In the previous chapter it has been pointed out how very important it is for the retailer to know how to establish a correct selling price. To know how to establish this correct selling price requires that one must know all expenses which enter into the cost of doing business. The only way one can know operating expenses, records of sales and purchases, is by recording them or, as in any other line of business, the meat retailer requires a bookkeeping system.
Bookkeeping Not Complicated
The average retailer seems to be reluctant to start a set of books, fearing that it will require considerable time and a great deal of attention to details. This is not so, because a very simple bookkeeping system can be kept without much effort. It all depends upon exactly how many figures and facts one may want to record. There are certain fundamental transactions which must be recorded to arrive at a correct operating cost. But the retailer has the privilege, of course, of gathering as many facts about his business as he may desire. He may want to know, for instance, how much beef he sells in pounds or tons, or how much veal, lamb or pork he sells.
However, such statistics are not fundamental facts necessary for a bookkeeping system. It is well to remember that the retailer who does not want to burden himself with too many facts, should record only such figures as are necessary in determining the status of his business. The Bureau of Agricultural Economics of the United States Department of Agriculture has developed a very good bookkeeping system for the meat retailer which can be had for the asking.
Facts Should Be Recorded
The question now is: Which are the facts that should be recorded in business? Such facts are everything which pertains to the business itself, involving money paid out or taken in. When such figures are known, an inventory is taken, and all expenses plus the money paid out on purchases are recorded, that which remains is profitthe ultimate object of being in business.
There was a time when meat retailers enjoyed a reputation of always making money. “Butchers” were considered well-to-do business men. That was the time when meat products were considerably lower priced than they are today. During this century, however, and especially in the last few years, there has been a steady increase in the cost of living which has also affected the increase in the cost of doing business. Yet many retailers operate under the same methods they used in 1900. Accordingly, they are making a very serious mistake, and are not getting the profits to which they are entitled.
Comparing 1919 to 1926 Operating Expenses
Wages, rents, equipment, in fact practically every expense item in the retail meat industry has increased, a condition found in other industries also. The operation expenses have increased to such an extent that they require very careful watching in order to make a profit in business.
To realize the change that has taken place in the operating expenses in the retail meat industry, one need only look at Table No. 24, published through the courtesy of the United States Department of Agriculture. The retailer who compares such figures with his own operating expenses of today will find that a great difference exists between the business expenses of 1919 and those of 1926.
According to the government table, all carry stores investigated had a total expense of 15.48% ; all delivery stores, 17.36% ; all individual stores, 16.73% ; and the average for 15 chain systems was 15.05%. The average for all types of stores resulted in a total operating expense of 16%. In other words, it cost the retailer $16.00 for every $100.00 worth of business done in the market.
Operating Expenses Increasing
This investigation was made in 1919, or 8 years ago. In 1924 another investigation was conducted by Horace P. Secrist under the auspices of various agencies interested in retail meat distribution. The results of this investigation, which was made 5 years later, are reproduced in Table No.. 24-A. The total operating expenses during 1924 vary all the way from 18% to 23%, or there is a maximum spread of. over 7% between the figures established during 1919 and those of 1924. Since 1924, expenses have not decreased in the retail meat business, rather the reverse, and demands are constantly being made upon the market owners for higher wages.
This is substantiated by the results of another investigation made in 1923 and published by the United States Department of Agriculture in Bulletin No. 1442, by K. B. Gardner, and presented in Table No. 25. It will be noted that expenses vary from a minimum figure of 18.75% to as high as 24.11%, the latter figure representing a market operating at a loss.
While such investigations cover only a limited number of markets, the retailer who will compare the expense figures of former years with those of today will realize quickly the great change which has taken place in the operating expense in the retail meat business. This in itself is a very good reason why every retailer should know the operating expenses of his market.
Typical Operating Expenses in Markets
The figures which have been reported herewith may be considered vitally important to the meat retailer because they actually exist in the industry. In an independent investigation of expenses for the average type of market, made by the author. it was found that a fair average figure for the operating expense of a business in a typical American meat market is nearer an average of 23% than it is to 20%.
High operating expenses, however, do not always indicate a business loss because the profit depends a great deal on the sales price received for the product. Investigating the business status of a certain successful western meat chain store company it was found that the average minimum cost of operating expenses was 26%. Some of the stores were operating at an expense of 30 to 32% and still were making a profit because this particular company had built up a reputation for quality products which enabled them to get a high price for their meats.
By assuming an average operating expense of only 21% for the average market as compared to some of the figures established for 1919, it costs the retailer $5.00 more today to do $100.00 worth of business than it did in 1919, which was also a period when wages were very high on account of the shortage of manual labor.
The increase in expenses, however, is not alone in wages but in practically every item, as evidenced in the table presented by K. B. Gardner, and reproduced herewith from Department of Agriculture, Bulletin 1317, giving a survey of expenses as they existed during 1923.