Market share

A pizza delivery business I am reviewing claims to have 3000 households as customers out of a total of 18000 households in their delivery area.

This works up to be around 16.6% market share.

From what the seller tells me, he doesnt do any couponing or discounts. the only marketing he does sponsoring pizza for children at the library.

Is it possible to increase market share with marketing from here?
What is a good market share bench mark to shoot for.

Thank you!

It’s difficult to tell now days because each house has like 10 phone numbers. 20 Year’s ago when there was just one main number we could easily do a count. Back then we were around 10%. If memory serves me right we had about 4000 customers with 40000 addresses.

Today I have like 60000 customers with 40000 addresses [emoji3]

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I think in this case, the seller says there are 18000 house holds/house addresses in their delivery area and 4000 of those are his customers.

He tells me there is room to increase revenue by targeting those households with marketing.

But I dont know if that is possible or not.

The business has been increasing by 5% every year for the last 4 years though. Wondering if that growth is sustainable.

Seems like there is room for growth.

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How much growth do you think is possible. Also please provide your reasoning, so that I too can rationalize it.

Thank you

Do you know the weekly sales of the shop? Is it residential only or does it have day time population.

Our new store only has 13k residential addresses but has 20k people that work there.

What city/town is this in?

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its a small Canadian town with population of about 80,000.

There arent many offices around the shop. 90% of their business is residential/home delivery and rest is take out.

Is this the same place you were looking at before? Or a new one?

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This is a new one. This ones books are clean and there is account of everything.

The owner looks like a good guy and even pays 30k per year in employee benefits. I dont know what that is though. How much does your employee benefits cost you?

That one the broker wasnt willing to let me ask my questions directly to the owner. He wanted me to send him my questions beforehand. I called it off.

Well I’m sure the place is loosing money but that’s just how it goes. People don’t sell moneymakers. He’s probably kicking in some health insurance and or vacation time. I don’t know our benefit cost as we build it to payroll. We do vacation/sick/401k. Probably around 2% of sales.

The broker won’t let you talk to the guy because he doesn’t want you doing a side deal or the seller is keeping things secret from his employees.

That being said Canada and its politics is a great place for pizza. High taxes and high starting wages puts money in the hands of pizza eating people. California is pretty much the same and it works for us.

And as I type this I just realized that you have socialized health care. So I don’t know what benefits would add up to 30k

The other brokers let me speak with the sellers and get all the info I want and ask all the questions. They get me to sign NDA with clause that I wont go behind their backs etc.

I got a brief chat for 5 mins with the owners wife, and she mentioned that both her parents are extremely sick with cancer and alzheimers so they need to move back to their home town. She looked emotional when she mentioned that. I am inclined to believe her.

However the competition next door, messed up books, low ticket price (slice operation) and the stonewalling of asking my questions directly to the owner made me lose interest.

ok so 2% for benefits (vacation/sick/401) and is there 10% payroll taxes? Someone else said their payroll costs them 12% on top of the wages. Is that accurate?

Also with respect to my previous question, is there a way to quantify or rationalize how much more households I can bring on as customers if I do marketing aggressively? The seller says of the 18000 households, 4000 houses are his customers…

The numbers I referenced were regarding a sandwich shop, it changes a little when talking pizza delivery. I really don’t know a thing about Canadian payroll so keep in mind the numbers I put out there might not be relevant at all to your situation. In the USA, all employers must match 7.65% of payroll for social security tax and medicare. On top of this there are federal and state unemployment taxes and workers comp insurance. Plus my payroll company charges me .5% of my payroll as an administration cost. In Florida once one of my employees reaches $7000 in payroll, no more state unemployment taxes are paid. Workers comp rates are based on how dangerous the job classification is. The 12.6% I shared was referring to kitchen employees who mostly had reached the $7000 cutoff for state unemployment tax. My delivery drivers n the other hand turn over much quicker than kitchen employees so I’m still paying state unemployment on close to half of them in my last payroll. Delivery drivers also have a higher workers comp rate. My overall cost of payroll for delivery drivers on my last payroll was 16.92%

As far as growth potential of this location, having over 17% of the households already as customers seems like it’s near a saturation point, but there are so many variables to this that can’t be evaluated from afar. How much competition is there? Is the town growing, and if so at what pace? What is the owners definition of customers? If 17% are ordering twice per month you might struggle to grow it. If 17% have ordered in the last year but only average 5 orders per year, there’s room for growth. Growth can come from pricing if there is room to bump the prices. It can also come from adding menu items. Unless the current owner did a masterful job, the easiest growth will come from increasing the tickets and frequency of the 17% who are already customers.

Great points, Paul. Thank you.

His current avg ticket price is $26 and higher than other franchise stores in the city.

Also I checked my notes again, and he had mentioned that there are 18000 households and 13000 are not in customers. So that means 5000 households are his customers = 22% market share.

His delivery area is not growing. It is a old mature market, I think of well off people. Apparently it is hard to get a business license there to start new businesses.

You make great point about frequency.

I am sure if we apply the 80/20 rule, then of the 5000 customers he currently has, 20% of them (1000) of them account for 80% of the business, so may be there is an opportunity to get other 80% (4000) to increase their order frequency.

How difficult is it to get people to increase their ordering frequency? Are there any tactics and ideas for doing so?

Did they not give you the sales numbers?

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You are talking about the old pizza shop with messy books and cash sales etc, or are you talking about the new pizza shop that I am currently reviewing?

The pizza shop I am currently reviewing is a franchise, clean books and has 18K in sales/week in busy months and 15k/week in slow months.

That’s pretty low. You would have to double sales to break even. Just depends on how hard you want to work. It would still be cheaper than building from the ground up and starting with zero sales. Just don’t expect rolling around in piles of cash.

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Where do you get the assumption that he can’t make any money at 18k per week? What data do you have to back that up?

The business grosses 850k and nets close to 180k for owner. Owner puts to 40 hrs of work per week.

Why do you think it doesn’t make money? Thanks.

It was stated as 18000 per month. I’m guessing that that was misstated but if not, it certainly will be tough to make any money at that.