Let's figure out why pizza delivery costs exactly as much as pizzerias earn and why you shouldn't require smartphones to be sold at cost.
In everyday life, I began to increasingly come across a complete misunderstanding among people of where this or that price for a particular product comes from.
For example, a new one comes out iPhone, the craftsmen from the Internet disassemble it piece by piece, and then calculate a certain component cost and declare that this is how much all the hardware together actually costs. Since the topic is quite hot, these calculations are immediately scattered across thematic resources, and there a crowd of shouting about the injustice of capitalism joins the discussion, accusing Apple of greed, demanding retail prices at the level of component prices, and so on. Smart people, naturally, know that the cost of components is just the tip of the iceberg, but few of them even fully understand how this or that pricing is built.
Even more often I meet such hating towards the Russian representative offices of Chinese smartphone manufacturers. Without thinking about the difference in tax legislation, logistics, localization, certification, the peculiarities of Russian retailers and much more, narrow-minded users demand prices at the level of Chinese retail, while not forgetting to convict Russian partners of commercialism, greed and complete disrespect for brand fans.
There are plenty of other examples too, but what's even more funny is that almost no one pays attention to those things that are actually sold with a cosmic markup. For example, bags in supermarkets: a grocery retailer's markup for a regular plastic bag (excluding the manufacturer's markup) in which you put your products can be up to 15 times! Believe me, such a percentage of net profit from the retail price of the product does not earn either Apple from their iPhone, nor a conditional Russian partner Meizu or Xiaomi.
However, today I would like to touch on in detail the pricing in the field of catering, namely pizza delivery. Why pizza? First, I know what I'm talking about, because I managed to work for several years in the management company of a pizza chain. Second, the example is simple enough for even a child to understand. And thirdly, it is quite easy to draw analogies here with the production and sale of smartphones, of course, give or take a kilometer.
Let's see what happens.
So, the cost of a large meat pizza with delivery in Moscow is, say, 800 rubles, let's take this price as an example. There are quite a few variables included, some of which you might not think about. Let's talk about all of them in order.
The term Food Cost in the field of public catering refers to the cost of the ingredients from which a dish is prepared. Depending on the category of the establishment, this figure may vary, but for a chain pizzeria, FC is considered the norm in the region of 30% of the retail price, in our case 240 rubles.
If we draw an analogy with a smartphone, then Food Cost is exactly the cost of all components.
Does this mean that we can bake a similar pizza at home and it will cost three times cheaper? Far from it, because the prices of ingredients will almost always be more expensive for you, since you do not buy them at the wholesale price. The same applies to components for a smartphone: the chances of buying components at the same prices at which the manufacturer buys them tend to zero. And it is far from the fact that you can buy all of them on free sale.
This term refers to the cost of the finished product as it comes into the hands of the client. That is, packaging (in our case, a box), napkins, toothpicks, flyers and the like are added to the ingredients. Normally, the prime cost of such a prefabricated product is approximately 34% of the retail price, that is, the company's expenses for packaging and condiments are 4%, or 32 rubles.
For a smartphone, the conditional Unit Cost will include the device itself, that is, the cost of components, as well as the cost of the box, charger, cable, headphones, accompanying documentation and everything else that you get with the device.
From the product itself, we turn to the people who produce it: the Labor Cost indicator is responsible for the cost of labor. Basically, this is the salary of chefs, administrators and other employees involved in the process of preparing, packing and shipping pizza. Naturally, no one counts the LC for each cooked pizza, the totals are summed up for the period, the minimum of which is a shift. It is calculated by simply dividing the salary earned by all employees for the shift by the amount of gross revenue for it. In terms of one pizza, we can say that LC is considered the norm in the region of 15% of the retail price, that is, 120 rubles.
In the world of smartphones, LC is the remuneration of workers involved in the assembly and packaging of the device, that is, the very employees of Chinese factories.
This indicator is related to the cost of logistics of the product to the client: payment for couriers, fuel, maintenance of our own fleet, if any. If we shift this cost to one pizza, then the level of the norm is also around 15%, or 120 rubles.
I don’t know how correct it would be to draw an analogy with manufacturers and distributors of smartphones, but you can roughly link DC with the cost of logistics for devices from factories to distributors' warehouses, and from there to retail chains. All this, of course, is included in the price of the devices.
In large chain companies, VAT is included in the retail price of pizza, which is 18% today. Small companies operating on a franchise usually operate on a simplified taxation system, paying 7% of gross revenue to the budget, respectively, the tax burden per order is 7 or 18% – 56 or 144 rubles.
It is logical that smartphone manufacturers, their distributors and retailers also pay taxes, which are also included in the price of products.
Other branch expenses
Without taking into account the global expenses of the head office, other expenses of a particular pizzeria can include renting premises, servicing equipment, communication costs, garbage disposal, security, utility bills and much more. In an ideal situation, all of the above should not exceed 10% of gross revenue, but in the company where I worked, these costs averaged about 16%, or 128 rubles per pizza.
Here, I will not draw any analogies with smartphones, since the scale and structure of other costs are hardly comparable even with a very rough example. К тому же значительную роль в цене смартфона играет R&D, где сравнение с пиццей тоже будет некорректно.
What did we get in the end?
- Pizza cost – 800 rubles
- Cost of ingredients (Food Cost) – 240 rubles
- The cost of packaging and condiments (Unit Cost – Food Cost) – 32 rubles
- Remuneration of employees (Labor Cost) – 120 rubles
- Delivery Cost – 120 rubles
- Taxes with STS 6% (+ 1% for a turnover of 300 tr.) – 56 rubles.
- Other expenses of the pizzeria – 128 rubles.
The pizzeria's conditional net profit after delivery of one pizza is 104 rubles, that is, 13% of the retail price.
Once again, I note that this is a rather rough average calculation, thanks to which you can understand the general order of the numbers. It is unlikely that a business owner who takes 13% of the cost of the final product can be called very greedy. Moreover, part of these funds must be reinvested in development and marketing, and in the case of the network business, part of the profits will be used to pay the employees of the management company.
All this, to one degree or another, applies to smartphone manufacturers and their distributors. It is unlikely that any of them put into their pocket half or even a third of the cost of each device sold, because profit in this market is also measured in percentages, not tens of them. And there are enough losses too.
These are the pies, or rather pizzas.
Bonus from the author
When writing this material, a colleague jokingly suggested inserting a good pizza recipe at the end: suddenly, if someone does not like the text, there will be at least some benefit. I myself am not strong in recipes, but I will gladly share a video from the vastness of YouTube, at the end of which it just tells how to make an excellent pizza at home.