Tag Archives: Food

Costco and Chicken

Pricing can be a confusing topic – and not just for marketers. Consumers can also be confused, but one thing they always recognize is when they get a good deal on a product. Such is the case for Costco’s $4.99 rotisserie chickens. At that price the product is less than poultry from competing grocers. So, how does Costco make a profit on the chickens? Well, the short answer is that the company does not make a profit on this item – in fact, it loses money every time one is sold.

The Kirkland Signature rotisserie chicken is probably one of the most popular items the company sells; last year Costco sold more than 90 million of the item. And, yes, it lost money on each and every bird. Estimates are that the loss amounts to between $30 million and $40 million each year. This is known in the industry as a “loss leader.” The reason for a loss leader product is to get consumers in the store in order to sell additional products at which the retailer does make a profit. The chickens are at the very back of the warehouses, meaning if consumers want the bird they have to navigate a tempting array of other low-cost foods and products. It’s tough to leave Costco with only a single item!

Costco is trying to get its costs lower by opening a $450 million poultry complex in Nebraska. In this case, the company will control the supply chain, starting from the grain the chickens eat to grow out and slaughter, eventually to the Costco’s kitchen, and finally to consumers’ homes. The new poultry complex will provide Costco with roughly 40% of the chickens it needs and reduce its purchasing costs. It will also provide a more standard-sized chicken of around six pounds to fit on its rotisserie line.

How much will Costco save with the new complex? Estimates are that savings will be around 35 cents per chicken. Not a lot in a single bird, but multiple it by 90 million and the savings will add up.

What’s for dinner?

Group Activities and Discussion Questions:

  1. Discuss the six steps for pricing (determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments).
  2. Discuss the various pricing models in class: demand-oriented, cost-oriented, profit-oriented, and competition-oriented.
  3. Discuss when companies should use loss-leader pricing.
  4. Show a video about Costco chicken: https://youtu.be/MSvCK_xH84s
  5. What strategy is Costco using to price its rotisserie chickens?
  6. For Costco chicken, divide students into groups and have each group work on any/all of the six steps.
  7. When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).
  8. Debrief the exercise. Compare the various pricing models and discuss advantages/disadvantages of each.

Source: Meyersohn, N. (11 October 2019). It’s only $4.99. but Costco’s rotisserie chicken comes at a huge price. CNN Business.

 

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Where’s the Meat?

In case you haven’t noticed, there are a growing number of meatless ‘meat’ products now available at both grocery stores and restaurants. In the past few months alone, several fast food chains launched chicken-free chicken and meatless burgers to their offerings, and all seem to delight customers who are looking for plant-based alternatives to meat.

In one instance, KFC supplied an Atlanta franchise with faux-meat chicken from Beyond Meat called the ‘Beyond Fried Chicken’. Customers arrived before the doors even opened and the restaurant sold out of its supplies in just five hours! Of course, social media was responsible for the rush to test, but nonetheless, selling out what was supposed to be a several day experiment in less than a day says a great deal about the changing consumer tastes.

Burger King is already established in the meat-free burger category and has been selling the ‘Impossible Burger’, using the plant-based patties from Impossible Meats. White Castle is also in the mix with its ‘Impossible Slider’ (also from Impossible Meats), also sold nationwide.

And last, but not least, McDonald’s has jumped into the meatless game with its ‘PLT’ burger from Beyond Meat – plant, lettuce, and tomato. While today the PLT is only available in Ontario, Canada, it seems likely to make the move to a national distribution as well.

What’s going on? What are these new ‘meats’? The term ‘meatless meats’ is a contentious point, but the products are made by combining plant-based fats, binders, fruit and vegetable-based colors and flavor to create a fibrous texture of meat (no animal components). While these types of products have existed for a number of years, they were commonly marketed only to vegetarians and vegans. Today’s new plant-based meats are aimed directly at meat-eaters, particularly consumers who are concerned about climate change and eliminating animal products from their diets. However, plant-based meats are not typically as healthy as eating unprocessed vegetables and beans and meat consumption is still increasing worldwide. The burgers are often high in calories and fats.

Are you hungry?

Group Activities and Discussion Questions:

  1. Review meatless meat products and meals as needed:
    1. McDonald’s PLT burger: https://youtu.be/StVR1njx2ow
    2. KFC meatless chicken: https://youtu.be/U-imMy7Ohik
    3. Burger King Impossible Whopper: https://youtu.be/N9FED3jkNTo
    4. Impossible Whopper: https://www.bk.com/menu-item/impossible-whopper
    5. The Better Meat Co: https://www.bettermeat.co/
    6. Beyond Meat: https://www.beyondmeat.com/
    7. Impossible Foods: https://impossiblefoods.com/
    8. Carl’s Jr Burger calorie: https://www.carlsjr.com/menu/nutritional_calculator/beyond-famous-star-with-cheese
  2. Discuss the five factors of an environmental scan: Social trends, technology trends, competition, economic trends, and legal/regulatory factors.
  3. Divide students into teams. Have each team use their laptops or mobile devices to discover at least two points in each of the five categories of an environmental scan.
  4. Debrief the exercise by compiling information on the white board.
  5. Do these factors show why companies are embracing the new foods?
  6. Extra video: If students are interested, a scholarly video about climate change and food can be found at: https://youtu.be/8miQs3mPGu8

Sources: New York Times, Wall Street Journal, Advertising Age, Associated Press, and other news sources

 

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I scream, you scream, we all scream for Mustard Ice Cream?

It is summer and we crave ice cream. Perhaps you are an ice cream addict. Perhaps you have tried virtually hundreds of flavors over the years. But, have you ever tried ‘mustard ice cream’? How have we lived without this flavor?

It’s not as strange as one might think. After all, there have been other crazy flavors of ice cream over the years: goat cheese ice cream, cilantro lime ice cream, curry and mint ice cream, sweet corn ice cream, lavender honey, and many more! And before you ask, yes, there is a ketchup-flavored ice cream which was created in honor of musician Ed Sheeran (who sports a ketchup tattoo), but it appears to only be available in Ireland.

The mustard ice cream was created by French’s and Coolhaus Ice Cream to celebrate National Mustard Day on August 3rd.  Unfortunately for all the mustard fans, the ice cream had a limited run of only a few days in New York and California locations. But, there is still good news – the recipe is available online for home chefs. The tart concoction is best served with a pretzel cookie to compliment the flavor.

Race you to the freezer!

P.S. Look at the fine print at the bottom of the container!

 

Group Activities and Discussion Questions:

  1. Discuss brand extension products (ex: Cheerios, Tide, etc.).
  2. What makes a brand extension successful? A failure?
  3. Divide students into team and have each team name five brand extensions.
  4. Show French’s Mustard Ice Cream site and video: https://www.mccormick.com/frenchs/mustard-ice-cream
  5. What are the students’ response to the product?
  6. In teams, have each team develop an idea for another unusual food product that is based on popular flavors.
  7. Since the ice cream is not widely available, ask for a volunteer to make the ice cream – perhaps for extra credit? https://www.mccormick.com/frenchs/recipes/dessert/no-churn-frenchs-yellow-mustard-ice-cream?utm_source=ice-cream&utm_medium=landing-page&utm_campaign=recipe-link

Source: Ad Week, CNN, USA Today, other news sources

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