I was watching one of those reality shows; the one I was watching was a fellow who goes into failing restaurants, looks at their operations and rehabs them for $10,000.
He's a pretty rude fellow overall, but it maintains my interest because honesty is interesting. The places he's working with are typically a few months from bankruptcy, and given the glide path will probably go out of business anyways, so they at least have a better shot. (At the end they'll do a little followup on what happened to the particular place, about half fail anyways)
So he's needling a woman about her handling of the restaurant, and ends up asking her a question that I thought was interesting.
"How do you price your food?" he asks. She replies she doesn't really know. "Well, with most places they take the cost of the food, and then triple it, and that's the cost of the finished dish. So in the case of these crab cakes, your food cost is $6.80. So a retail price for that dish is $20.40". Oh, ok, she says. "but you are charging them $18 for that dish, so you're losing $2 per dish. How long can you do that?"
As I watched this unfold, I realized it had a strong echo in how I see a lot of the small farms around here price. They sell their production at a price that I cannot understand.
So here's a little writeup on pork costs, using the ratio they described.
Feed is $440 a ton right now -- darned high. It takes 800lbs or so of feed to bring a pig from wean to market weight. That's $176. The weaner pig itself sells for about $80 around here. Adding the two together ($176+$80), you get $256.
Then multiple by three gives you $768. If we were a restaurant, we'd need to charge $768 for the pig, and we'd expect the customer to pay 10 to 15% more than that to the guy who handled the order- their tip. Wow. What Would I have to do to get the customer to tip my farmhands?
Well, you're probably thinking that the restaurant has to pay rent, and has labor costs, and has to buy dishes, and advertise and... wait a second. My farm has rent, labor costs, tools and materials.
Lets see what I'm charging for pigs these days:
$2.25/lb hanging weight, or roughly $450 for a full-sized pig. Add to that the kill fee for the farm kill, at $55, and the likely cut and wrap costs (200lbs at $0.65/lb, $130) and you end up with a consumer cost of... $635, and we are STILL under the standard markup for your average restaurant.
Farming is a business, and like any other, the basic way it works is to sell things for more than it costs you to produce. Examining your business by the standards in other businesses is good. And this exercise leaves me feeling like we're undercharging.
Lest you think that restaurants are particularly high priced; most items at retail are marked up 50% over their cost to the retailer.
3 days ago