Aussie Pies (A) "Wow, Australians really love their meat pies," Anna Amphlett said to Andrew Ferris as they sat at the Melbourne Cricket Ground watching the Australian Football League (AFL) Grand Final between the Sydney Swans and the West Coast Eagles. "I've seen people eat three meat pies straight, then wash them down with a full liter of Fosters Lager," she said as she looked across to see Sydney win the 2005 Premiership with a score of 58-54. According to observers, "Sydney has ended the longest premiership drought in AFL history in the most emotional and heart-stopping fashion imaginable by beating the West Coast Eagles by four points in the most exciting and closest grand final for nearly 40 years."1"But it's not just at footy matches," Ferris noted, "they eat them all the time, just like we eat hamburgers and hotdogs back in the States." Ferris thought about the number of pies eaten by the 100,000 people attending the AFL Grand Final. Amphlett and Ferris lived in Seattle, Washington, but were on a vacation to Australia to visit the Great Barrier Reef and attend the Grand Final in Melbourne. "I wonder if Americans might develop a following for the Aussie meat pie," he said to Anna... "perhaps there's a business opportunity back home."

Australian Meat Pies The meat pie, a hand-sized pot pie made with pastry and filled with minced (ground) beef and gravy, is consumed as a takeaway food snack in Australia (see Exhibit 1 for an illustration of a meat pie). According to some observers, it is iconic in Australian culture and has been described by former New South Wales Premier Bob Car as Australia's "national dish."2-The average Australian will consume an average of 45 meat pies per year, and the popular brand Four'N Twenty Pie produces 50,000 pies per hour. The meat pie is heavily associated with Australian Rules football, rugby league, and other sports as one of the most popular consumables while watching a game.3-The meat pie is about four inches in diameter and traditionally eaten in the hands with tomato sauce (aka tomato ketchup) and is usually accompanied by a cold beer.4- The pie has a short crust bottom and flaky pastry top (see Exhibit 2 for a meat pie recipe). Business Opportunity On returning to Seattle, Amphlett and Ferris continued working at their corporate jobs, but during their off-hours they would meet for beers at the Roanoke Tavern where they talked about launching the new meat pie business. They even registered the trade name, Aussie Pie, in case they later decided to introduce the concept of the Australian meat pie to American consumers. Amphlett was a regional manager of Starbucks, while Ferris was an assistant controller for Tully's Coffee Corporation. Amphlett started at Starbucks five years earlier after completing a history degree at the University of Washington. Her job provided excellent experience in a broad range of activities including personnel, supply chain, production, and business development. After graduating from the University of Washington with an accounting and finance degree, Ferris began a two-year stint at PricewaterhouseCoopers (PWC) in the audit group. PWC's Seattle office had a large retail practice, so Ferris developed considerable retail experience by working on several large retail clients, including Nordstrom and REI. After two years at PWC, Ferris moved to the controller's office in the Seattle headquarters of Tully's Coffee Corporation

Establishing the Business Amphlett and Ferris used the kitchen in their home to develop more than 100 variations of the meat pie recipe, which they tested on friends and family. Finally, they hit upon a recipe which maintained the flavor of the authentic meat pie but contained less fat and sodium. Based on commercial prices, they estimated that the ingredients for the pie pastry and the filling such as ground beef, onions, flour, butter, and sauces, etc., would cost $1.20 per pie. Based on the production research in their home kitchen, they estimated that the amount of utilities consumed in making the pies would cost about $0.03 per pie. After conducting extensive surveys of passing customer traffic at Pike Place Market, they agreed that a reasonable initial sales price was $3.25 per pie, comparable to other fast foods such as burgers and hotdogs, which competed for customers' fast food dollars. Based on quotes from an industrial supplier, they estimated that it would cost $0.02 per pie for each pie box used for customer packaging at the point of sale.

The entrepreneurial team felt that the ideal location in Seattle was a destination frequented by tourists who would be more likely to try new exotic foods. Market research suggested that Seattle's Pike Place Market on the Seattle waterfront close to Puget Sound ferries had excellent tourist traffic, particularly among the younger visitors. Discussions with commercial property managers prominent in Pike Place Market revealed that a large store of 4,000 square feet and the capacity to produce and sell 30,000 pies per month could be rented for $11,900 per month. Renting cooking equipment and fixtures would cost $8,000 per month and $5,000 per month, respectively.

Amphlett and Ferris came up with a design for each store in which the meat pies would be made at the back of the store with a glass wall panel separating the front section so that customers could see the spotlessly clean facilities in which the pies were made. They felt that this would enhance the customers' perception that Aussie Pies was a premium product using high quality ingredients and produced under impeccably sanitary conditions. Making meat pies at the store would require two full-time chefs at $1,800 per month. Only one full-time sales assistant would be needed at a monthly salary of $1,200 per month. Utility costs for lighting the store during business hours were estimated to be $300 per month.

Business Decisions The business data Amphlett and Ferris had gathered was quite unsettling as they began to realize that it alone would not provide the answers they needed. They would soon have to make some important decisions that would have far-reaching consequences for the success of their business.

Exhibit 2. Australian Meat Pie Recipe 1-1/2 -2 kg chuck steak, trimmed and chopped into small cubes 3 bacon rashers (optional), chopped 2 onions, peeled and chopped 2 cups water 1/2 teaspoon black pepper 1/2 -1 teaspoon salt 1/2 teaspoon dried thyme (optional) 1 stick celery, finely chopped (optional) 3 tablespoons plain flour 1 batch short-crust pastry (see below) Fry the bacon and onion over a low heat until the onion is soft. Add the chopped steak. Pour in the water and season with the salt, pepper, and thyme. Then add the celery. Cover, and simmer for about 1-1/2 hours. Mix the flour with a little water to a smooth, runny mixture (roux), then stir this into the meat mixture. Stir until the mixture thickens. Pour into a deep pie dish. If you are making small pies, then line small pie dishes with the pastry and fill them with the meat mixture. Wet the rim of the pie with milk or beaten egg. Place a layer of pastry on top of the pie to form a lid. Trim the lid to the shape and size of the pie dish. Press the edges together with a fork to seal. Make some steam holes in the top and glaze with beaten egg or milk. Bake in a hot oven for 30-40 minutes (maybe less for the smaller ones). 3/4 cup plain flour 3/4 cup self-raising flour Pinch of salt 100 gm cooking margarine or butter 3 tablespoons of cold water 1 teaspoon of lemon juice The above ingredients make one batch of the short-crust pastry for the meat pies. You may need to make more than one batch to complete the small pies. Place the flours and salt into a mixing bowl, rub in the margarine or butter with your fingertips, and mix into dough with the water and lemon juice. Turn out onto a lightly floured surface and knead lightly with a little flour. Let it rest for about 20 minutes before rolling it out into a sheet ready for the pie crust. Source: http://swengelsk.com/COOKING/AustralianFood.htm

Suggested Case Questions 1. What are Aussie Pie's committed or fixed costs (invariant to meat pie production)? What are its flexible or variable costs? 2. What profits would Aussie Pies generate if meat pie sales were 6,000 pies per month (ignore taxes)? 3. What must sales of meat pies be if the business is to break even (ignore taxes)? 4. What does it cost Aussie Pies to make and distribute a meat pie (ignore taxes)?