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Just Off-Camera

"They respect you if you write. The dumber the world gets, the more the words matter." -Dan Jenkins


Saturday, May 07, 2005

Some Frank Economic Analysis

Westwood Village, despite its location right next to UCLA and its thousands of students, is sorely lacking in the way of late-night eats. Even Collegetown, Cornell's neighboring village, beats the pants off Westwood when it comes to late-night snacking. (I miss you, D.P. Dough. Please open a Los Angeles location.)

One of the few decent places to get food after 10 p.m. is U-Dog, which I believe opened around September, just before the undergrad school year started. U-Dog offers an array of about 15 different types of hot dogs and sausages. The ones I've tried have been pretty good. (I would recommend the knockwurst and the chicken apple sausage, which doesn't sound nearly as good as it is.) U-Dog's major selling point, though, is the price - every dog is one dollar. Or was.

Baseball aficionado that I am, I often get a dog and a beer at games. If it's good enough for Terrence Mann, then it's good enough for me. Dollar dog day is one of my favorite promotions at the ballpark. I was lucky enough to happen upon dollar dog day at Surprise Stadium in March when I went to a Spring Training game; I also have the good fortune to be going to a dollar dog day in Texas later this month when I go see the Rangers.

Anyway, every day was dollar dog day at U-Dog, and I was lovin' it way more than McDonald's could ever imagine. Up there on the menu, the original prices of $3 were crossed off next to every dog on the menu, and in their places were countless $1 tags. The nonpermanence of the price tag, though, made me suspect that the days of the dollar dog were fleeting.

Sure enough, earlier this week, I stopped by U-Dog. Gone were the $1 tags. Covering the $3 tags were new, intermediate $2 tags. As I commented on the predictability of the price rise as I bought one dog instead of the usual two, the guy behind the counter grinned knowingly, smirking like a drug dealer who hooked a new generation of kids on his product.

This is what U-Dog has done. Capitalizing on its location - directly on the walk home from the bars to the frats and other off-campus housing - U-Dog has created a legion of devoted snackers who made frequent stops for a late-night wurst. One of my hockey teammates has been known to regularly eat five-plus dogs for dinner - at $1 a dog, it's still a cheap dinner. Now, U-Dog is gambling that its established customer base will stay loyal at twice the price.

When I told my U-Dog-loving teammate about the price hike, he refused to believe it. We walked past U-Dog. He angrily vowed never to eat there again. I hope he'll keep that resolution.

See, even if U-Dog sells half as many dogs at the doubled price, it's still better off. Think about it. Say it costs 75 cents to make a hot dog, figuring in all expenses. At $1 a dog, U-Dog's making a 50 cent profit on every two dogs sold. But at $2 a dog, the profit rises to $1.25 per dog - which means that even if customers now only buy one, not two dogs, their profit increases 75 cents a customer.

Basically, U-Dog can now sell half the dogs it used to and make more money. Even if they alienate some of their loyal fans, will their demand decrease by half? Probably not - students - drunk students, especially - will still hand over $2 for a dog. It's still a reasonable price, although nobody will be happy about it after tasting the dollar dogs. It would take an 80% drop in dog demand for the new price change to have zero effect on their bottom line. That's not going to happen.

U-Dog, having created its customer base, now is taking advantage of it, and short of a tremendous drop in demand in the sausage market (no gratuitous jokes here, please), U-Dog is going to raise its profits by doing so. (Judging by my experience at L.A. bars, there's already little demand in the sausage market. Sorry. Couldn't resist.)

However, the black pirate flag on the horizon is the next price hike, which is inevitable now. Under those temporary $2 tags are the original $3 tags, and in another year or so, when people forget that U-Dog was ever a dollar and become used to $2 dogs, the $2 tags are going to come off, and the price is going to hit the three dollar mark that was intended all along. Yes, at this point, their profit per dog will be $2.25. They'll be just as well off as they were in the dollar era even if demand drops to 1/9 of the demand in the golden days.

However, at $3, it's possible that demand for dogs will actually drop to that level. You see, right down the block from U-Dog is In-N-Out - the best fast food burger chain in existence. And as good as U-Dog is, it's no In-N-Out. At In-N-Out, you can get a cheesburger, fries, and soda for under $5. At U-Dog, you won't be able to get a hot dog, fries, and soda for $5 once the dog price rises to $3. And people will pass up U-Dog for In-N-Out.

You know, I think I'm going to give up on U-Dog already. I like In-N-Out better. In-N-Out tastes better anyway. In-N-Out has a nice outdoor seating area. In-N-Out has a drive-thru. In-N-Out is open late. And so on.

U-Dog has already proverbially slapped its clientele across the face once. I'm not going to wait for U-Dog to come across the other direction with the backhand slap. I'm done with U-Dog. You may get your profits, U-Dog, but you won't get them from me.

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