Advantages And Disadvantages Of The Retail Meat Business
( Originally Published Early 1900's )
It seems to be human nature that the average business man will always speak of the disadvantages of his particular profession or business. Seldom, if ever, are the obvious advantages pointed out. Comparing the retail meat business with practically all other lines, quite a number of advantages can be readily discovered, which are lacking in other industries. These advantages can be classified as follows :
1. The fast turn-over of merchandise.
2. The comparatively small investment required.
3. The fast turn-over of capital investment.
4. The easy control of the business.
5. The absence of styles or seasons.
Fast Turn-over of Merchandise
To attain a fast turn-over of merchandise is the ambition and desire of every modern merchant. There is practically no other merchant who turns his stock as fast as the retail meat dealer, because, on account of the perishable nature of the products handled, the fast turn-over becomes a necessity.
Table No. 17 affords an opportunity to compare the turn-over in the retail meat business with retailers in other lines. According to these figures the meat retailer will be on the top of the list with an estimated average turn-over of about 80 times per year. The retail grocer, for instance, has a turn-over of 10 times per year, which means that the grocer doing an annual business of $50,000 has a stock investment of $5,000. The leather goods store doing a business of $100,000 annually requires a stock investment of $33,000, whereas, the meat retailer doing a business of $50,000 can do this amount of business yearly with a stock investment of from $500 to $1,000.
Fast turn-over is one of the most important factors in business today. The retailer who turns his stock the greatest number of times gets the maximum returns on his stock investment.
Turn-over in Meat Markets
In an investigation made by the Bureau of Business Research, Northwestern University School of Commerce, it was found that the most common rates of turn-over in meat markets in three large cities are:
Chicago once every 3.7 to 5.3 days (average, 81 times yearly). Cleveland once every 3.2 to 4.4 days (average, 96 times yearly). New York once every 4.0 to 5.5 days (average, 77 times yearly). This investigation also classified stores according to size alone, and the most common rates in the three cities combined were: In one-man store once every 3.7 to 5.3 days (average, 81 times yearly).
In two-man store once every 3.2 to 4.4 days (average, 96 times yearly).
In three-man store once every 2.7 to 3.4 days (average, 104 times yearly).
In four-man or larger store once every 2.7 to 3.4 days (average, 104 times yearly).
In the different sized shops, the middle 50% of the turns are made as follows:
In one-man store once every 3.5 to 5.7 days (average, 79 times yearly).
In two-man store once every 2.4 to 4.8 days (average, 93 times yearly).
In three-man stores once every 2.2 to 3.5 days (average, 117 times yearly).
The above figures are the results of an investigation made in three very large cities where the retailer has every advantage for buying and immediate delivery. These figures do not, of course, indicate the general average of the meat retailer through-out the United States.
The fast turn-over will be cut down considerably where the merchant is being supplied once weekly by car route delivery. The retailer who operates under such conditions turns his stock about once per week or 52 times per year. He therefore, has not the advantages of the city merchant who can be served by local meat packers or branch houses.
While fresh meats, such as veal, beef and pork require a fast turn-over to prevent spoilage, there are also many items sold in the meat market which will retard fast turn-over, such as smoked hams, shoulders, bacon, smoked tongues, summer sausage, dried beef, and canned goods. While large quantity buying usually enables the retailer to buy at a slightly lower price, it is advisable for the retailer always to take into consideration the loss on shrinkage and evaporation which may offset this advantage when applied to such products which have a tendency to shrink and evaporate.
Shrinkage an Important Factor
As a typical example, the retailer buys a 15 lb. ham at 32 cents per lb., or at a total cost price of $4.80. By shading the whole-sale price one-half cent per lb., he is induced to buy a large quantity which he feels will stay in the market for a week or possibly two weeks or longer. In that case the ham at 31% cents per lb., has cost the retailer $4.73. As the ham is bound to shrink approximately one-half ounce or more per day, it is assumed that he loses only eight ounces during a ten day hanging period. While he saved on the original purchase price, he is losing 16 cents on shrinkage or really a total of eight cents on the ham.
In such cases, the shading in price of one-half cent per lb. is really a disadvantage to the retailer and at the same time it has a tendency to retard fast turn-over. On fresh meats which are turned fast, the fraction of a cent discount will usually offset the disadvantage of a slower turn-over. The principal losses are usually due to the shrinkage on products which are kept on hand too long.
