Need help making BIG Decision

I own a pizzeria that does an average of $30,000 per month. We are 14 months old at our new location and our sales have increased every month the past 5 months. Our pizza isn’t the cheapest pizza being that a 16" pepperoni pizza is $13 and a 16" works pizza is $19. A new big Franchise that specializes in Kid parties is about to open in November. One of their franchises buys 1,000 pizzas from another pizza vendor where they are located. Last week they approached us and asked if we wanted to be their pizza vendor for their new location. They are forecasting that they will be buying 400-500 16" pizzas per month. Since this is a big franchise they want to purchase our pizza for $7 and $6 if they purchase more than 100 per week. They will be reselling the pizza for $16 at their location which is about 5 min from the pizzeria. Our costs are about $2.75 for cheese and $3.25 for pepperoni excluding labor. They also said that they will be cross branding our pizzeria at their location and advertising it as our pizza in all their advertisements. The question is, is it worth it to sell our pizza for such a low price even if they buy quantity? Should I try to negotiate with them on the price with the risk of losing them to someone else? FYI there is no one is the city that can produce the volume and quality of our pizza. This company has stressed that they are looking for a high quality pizza. The owners tried our pizza last week and loved it. They already told us that they want us to be their vendor. Is it worth the work? $6 is crazy low and I really don’t want to do it, but money is money right now. Anyone with experience Please help. I always told myself that I would never make these kinds of deals. Thanks!

For about 500 pizzas a month you are looking at giving a way $5,000. This could be used for running your own kids party place where you get all the profits, plus you get exposure of your product at your price to the families that bring their kids to the party.
This place seems like they want you to do all the hard work for them to profit on and for you to take the risk should they go bust and not pay you.
If no-one else in your area can do quality pizzas at volume then you are in the driving seat to negotiate a price to your advantage or go and do it yourself.

I have a hockey arena 1/2 a mile from me that asked for the kind of deal you are talking about. I told them 10% discount would be the best I could offer since I was doing all the work. They sell at the same price I do and make all the profit from the fees charged for the location plus the mark up on my pizza.

With the above in mind I will offer some insight from my college Cost Accounting course. Since the regular operational costs are looked after by your ongoing business, your incremental costs for each pizza you sell to this customer would be less. You need to assess the real costs of this deal based on the food costs and the increased labor costs.

Another factor to look at is how this increase will effect your day to day operation. Will the increase in the number of pizzas cause the service to your regular customers to suffer?

The conclusion from a number of accounting exercises while in college was: If the venture does not adversely effect your day to day operation or take away other more profitable opportunities and you are able to make a dollar then go for it.

I know I didn’t directly answer the question but I hope this rambling post provides some food for thought.

What Daddio said seems spot on, but there shouldn’t be anything lost in trying to negotiate a better price per pizza. After all, I would think from the start they’d be coming at you with the lowest offer they can. Figure in your additional costs and make them a counter offer. More often than not, if you don’t ask you don’t get. Good luck!

Don’t do it.

They will become the focus of your weekend operations (and during the summer of your everyday operations).

They will demand the pizzas be delivered at an exact time, no earlier, no later - and when you screw something up, it will be like the world ended. You will be blamed for screwing up their entire operation, because you were 5 minutes late with the pizza, and 20 kids were sitting in the room waiting, and now the next party will start late. Etc., etc. etc. etc.

No matter how you set it up, there will be frequent “he said/she said”, changing of orders, additions, cancellations, etc.

You regular customers will suffer because you will have to put the party places 2 pie order ahead of the customers $50 order.

These sorts of deals should demand a PREMIUM above normal price - not a discount!

DON’T DO IT!! At least, [i][b]not at $6/pie[/b][/i]. Counter at $10, settle at $8.25 (with much bigger minimums, like 501/month, else, the rate increases to $10. Only bargain with the decision maker. You’ll have to increase your staff (more payroll) to maintain your regular business along with the new business. Good luck!

*Have you seen the price of cheese??
*All of our costs will rise around 5-10% next year.
*Make sure you draw up a contract and have it reviewed by an attorney.

Oh man… I couldn’t agree more. I got involved in one of these situations on a small scale, and everything RG listed above happened to me. On top of what he mentioned, they also said people sometimes came in for “spur of the moment” parties and wanted to always be able to get pizzas within 45 minutes. We don’t have a driver on from 2:00pm to 5:00pm, so I would have had to hire somebody to stand around just in case they ordered.

They were getting about a 55% discount off of menu price and expected to be treated like they were my best customer.

After a handful of orders that screwed my regular business (just like RG said) I told them I would no longer be able to sell to them. They said something like “Wow, Papa John’s told us the same thing. Doesn’t anybody want to make money?” Then I facepalmed.

Are most of the orders placed in advance such that you know the delivery times and size of each order at the start of the day?

Will the rest of the pizzas be single tickets made to order or delivered in bunches to stock something like a buffet line or slice display?

Do you have a POS system that allows you to enter timed orders - i.e., can you enter an order at 9:00am and tell the computer to have it print at the makeline at 4:15pm?

So what did you end up doing?