I'm not sure of my math, but I still can't arrive at your number: 110 million Jumbo Jacks multiplied by a $0.10 price increase = $11 million. $11 million divided by 39.3 million shares outstanding is $0.28/share. So according to my math, the profits would be significantly higher than your $0.20/share. The logic of course, is that it wouldn't cost them any more to sell the Jumbo Jack at .10 higher, and that this increase would be pure profit. However, at the current average price of $0.99 for a Jumbo Jack ($1.10 with cheese), this would represent a 10% price increase to the customer, and you would have to expect some reduction in volume if Jumbo Jacks are priced above the psychological $0.99 price point.
You claim was such an interesting one, I phoned Darla at Foodmaker's Treasury Department to verify the 100 million sales volume for Jumbo Jacks. She connected me to Guest Services, who verified the sales volumes and average prices. Mind boggling that a dime price increase has the potential to account for 1/4 of FM's profits! I realize that the quick service restaurant business is very competitive, but it almost makes me want to lobby for a price increase if it will impact earnings this favorably! Still, the FM execs are far better than you or I at assessing the negative or positive impact of their pricing strategies in the marketplace, and they've done a great job so far at building FM's sales volume. I think it will be important for some time to offer a decent $0.99 burger.
As always, do your own research,
D. Kuspa |
