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Roasting Up the Revenue

Rotisserie chicken has long been a mainstay at large grocery stores, as marketers have sought to bring in revenues from what are often called "prepared foods". These ready-to-eat, hot dishes used to be "loss leaders", since most shoppers tend to purchase a variety of more profitable items while they are picking up dinner. But now this large and varied category, led by the likes of Whole Foods Markets, has proven that it can be very lucrative indeed. But rotisserie chickens deserve the lion's share of credit in having paved the way for an industry that offers just about every preprared food you can think of.

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So what's new? Nothing, really. It's just that these items have not only failed to lose their collective popularity among an increasingly-fickle, and variety-seeking population, but they have become the best-selling hot item for many large retailers. In 2017, Americans bought 625 million of these tasty birds, a few million more than in 2016. Costco alone sold 87 million rotisserie chickens. That's a lot of pollo.

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It's true that individually, these birds are still not very profitable, largely because marketers want to keep them priced at between $5 and $7 each, but as any student of marketing should know, low profit margins can always be addressed by selling additional units. This is because fixed costs are spread out over more units and variable costs are reduced through economies of scale from producing more units. The point here is that these hot food items bring shoppers in the doors, regardless of profitability; and the pleasant aroma of the birds (which have a shelf life of between two and four hours) certainly doesn't hurt. As a result, retailers are investing in larger, more efficient ovens, and Costco, always looking for ways to integrate vertically, is even building its own $300 million chicken processing plant to reduce costs and enhance supply chain efficiency. And why not? The company has more than doubled the number of chickens it has sold over the last 10 years.


Discussion: Do you or your family purchase prepared foods from grocery stores? If so, how much do you think you usually spend on additional items while in the store?  Do you see any emerging trends in prepared foods? Can anything challenge the mighty rotisserie chicken?