Why Chicken Sandwiches Don't Cost $1500

 About a year ago, Andy George from the channel How to Make Everything released a video called “How to Make a $1500 Sandwich In Only 6 Months.” I made a chicken sandwich completely from scratch, which cost $1500 and six months of my life. The video was hugely successful—it got millions of views. Then, a few weeks ago, Andy came to me with a question. Obviously I didn’t use the most efficient method of making my sandwich, but why is there such a huge gap in price between the sandwich I made for $1500 and one you can just buy at a store for much less. My nearest grocery store sells pre-made chicken sandwiches for 2 pounds, about 2.5 US dollars. That’s 600 times cheaper than Andy’s sandwich. The economic principle that really makes the modern commercial world go round is economies of scale. You might remember from history class that an important step in the development of humanity was the beginning of specialization of labor. That was the point when advancements in technology were far enough along that the amount of food one person could produce was higher than the amount one person needed to survive. Since there was a surplus, some people could go and do other things, like science, research, writing, and even production. This also helped spur the development of the first real cities since everyone didn’t have to live on farms. Specialization of labor was in a way the very beginning of the use of economies of scale because instead of everyone growing and making everything they needed, different people did what they did best and exchanged goods to get what they needed. Fast forward almost 10,000 years, and the world is almost entirely specialized. Individuals almost never make things for themselves, except for Andy George. I challenged myself to see if I could as an individual make something as basic as a sandwich entirely by myself. I grew all my own vegetables, harvested and ground my own wheat to make bread, killed and butchered by own chicken, and even flew all the way from Minneapolis to LA to collect ocean water to boil down for salt. The salt is what we’re going to focus on. The reason is because Andy’s salt production process was almost identical to that of a larger firm. He had to gather raw materials, process it into a product, then transport it to a final market. Those three steps have been optimized in our modern world to yield insane cost reductions. I spent $298.88 on a plane ticket, $57 for a boat, and $6.41 on a five gallon jug all to gather just the few ounces of salt I needed. He only needed a small amount, but for the same price he could have gathered more than a pounds worth. For his six ounces of salt, Andy paid $362.40. That’s $52 per ounce—more than triple the cost of silver. Each gallon of seawater yields about 4.5 ounces of salt when evaporated, so his five gallon jug could have carried enough water to make 22.5 ounces of salt, or 1.4 pounds. At that production rate, the cost per ounce is $16. That’s 3.25 times cheaper! But we can make it even cheaper, we just need more five gallon jugs. If we buy, say, nine more five gallon jugs at $6.41 each our total cost would be $419.98, but we could make 14 pounds of salt! That brings the cost down to $1.87 per ounce. We can keep scaling this up, to an extent. Andy’s method of transport was flying and at that base rate his total cargo capacity was only the capacity of his carry on bag. The largest carry on bags have a capacity of 45 liters or 11.8 gallons. One gallon of salt weighs 18.1 pounds so assuming nobody ever checks the bag Andy could’ve carried 213.6 pounds of salt. To produce that much, Andy would’ve needed 153 five gallons jugs and the boat he was on could’ve only carried about 10 so he would’ve needed to rent 15 more. So if we add together the plane ticket, the 153 gallon jugs, and the 16 boat rentals, we get a total price of $2191.58—a lot more, but it’s worth it because at this production rate the salt only costs $0.64 per ounce—but we can keep scaling. The average rate to hire a Los Angeles based 40 foot semi truck is $2 per mile. To drive the 1,912 miles from Los Angeles, California to Minneapolis, Minnesota, it would therefore cost $3,824. The usable capacity for these trucks is 2,395 cubic feet or 17,916 liquid gallons, or 325,000 pounds worth of salt. Sounds great, but the US only allows a total gross weight of 80,000 pounds on the road, and that has to include the weight of the truck itself, so the actual transport capacity is only about 40,000 pounds. Salt is just so dense that we can’t load a truck to its full volume capacity. So, we’ll just produce 40,000 pounds of salt and for that we’d need 2,857 boat rentals and 28,571 five gallons jugs. For the sake of explanation we’ll pretend that we can’t re-use the five gallon jugs. Those boat rentals would total up to $162,849 and the jugs would add up to $183,141. So including the transport cost by truck, producing 40,000 pounds of salt would cost $349,814. That’s now a cost of $0.54 cents per ounce. As you can see, as you get into higher and higher levels of production, the advantage of producing more grows smaller. It was 25 times cheaper to produce 214 pounds of salt than to produce 1.4 pounds of salt, an 152 times increase in production, but increasing the production from 214 pounds to 40,000 pounds, a 314 times increase, only decreases the price by 1.19 times. Let’s shake up the production process. Instead of boiling the sea water down to salt in Los Angeles and then transporting it to Minneapolis, let’s say that Andy transported the sea water to Minneapolis then boiled it down. What would the cost be then? Well, seawater weighs about 8.6 pounds per gallon, and once once again we can only carry about 40,000 pounds or 4,651 gallons. This will cost $3,824 for the truck, $5,968 for 931 five gallons jugs, $5,358 for 94 boat rentals, and in the end will only yield 1,308 pounds of salt. To make these 1,308 pounds we spent $0.60 per ounce. A difference of six cents per ounce may not seem like a big deal, but once you get to the scale of producing, say, 100,000 pounds of salt, those six cents add up to $96,000 dollars—more than the price of a Tesla Model S. This demonstrates a very important principle in manufacturing. There are essentially two types of products—weight-loosing and weight-gaining. Salt is one of the greatest examples of a weight-loosing product—you put in a lot of raw material, in this case seawater, to make a little product. Obviously it doesn’t make sense to ship the raw seawater cross-country when you can just boil it down in Los Angeles. This is why processing plants for almost all weight-loosing products will be located near the source. The other type of product is weight-gaining. You take a small amount of raw material and make it into something much heavier or larger. A great example of this is Coca Cola. They have more than 900 bottling plants worldwide just so they can lower costs. If transport was not a factor at all, they could achieve lower costs by having one single mega-factory, but once their soda is made, they still have to get it to the end-consumer. The cost of transport is closely linked to weight so since they just take a small amount of flavors and ingredients and add it to water—something available almost anywhere—it makes sense to produce their product near the end consumer. Overall, we achieved a 92-fold reduction in the cost of salt by using the principles of mass-production. Every single ingredient Andy George used to make his $1500 sandwich could have benefited from the principles of mass production. We also could have gone even further—we could’ve rented a bigger boat, used bigger containers, there were plenty of ways we could driven down prices even more, but these type of cost reductions make the difference in our modern world between a $1,500 and a $5 chicken sandwich.