Slow Sellers Retard Turn-over
Since many retailers handle some canned goods, which are not always fast sellers, the turn-over of such products should be watched very carefully as such slow-moving articles will cut down the entire turn-over of the business considerably. This can best be seen by the following examples : A retailer has a meat sales of approximately $1,000 per week or a total turn-over of 52 times per year. He also adds $1,000 worth of groceries and canned goods, which, however, he turns 12 times per year. While his turn-over on meats is 52 times per year and on groceries only 12 times per year, he has a theoretical turn-over of 52 plus 12 or 64 times per year total. Dividing 64 into the two it gives him an average turn-over of only 32 times yearly with the additional canned goods.
Comparatively Small Investment Required
Again comparing the retail meat business with other lines, it has the advantages of requiring a comparatively small initial capital investment. It is comparatively easy, and usually entirely too easy for anyone to start in the retail meat business. As fixtures can be bought on the installment plan, it is nothing unusual to have men enter the retail meat business with a capital of less than $1,000.
This of course is a decided advantage to the ambitious individual, who knows his business well, but there is also a great disadvantage to the industry as a whole, as it attracts men to the retail meat business who have no knowledge of it, whatever, and who are entirely ignorant of the intricate details which the meat retailer must know, such as knowledge of products, figuring of cost and selling pricces and modern business methods.
While this is a disadvantage from one angle, the fact remains, however, that it requires comparatively a very small capital to start in the retail meat business. The dry-goods merchant, the hardware store, the drug store, and practically all other retail lines require thousands of dollars of stock to start off in business. For this they need considerable capital, even though credit is granted to them.
If a young man anxious to go into the retail meat business is able to secure a fair credit, he has the advantage of turning his products so fast that he can make his installment payments on fixtures by using as working capital the credit extended to him by the meat packer. The small investment required, coupled with the fast turn-over, is a decided advantage rarely found in any other line of business.
Fast Turn-over of Capital Investment
Dividends which are paid by corporations or companies are declared out of earnings or profits. Where there is a company having a capital stock of $100,000, which usually represents the investment in the business, and this company earns a profit of $10,000, it is said to be earning 10%. While the great majority of meat markets are not companies and usually not incorporated, it would be a great advantage if the average retailer would consider his individual business a company so as to realize the fast turn-over of capital investment and also to realize the amount
of money earned on his investment.
The retailer would quickly realize that from the standpoint of return on the investment, he is exceptionally fortunate when compared to the man in practically any other business.
The neighborhood market, which is typical of the great majority of meat markets in the United States, usually does a business of from $30,000 to $60,000 per year. Such a market generally represents an investment of from $2,000 to $4,000 in fixtures and other equipment. Considering a capital investment at $3,000 in the market, and estimating that the retailer does a business of $40,000 per year, with a net profit of 5% on sales, he will have a total net profit of $2,000 on a capital investment of $3,000, or a return of over 66% on his investment.
The item of capital investment in a market is very carefully watched by the modern meat chain stores. They set a very good example of bringing home to the meat retailer, the important factor of capital investment as it relates to the modern meat business. One finds, for instance, that the average chain store does not, as a rule, use very elaborate fixtures. The investment in many chain store markets which do a business of from $1,000 to $1,500 per week, will average about $2,500.
Comparing Meat Market to Securities
It is the ambition of every business man to get the maximum returns from the minimum investment. When the retailer buys bonds, stocks, or real estate, he expects a fair return on his in-vestment. If he invests $10,000 in 6% securities, he will get $600 per year on his investment. The more money he invests in this manner, the more he will receive. This principle, how-ever, does not often apply to capital investments in the retail meat business. The meat market doing a business of $1,000 per week with an investment of $2,500 gets a much larger return from the investment than the owner of a market who does a business of $1,000 per week and who has a capital investment of $6,000 tied up in his market.
Examples of Investment Return
The following examples show some typical comparisons to illustrate this business principle. It is assumed that the meat retailer does a business of $1,000 per week.
The increase in capital invested in this market results in only 28% on the investment, but it illustrates the importance of watching the capital investment, in order to get the maximum return from the money put into the business.
The business man figures that money invested must earn something for him. Every dollar put into fixed assets or into capital investment should be made to yield the maximum re-turns. As a retailer invests more money in his market, he must expect a certain increased return from the investment. If the retailer did not invest the money in a market, probably he would have invested it in securities or mortgages which would give him a certain yield on his investment in the form of interest.
