up and doing the dishes would be at least a half hour job for me, even for a basic rectangular cake. How long would it take you, and what is your time worth? (That’s not counting making up the mix and baking the cake in the first place.)
One standard mix makes a 9 x 13 cake, which is roughly a quarter-sheet; the last size estimate I saw you give was 15x12, in post #63. That’s more than half again larger, meaning you are not comparing like with like. (A half sheet is 12x18; 12x16 is a fairly common commercial size, but again not something most home cooks have.)
So you’re willing to accept that some people are willing to pay people to change the motor oil in their cars, but have some sort of mental block about the fact that some people are willing to allow someone else to bake their cakes. You don’t see the contradiction there?
These cakes I’m talking about: Nobody is doing any of this! They are being baked in a factory. They come down a conveyor and a machine that’s a large version of an EZ Frost puts the frosting on, then a robotic machine does the goop writing. There are employees in charge of these machines, but not many. these bakery make hundreds of cakes an hour!
I’m talking about chain grocery store cakes, not something from a fancy bakery! This fantasy that some $10 an hour drone is doing all this by hand in most Push-n-Shove grocery stores is preposterous!
BAKING the cake is only part of the process; what do you think of the decorating? (And piped frosting is a lot harder than it looks to get right.)
Also, oil changes require far less equipment than making a cake. What’s the cost of a couple of wrenches, a funnel, and a drain pan versus an oven, mixer, pan, several spatulas, spoon, decorating bag and tips, and so forth?
(An aside: I only wish I could get a $27 oil change; I pay about $60 just for the oil [15 quarts].)
