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?

Revision Presentation - Measuring and Increasing Profit [17 May 2012]
Manufacturing strategy: Is China losing its competitiveness? [29 Jan 2012]
Revision Quiz - Costs, Revenues and Profits [12 Oct 2011]
Revision Presentation - Adding Value [7 Sep 2011]
Adding value - turning waste into gold [25 Aug 2011]
Strategy and bargaining power - food for thought [22 Mar 2011]
The Profit Margin Bloodbath of UK Recession [6 Mar 2011]
Dominos Pizza - the Recipe for Business Success [9 Jan 2011]
Q&A - Outline what is meant by cost-based pricing [2 Jan 2011]
Adding Value - Creative Uses of a Aluminium Tray [5 Oct 2010]
Adding value…to the humble toilet roll [2 Sep 2010]
Recession Strategy - Manufacturing Emerges Leaner and Fitter [25 Aug 2010]
Lesson Worksheet - Adding Value [10 Aug 2010]
Lesson Worksheet - Gross Profit Basics [5 Aug 2010]
Niche marketing?  Its Pants [15 May 2010]
Marketing in a recession: more focus on brand advertising and product enhancements [20 Feb 2010]
Customers have changed during the recession - how does marketing respond? [19 Feb 2010]
Recession Buster - Dominos On the March [16 Feb 2010]
Can Greggs Become the Skoda of Pies? [16 Feb 2010]
Teaching added value: introducing the world’s first zero-star hotel [7 Feb 2010]
Revision Presentation - Improving Profit [30 Jan 2010]
Teaching strategy - Starbucks revisited [24 Jan 2010]
Revision Quiz - Income Statement [7 Jan 2010]
Revision Presentation - the Basics of Profit [30 Dec 2009]
Innocent Drinks - Teaching Accounts Exercise [9 Nov 2009]
Brompton Bicycles - Guardian Profile [9 Nov 2009]
Strictly and X-Factor Drive Demand for Pizza [1 Oct 2009]
A Razor Sharp Way To Add Value [10 Jun 2009]
How to improve a profit margin through a hidden price increase - the Snickers way [4 Jun 2009]
Customer service classic - the upside-down pizza [11 May 2009]
Video Case Study - Just Jenny’s Ice Cream Start-up [22 Apr 2009]
Cutting operating costs - its like pruning a rose bush [3 Feb 2009]
Revision quiz - Measuring & Improving Profit [26 Oct 2008]
Cutting costs for a railway by switching the engines off [10 Sep 2008]
Working with suppliers - Matalan applies the squeeze [29 Aug 2008]
More evidence of rising raw materials costs affecting profit margins [25 Mar 2008]
British Airways warning is a wonderful strategy case for students [7 Mar 2008]
What do the record profits of Royal Dutch Shell tell us? [31 Jan 2008]

BUSINESS TEACHER RESOURCE NEWSLETTER
Get first news of business teaching resources, ideas and other materials from tutor2u. Over 9,400 business teachers from the UK and around the world receive our regular teacher email newsletters. Sign up for free here!