Local Competition

We operate a pizza place and have been open about 3 years now and have always had the local competition (approx. 300 yards away) which is 3 pizza and 2 indian food places. About 6 months ago a new pizza place opened with low priced offers, way lower than us and any of the other places. The offers are still in place now.

About 2 months ago, one of the pizza places opposite the new place closed down and the new place is still going strong. They have taken many of our regular customers who say they are way cheaper then us, even though their pizza and other food is bad, our former customers have shown us samples of the crap pizzas. But as the surrounding area (2-mile radius) is low income, people are always looking for lower prices. We do a menu drop of 25,000 every 3 months.

We still have our customers who prefer the better quality food and will pay more, but they come from more than 2 miles away. What would you suggest we do to tackle the new place and get back the local customers around our shop?

We are back down to break-even when before we were doing pretty well.
Should we join them at the lower price point?

We’re thinking of trying our small 9" cheese pizza at a special price of 1 dollar and see what happens. Or maybe any 9" 1-topping pizza for 1.50 dollars.

Can you give us a comparison of regular prices and specials for you and your new competitor?

Also, what is your food + paper cost on a 9" pizza? My guess is that a value-added special with a check average around/above $10 is going to be much more worth your effort than making sales $1.00 or $1.50 at a time.

Made a few mistakes in the last post, the prices we’re thinking of should be $1.50 for 9" cheese pizza and $2.00 for 9" 1 topping.

Current prices for 12" cheese, New Place - $2.00 Ours - $5.00
Current prices for 12" 1-topping, New Place - $3.50 Ours - $6.00

Another offer the new place has started running is -
Any FIVE 12" 1 topping pizzas @ $15.00

A while back we ran an offer for TWO 12" 6-topping pizzas @ $10.50 which was hugely popular.

Our current food cost (including box) for a 9" pizza is:
$0.82 (cheese), current price @ $3.70
$1.35 (1-topping) current price @ $4.50

“JimmyFloyd–king of cheap pizza”… do you like the sound of that? I’m being serious.

Anyone can make cheap pizza, but only one can be the cheapEST. You two can bid against each other until you’re both bleeding money. The winner is the one who started with the most money and can afford to bleed money the longest. Once the other closes down, the remaining store raises prices – until the next cheap pizza joint rolls into town.

Jimmy,
Snow’s post didn’t sound very encouraging there, but there are a few things that you can do to tackle the competition. Here are a few things to think about:

  1. Service- Give the best possible service. You can bet the cheap place is paying it’s employees cheaply, and they are going to sacrifice a few customers once in a while to bad service because they are going for volume.

  2. PR- Do something noteworthy and write it up in a press release. Local news is always looking for news. So you deliver it to 10 places and only one picks it up. That is still free press for an afternoon’s work. Check the PMQ magazine archives for a great press release article by Michael Cohen. http://www.pmq.com/mag/2002summer/cohen.shtml

  3. Do you do delivery? If so get some database mailers out there. You have gold in your database. Those are pizza eating customers, and if they aren’t ordering from you they are going somewhere else for their pizza needs.

  4. Start to introduce quality on your marketing materials. Along the lines of: “want a pizza that came out of the pizza master 6000 pizza machine? Then go to the competition, but if you want a great quality hand made pizza then chose us.” I wouldn’t use exactly those words, but I assume you get my drift. Give the customers a reason to think that the competition is using recycled candles or tofu as cheese to reduce price.

I would stay away from the price game. There are no winners in a price war unless you are one of the big guys, and if you are only at break even now then reducing price might not generate the business/profits you need to stay afloat.

You’re talking about running specials with a 67%-ish cost of sales before labor and I’m thinking this competitor is doing about the same. National chains can sell a $5.00 medium 1-topping pizza, but even then their margin is slender and their food/paper cost is in the 30’s, not in the 60’s.

I’m having a hard time conceptualizing how he’s turning any kind of profit other than if it’s a locally-owned shop with the owner working 80+hour weeks where he’s using his “time” to generate margin. Either that and/or each pizza is a super-thin crust, with a 1/2 cup of cheese on top and 6-8 pepperoni total.

How do you think he’s generating a profit?

Great advice guys.

Brad, your right on with the store owner working 80+ hours, there’s five family members running that place. And if the owners there most of the time, the service might not be that bad. The pizza is very thin and low quality. But due to the fact that this is a low-income area, people don’t care too much about quallity over price.

I read somewhere on PMQ that another owner would have special offer days, so that potential customers could try out his pizza and taste the difference. e.g. 14" cheese pizza, $0.99 for first 100 customers. He would do this 3-4 times a year. Is this something i should try?

We have a population of about 120,000, there are two pizza hut, one dominos and one papa johns, with approx. 200 other food places. Starting three years ago from nothing, it used to be a butchers, we’ve taken the sales to $10,000 per week, which is break-even. Any ideas if there is still enough potential to make good money?