Economics and business in the food sector: costing, marketing, consumer behaviour and markets
Domain 6 expects you to price a product correctly, separate fixed from variable costs, and interpret market or consumer data. Calculations are usually simple, but the order of operations (net price before VAT, contribution margin before break-even) decides the result.
Costing and pricing
- Variable costs change with volume (ingredients, packaging, energy per unit); fixed costs do not (rent, insurance, salaries of permanent staff).
- Contribution margin per unit = net selling price − variable cost per unit. Break-even volume = fixed costs ÷ contribution margin.
- Food cost ratio = food cost ÷ net selling price; in gastronomy a ratio of roughly 25–35 % is targeted, depending on concept.
- Markup and margin are not the same: a 100 % markup on cost equals a 50 % margin on price.
- German VAT: food for home consumption is at the reduced 7 % rate, restaurant services at the standard 19 % rate since 2024 (the temporary 7 % rate for restaurants ended).
Consumer behaviour and markets
Price elasticity of demand measures the percentage change in quantity for a percentage change in price; staple foods are relatively inelastic. Income elasticity underlies Engel's law: the share of household spending on food falls as income rises, and in Germany food and non-alcoholic beverages account for roughly one tenth of household consumption expenditure. Retail structure is dominated by a few chains with strong discounter and private-label shares; the marketing mix covers product, price, place and promotion, extended in services by people and process. Current consumer trends are convenience, health, plant-based alternatives and sustainability, with a well-documented gap between stated attitude and actual purchase.
Worked example
A dish has food cost €3.20 and a target food cost ratio of 28 %. Net selling price = 3.20/0.28 = €11.43. Adding 19 % VAT gives €13.60 gross. Variable cost per dish including food, packaging and energy is €4.50, so contribution margin = 11.43 − 4.50 = €6.93. With monthly fixed costs of €4 500, break-even = 4 500/6.93 ≈ 650 dishes per month, about 22 per day across 30 opening days. Raising the price to €12.50 net cuts break-even to about 562 dishes - useful evidence for a pricing argument.
Traps
- Adding VAT to a price that already includes it, or applying 7 % to restaurant service.
- Confusing markup with margin.
- Counting rent as variable cost, which distorts break-even.
- Generalising from stated consumer intentions to actual buying behaviour.