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Why do pizzas and burgers cost so much? Considering that a pizza is just veggies & cheese pasted on a bread, why do most pizzas in India not cost less than Rs 300 in most outlets? Similarly, how is it that a burger can cost more than a sub-sandwich?
I cooked about 6 (single person) pizzas yesterday at home. Here is the cost
Pizza base - Rs 15 x 6 = Rs 90
Pizza Sauce - Rs 245 x (1/8) = Rs 30
Tomatoes , Onions, Capsicum = Rs 100
Mozzarella - Rs 95
Pomegranate - Rs 30
Another spicy cheese slice - Rs 100
Electricity - 2kW x 1.5 hour x Rs 5/unit = Rs 15
Cleaning = Rs 5
This comes to about 465 for 6 Pizzas - That is about Rs 80 / pizza. With the ingredients above you can figure out that it was not a very exotic pizza.
Now, there was time spent to go to market and get the materials, prepare the ingredients (read wash, cut, peel, grate etc.) and time I spent to cook those pizzas and clean it afterwards.
Here is the break down:
Time to buy from market - 1 hour (because shop was not too far from home and could just walk and get. For shops it would be much farther and cost of transportation need to be added)
Time to prepare the ingredients - 1 hour
Time to cook the pizzas (that’s me) - 1.5 hour
Time to clean the utensils and oven - 30 min
Total time spent in non-cooking time: 2.5 hour
Total time spent for cooking - 1.5 hour
Since, it was for home, nobody paid anything for these time. However, suppose I had employees for above activity and paid them as follows.
Shop the ingredients - Rs 15000/ month (24 days x 8 hr) - Rs 78/hr = Total paid for an hour Rs. 78
Clean and prepare ingredients - Rs 10000/month (24 days x 8 hr) - Rs 52/hr = Total paid for an hour Rs 52
Clean utensils - Rs 10000/month (24 days x 8 hr) = Total paid for an hour Rs 52
Cook pizzas - Rs 6000/month (24 days x 2 hr) = Total paid for an hour Rs 125
Total man power cost for time spent on cooking Pizza: Rs 307
Above are minimum wages I have assumed for a city like Bangalore. In case you are not aware, simple jobs like a waiter in McDonald’s or Cafe Coffee Day pay at least Rs 10000/month - I have seen their posters all over multiple times. Good cooks easily earn up to Rs 4500 a month for cooking / family of four and spend about 2 hour for a family)
For 6 pizzas, that’s about Rs 50 / pizza.
So my home-made pizzas now cost about Rs 130/ pizza.
Also, suppose I was making these pizzas for commercial use, I would have to rent a place, pay electricity, water , cleaning, advertisement bills, apart from just cooking Pizzas. Rent alone would cost about Rs 80000/month for a small shop in not a very prime area in city like Bangalore.
Of course with scale, I wouldn’t be cooking just 6 pizzas in 2 hour but much more say 10 times more.
Plus I need to staff waiters, delivery boys/girls, cashier a manager. Plus more costs which I am unable to think of. Plus my profits.
Did I mention the capital investment on getting your shop painted, furniture and buy the super costly machines that can cook 30 large pizzas in an hour?
Add these up and you can see that a pizza cost goes upwards of Rs 250–300/ pizza.
EDIT: Based on some comments on how flawed my calculations are because I have not take economies of scale into consideration, here are more stats
Looking at numbers from Domino's Pizza - Wikipedia we see that in 2016
Total stores = 13,000
Total Revenue = $2.47 billion : Operating Income = $454 million : Net Profit = $214 million
At a per store per year level this translates to about
Total Revenue = $190,000 : Operating Income = $35000 : Net Profit = $16500
In INR, per store, per month it translates to
Total Revenue = Rs 10,19,000 : Operating Income = Rs 1,88,000 : Net Profit = Rs 88500
Also stats from Fun Facts - biz.dominos.com , Dominos sell about 1 million pizzas per day worldwide. That’s about 30 million / 13000 = 2300 pizzas per store per month.
So on an average profit per pizza comes to Rs 88500/2300 = Rs 38.
For a pizza worth Rs 300, it’s profit of 12.5%
Some numbers might be a bit here and there but you get a rough idea now.
Of course, the actual profit will vary from country to country and store to store. But on an average, it doesn’t look like an extravagant profit to me.
In case you think a profit of 12.5% is extravagant, try answering this question.
If you have to spend all your money and time on a business, what is the minimum profit percentage you will be expecting ?
In India, Saving Banks give you about 4% of returns for just keeping your money there.
Fixed Deposits provide you about 8–9% of returns for just keeping your money there.
Are you willing to target a profit less than 12% if you have to spend all your time on your business?
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