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Wednesday, June 01, 2011

The Profitable Butcher - Part 1

Our goal is to keep the cost per portion as low as possible while maintaining the current standard.  The focus is on the center of the plate.  Most people break down their current meat and fish using a cost per ounce model. 

There are many limitations to this approach.

Your cost per ounce may be 50 cents.  If you take a piece of meat which costs $6 per pound and you lose 25% in unusable trim, your cost per pound is $8 and your cost per ounce is 50 cents.

Our first issue is the 25% unusable trim.  This implies a 75% yield when we focus on our center of the plate portion.  What happens if a particular piece of meat yields 80%?

Instead of 50 cents per ounce, we would only pay 46.875 cents per ounce.  Is this meaningful?  Do people actually see the impact?  I would argue they don't see the impact clearly.

If the piece of meat weighs 10 pounds, the 50 cent per ounce model assumes 120 ounces.  We would expect to yield 15 - 8 ounce steaks.  The 80% yield would increase the number of steaks from 15 to 16.  The same numbers are in play with only a slight change in yield.  The piece of meat weighs 10 pounds and the cost per pound is $6.  Only the yield changes from 75% to 80%.

The extra steak is the true benefit.  Monitoring a 3.125 cents per ounce change won't be easy to explain in meetings.  "we should have a slightly better profit this weekend because our cost per usable ounce decreased by 3.125 cents..."

The extra steak would cost $4 using the 75% standard at $6 per pound.  Our goal is to save this $4.

Perhaps we could find a supplier who usually delivers meat which yields 80%.  If we expect to purchase 10,000 - 10 pound pieces per year, we would save $40,000.  The savings would occur 1 steak at a time as we gain the extra steak from each batch.  Using our POS system, we can make sure we get the sales for the extra steaks and the gross profit increase will appear in our bank account.

Rather than tracking 3.125 cents per ounce, we can track these extra steaks.

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