## Wednesday, August 6, 2008

### The One Dollar Coke

"Coke for a dollar! What a rip off!" I heard that a lot this Summer. Let's take a look at the \$1 Coke.

Cost of Goods: \$.22
This is the cost per can of Coke at good old Costco.

Delivery Cost: \$.10
This is the cost of an employees time (almost always me unpaid) to go fetch the Coke. It's based on the average amount that I can fit in my car in one trip, divided by \$10/hour. It would probably be about \$.30 if it was delivered by a service, provided they would agree to do so.

Mileage: \$.02
This is the miles to Costco, multiplied by the IRS 2008 mileage allowance, divided by the average load of soft drinks. I don't claim this, but I probably should.

Electricity: \$.02
You want that cold? This is an estimate of electricity for the commercial cooler, divided by the number of drinks we sell each month (about 1000).

That's a gross cost of goods of \$.47.

Sales Tax: \$.08
Arnold needs his cut. Carbonated beverages are taxed. We're really selling Coke's for \$.92 with the tax bringing it up to an even dollar.

Bottom line?
Our gross profit margin on a can of Coke is 49%, about average for our store. We're not trying to make our drinks a major profit center, like movie theaters that rely on concession sales to pay their bills. A movie theater medium drink is around \$2.50. We're just trying to provide another product in exchange for a reasonable profit.

Also remember that our \$.45 profit on that coke is a gross profit. The net profit for the average game store is about 8% (Coca Cola's is 20%), which means, if I'm lucky, I make an exciting 7 cents per \$1 Coke. Also, the margin is less on other \$1 can drinks such as Mountain Dew and Dr. Pepper, as they're often between \$.30 and \$.44/can.

1. If you ask me a \$1.00 coke from a vending machine seems cheap. I've seen cheaper, but usually more expensive. And if you buy a Coke at a Baseball Game your looking at 6 to \$6.50 a drink. It's bigger than one can but maybe 2 1/2 cokes.

A dollar seems plenty reasonable.

2. That's what I was going to say. \$1 is standard for vending machines here in Arkansas, back in California the average was higher than that. It was only \$1 if you were really lucky.

Yeah, if you go to the store and buy a case it's cheaper than that. A lot cheaper if you get it on sale, but you've already pointed out most of the hidden costs involved.

The one you didn't point out is the convenience cost. When someone goes to the store they don't have to take their beverage with them. They don't have to figure out how to keep it cool. They don't have to take a selection in case they decide they want Mountain Dew instead of Coke when they finally get ready to have a drink. All they have to do is put a buck in their pocket.

3. How much do you pay for a soda at a restaurant, movie theater, concert, ball game, or game convention?

Some people get this concept, others don't.

The \$1 soda is still less expensive than the same soda at MOST of the restaurants around the store (exception is getting "value meal" with a fountain drink at some of the chains - which are usually allowed to slip by the "no outside drinks" rule if they come in with your food).
MexiCoke at BDG is actually less expensive than at the tacqueria in the same shopping center.

4. There is no period in Dr Pepper. Just so ya know.

5. Of course, unless I'm discussing pre 1950 Dr. Pepper, before the period was discarded for stylistic reasons.