Presentation Transcript

1. This Business of Food

   John Kurnik, Ph.D.
2. 1997 The last year a comprehensive report, with full industry cost disclosure, was issued by the USDA. Subsequently, cost and profit data has not been assembled comprehensively by the USDA in one report. The following chart uses parsed USDA data to complete the picture of consumer retail food expenditures through 2010.
3. U.S. Consumer Expenditures in Billions of Dollars Source: Economic Research Service/USDA
4. Largest Profit Margin Foods Source: David Bakke, AOL Money and Finance, 09/10/2010 Pasta-Pasta Meals such as spaghetti, ziti, or macaroni and cheese (just to name a few) Cost to Produce = $0.20 to $2.50 per eight ounce retail serving. This includes tomato sauce, spices and processed cheese product when required. Red meat, fish, or poultry excluded. Pasta or “Paste” was the meal of the working class because it was simple and cheap to produce.
5. Largest Profit Margin Foods Source: David Bakke, AOL Money and Finance, 09/10/2010 Pizza, and bread products from commercial retail chains. Cost to produce and dispense a 12 to 16 inch pizza averages about $2.00 to $2.50 at most of the “chain” producers. The most expensive topping for pizza is cheese, at almost $2.00. The cheapest element in the mix is the dough (flour, binders, and water), at about 25 cents.
6. Largest Profit Margin Foods Source: David Bakke, AOL Money and Finance, 09/10/2010 Pizza and bread products from commercial retail chains (continued) Other toppings are negligible and rival the cost of the dough. Production “overhead” varies and can add between $0.50 and $1.00 out the door. Most bread is produced for a fraction of a dollar.
7. Largest Profit Margin Drinks Source: David Bakke, AOL Money and Finance, 09/10/2010 Non-Alcoholic Beverages such as soda, coffee, and tea Cost to Produce is $0.05 to $0.20 per retail serving In many cases the cost of the serving cup with lid and straw, or the initial cost of reusable china along with handling, breakage, and cleaning, exceeds this cost to produce the beverage serving. Aluminum can production and distribution costs vary between 2.5 and 5 cents each at the current strike price of aluminum. Free refills anyone?
8. Largest Profit Margin Drinks Source: David Bakke, AOL Money and Finance, 09/10/2010 Alcoholic beverages such as commercial grade wine and beer. Cost to produce and dispense at the retail level is based on a substantial markup. Conservative estimates put retail wine and beer markup at 200 percent, where upscale distribution can top 600 percent of production.
9. Crank it up a notch withENHANCERS Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 Cane Sugar, High Fructose, and Salt Cane Sugar The standard for sweetening since the early 1900’s Processes normally through the liver and triggers the fat cell hormone Leptin. The “I’m full” signal to the brain to stop eating. High Fructose 1.73 times sweeter than cane sugar Less than ½ the cost of cane sugar to produce
10. Crank it up a notch withENHANCERS Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 Cane Sugar, High Fructose, and Salt (continued) High Fructose (continued) Does not trigger the hormone leptin. The “I’m Full” signal to the brain Salt Negligible cost to produce Enhances the taste of food High levels trigger the “I’m thirsty” signal to the brain.
11. The Perfect Profit Storm Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 Obvious mark-ups in retail sales demonstrate profit potential. Less obvious profit potential is realized in the use of cost effective recipe substitutions and additives that produce secondary outcomes which induce consumers to over-consume.
12. The Perfect Profit Storm Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 High Fructose significantly reduces the cost of sweetening consumable products. Salt heightens the instantaneous taste sense of consumers. The more salt, the higher the sensation. At levels established for cane sugar, High Fructose neutralizes the bitterness of high levels of salt while allowing taste enhancement at extreme levels. All at a lower price point for increased profit.
13. The Perfect Profit Storm Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 Physiologically, one secondary effect of high levels of Salt and High Fructose induces people to consume more product to quench thirst and quell hunger. In other words “to spend money”. With broad profit margins above “Farm Value” food producers use these enhancers to drive the spend and consume cycle. A negative economic byproduct of enhancing food for profit are the health risks and costs associated with population obesity.
14. Beyond the Profit Source: Heather Levine, Money Crashers, Eating Healthy on a Budget, 08/10/2011 The “Farm Value” to “Street Value” ratio of retail food sales has expanded disproportionately over the last 30 years. The industry claims that consumer driven competition and marketing support for continued name recognition drives this business machine and that over 79 percent of retail food expenditures pays the marketing bill.
15. Profit Verses Priorities Source: Robert H. Lustig, MD, Lecture, UCSF 07/27/2009 Two thirds of Americans are overweight or obese One in three children is overweight Portion size relative to calorie consumption has increased by an average of 13 percent over the last decade as profit margins continued to grow FOOD FOR THOUGHT?
16. Yours TrulyAfter Fructose