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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: DOUG H who wrote (3835)	4/7/2004 2:11:46 PM
From: reaper	Respond to of 116555

it is my recollection that the cheese-buying JV was formed in late 1999 (which of course figures, given that cheese had been persistently high for a year; it of course later fell from that $1.75 level to something closer to $1.10). the theory as i recall was that Papa Johns (which owns a bunch of units themselves) and the franchisees would buy the cheese from the JV at a fixed quarterly price and then the JV would either build up reserves or deficits based on what the prevailing market price of cheese was. of course, to the extent that it started to suffer deficits said quarterly price would need to be raised. Papa Johns at the time had a stock price that suffered a lot of volatility centered around the cheese price, for as Russwinter points out 40% of their COGS is cheese. so my understanding of the theory behind these cheese co-op was to make the COGS (and thus earnings) more "stable". maybe there was another motive that the franchisees wanted it to keep Papa John's for raping them on cheese costs; i don't know. the "improved COG line" that i pointed out was not at Papa John's, but at Ruby Tuesday. To my knowledge RI has not taken a price increase in the last year, and while mix changes can definitely have impact on COGS at the margin they can't (i shouldn't say can't; i should say are very unlikley to) cause a 130 bps decline in COGS all by themselves. Cheers