There’s an extraordinary butcher shop in Montreal’s West island, which I used to frequent in the 80′s whenever I needed a really good steak for a special BBQ. The Austrian owner was “old school”, aging his beef on the hook an extra 21 days beyond the commercial norm. While his beef was absolutely melt-in-your-mouth, it was also pretty steep.
A few weeks ago, I decided to pay the shop a visit for a few great steaks. The old man has retired, turning the store over to his son. Looking around the meat counter, I noticed that there were tons of fresh and dried sausages, but no fresh meat. I asked the son (in his early 30′s), who, in his perfect business-school graduate terminology, said, “Oh, we don’t do fresh meat anymore, there’s no profit in it; you can’t add value to fresh meat”.
The concept of adding value is core to any business. The principle is fairly simple: Every time you transform something from its natural state, you have a chance to “add value” by creating something people want and at the same time charging more for it and at a higher profit margin. On one end of the spectrum you have fresh meat, which beyond the raising of the cow, its slaughter and delivery to distribution, is very close to its natural state. On the other end, you have sausages, that are ground, spiced, smoked, extruded into casings, and then aged or dried. The one pound of raw meat that cost $3 and sold for $5 can now be sold for $15 with a total cost of $4 including raw material, space, and labor. What was a $2 profit for the raw meat is now an $11 profit for the same meat plus expertise and labour.
The ultimate example of adding value is an iPhone. Five or six bucks of glass, metal, and plastic are transformed through technology and intellectual property into something worth $600.
When we acquired our Briard, Roxy, we made a commitment to feed her a diet closer to what would be appropriate for her biology and genetics. This means a diet mainly of raw meat plus some leftover vegetables and small amounts of leftover grain (oatmeal, bread, pasta, rice, etc.) from our own meals. Twice a month I buy a large sirloin butt from Costco at $3/lb., carve it up into cubes and freeze it into single serving pouches. It takes about 30 minutes twice a month. Total cost: About $70 a month. She has thrived on this regimen, and we have enjoyed the fact that she only poops once a day (a real advantage in a country where half the year is spent in cold, snow, and mud). A very high quality commercial dog food costs about $75 for a month’s supply, so the cost of feeding real meat is very comparable, if not cheaper.
But here’s the problem: On the rare occasions when we feed Roxy commercial dog food (if we’re traveling, or have run out of meat), she poops 5-6 times a day; massive Lincoln-logs that need several bags for pick up. That’s because in the process of adding value, there’s a lot of temptation and opportunity to cut cost by using lots of fillers that may sound healthful (peas, blueberries, flax, etc.), but in fact serve no other purpose that to dilute the most expensive component, the meat.
The math is pretty easy:
Meat is a lost leader for most stores (it brings people into the store because it’s a staple). Margins are small. For $100 of beef, a retailer will make about $15. The wholesaler will make $10, the packer (slaughterhouse) maybe $10, and the farmer perhaps another $10. That means that for $100 of beef you are getting about $55 worth of high quality protein at cost.
$100 worth of commercial dry dog food breaks down as follows: Retailer makes about $20, wholesaler about $10, manufacturer about $60. That leaves about $10 of material at cost, half of which is filler, so about $5 of meat protein. That’s it. When you feed dry commercial dog food, you are feeding your pet a few pennies of protein at each meal…..and picking up one helluva load of shit!