A Million Dollar Investment
There are, of course, meat markets in the United States which are very elaborately equipped. To one not familiar with the circumstances such markets may seem to violate the principle which was just illustrated. In Los Angeles, California, what is believed to be the finest food establishment in the world is located. This market and building is reputed to have cost $1,000,000. On the surface, one wonders how such markets can pay, but there are usually other than business reasons behind such an enterprise.
The very elaborate market in Los Angeles is the headquarters of a large chain store company, and the owner, no doubt, has put up this wonderful and. elaborate food palace as the crowning achievement of his success. He probably is willing to sacrifice a certain amount of profit to be able to point with pride to an establishment considered the finest food palace in the world. It is not alone an advertisement, but evidence that there are men engaged in the industry who have ideals as to what a modern food market can and should be.
Markets Yield Large Return on Investment
The average return on the capital investment in a market is usually very large and comparing the meat business to other lines, the meat market man could invest $50,000 in a market and by doing a business of $100,000 a year at 5% net profit, it would yield him $5,000, which is equal to 10% on the original investment of $50,000. This is considerably more than the average percentage earned by the average company or corporation in the United States. The average market owner who can earn from 40 to 60% on his investment has a decided advantage over practically any other line of business.
Easy Control of the Business
The meat retailer has also a decided advantage in the comparative simplicity of his business and methods of controlling it. By adopting common sense business methods, and a simple system of bookkeeping, the meat retailer without much effort can ascertain very easily the exact status of his business and discover whether or not he is making money. The meat retailer who deals in meat only, and whose stock on Saturday evening or on Mon-day morning is low, finds that it is comparatively simple to take an inventory of stock left on hand . This is not such a simple matter with most other retailers on account of the carrying of larger stocks.
With the addition of a simple bookkeeping system which shows his correct sales and purchases, the weekly inventory will enable the meat retailer to know quickly the status of his business.
The practice of taking a weekly inventory is extensively used by chain stores engaged in meat retailing. The inventory is taken on Saturday night or on Monday morning. To appreciate the extreme simplicity of taking inventory in the meat business, one should compare this business to other trades; drug stores handle many thousands of products, the grocery stores handle hundreds of different products and articles. By comparing it to the dry-goods stores, furniture or hardware stores, that have to count their products by dozens, hundreds or thousands, it will be found that the retail meat business in this respect is exceedingly simple, and that there is hardly any difficulty in ascertaining the exact status of the meat retailer's business.
Unfortunately, this very great advantage does not seem to be realized by the majority of retailers. Very few take advantage of this simplicity in order to establish a proper bookkeeping system so they may know their profits or losses each week. Comparing the stock taking of the retail meat business to that of other lines, it must be admitted that for this reason, it is comparatively easy to control the business, and that it has a decided advantage over most any other line.
Absence of Styles or Seasons
The meat retailer has also the great advantage of being in a business of supplying an every day necessity of life. Meats en-joy an all-year round sale. Meats and meat products do not depend upon styles or any particular buying habit or demand of the public. While the industry may suffer from certain buying habits as pertaining to meat cutting and an uneven demand for certain cuts, meat products as a whole are not affected seriously by this condition. There are, of course, a certain number of meat markets which do not enjoy the particular advantage of a constant, all-year round sales. These are usually located at summer and winter resorts, such as Atlantic City, Palm Beach or similar places, which offer a fair contrast in this respect.
While the meat merchant in Atlantic City will do the largest percentage of his business during the summer months, he some-times finds it to his advantage to close up entirely during the winter months. This condition is reversed in southern winter resorts, where the retailer does his big volume of business during the winter season, and sometimes has to close his meat market in the summer months.
There are also a small number of markets, catering to very high-class, exclusive trade, that find it necessary to close during the summer months on account of their trade spending the season at resorts and summer homes. While there is a seasonal fluctuation in business in markets of this type, the great majority of meat retailers enjoy a constant all-year-round business.
The meat retailer, however, has the further advantage of selling a product which is not influenced by change in style. This is a great disadvantage in many other lines of business where products have to be bought months ahead, and where the sales depend entirely upon the demand of the public. In other words, the meat retailer is not taking any chances on styles or demands, except perhaps once or twice a year during the holiday seasons, when some retailers may miscalculate and over-buy, as in the case of poultry. This, however, is a type of risk which every business has to take.
The absence of changes in demand or style, however, is in itself an advantage hardly realized by the great majority of meat retailers.