Profit and Pizza - A Great Lesson Resource on Margins and Mark-ups

I’m indebted to Innes Robinson over on the terrific GCSE Econ blog for spotting this article which may become a staple ingredient of business studies lessons for years to come. The Daily Mail has lifted the lid on the business model of the pizza delivery business to provide us with some super data on revenues and costs which can be the basis for a lesson on margins, mark-ups, adding value and more besides…

Here is the link to article.

Here is a link to a simple Excel spreadsheet that you or your students could use to play around with the pizza data provided:
pizza-profit.xls

The Daily Mail has focused on what it describes as “mark-ups that leave a sour taste”. Of course, the Daily Mail has an axe to grind - so it only lists the pure ingredient costs of a pizza. Some of their analysis conveniently ignores the other direct and indirect costs of producing and marketing pizzas for home delivery. A good exercise for students would be to identify what those might be - e.g.

- Energy costs used in the pizza ovens
- Product packaging
- Labour costs
- Shop rental, utility costs and insurance
- Marketing costs (a significant economy of scale for a national chain like Dominos UK)

As the representative from Dominos points out in the article: ”‘In common with all food businesses, raw ingredients make up a relatively small portion of the total costs.”

Is the £17.99 price tag of a “deluxe pizza” worth the money?
How does that price compare with similar takeaway pizzas in your location? (it seems a bit high for us cheapskate northerners)

The delivery pizza is a classic example of added value, with the oven-to-door time of less than 30 minutes being crucial between having a hungry customer and an unhappy customer. The Daily Mail article perhaps doesn’t pick up on this key aspect of the delivery pizza - convenience and speed. Customers are prepared to pay for these aspects of service?