Need input ASAP, jrokk, Nick, Otis, Dave, and everyone else!

Pizza Shop Talk The Think Tank
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Hey guys,

OK here is the skinny. I am part of a local franchise. There are now 11 stores, there used to be as many as 20. Most of the stores have changed hands in the past year or two. My store was bought by me in December of 2005 for 36,000. The former owners represented that they made a “pure profit” of almost $60,000. It became clear to me very quickly that the claim was not even remotely true. The franchisor was complicit in the deception and never did let me know I would be the 7th or 8th owner of a 10 year old store. There is no air conditioner in the store and last summer it got up to 140 degrees in the store. The store was doing about 2300 a week on average. I worked many, many, many hours without pay. My credit has been destroyed and I was able to save my home from foreclosure by borrowing from family the day before the sheriffs sale. Our rpoduct sucked. We lost a taste test vs. Little Caesers. I chaged the cheese, changed the dough, and abandoned all the franchise marketing. I did my own database marketing and started doing school fundraisers. The fundraisers brought in new customers who didn’t know the bad reputation of the store. (It used to be more known for selling drugs than for selling pizza) I also cleaned up the store.

Fast forward to today. My lease at the store expired in December and I am on month to month at $1500/ month for 900 square feet. My utilities are about $600 a month. We are in Michigan, the Detroit area. There are 65,000 people in my city and over 50 pizza places. All the big guys are here except Papa Johns, they came and folded up after about a year. My marketing has worked somewhat for me, we have averaged about 3000 a week for the past few months. April and August are our slowest times of year. My last two health department inspections have been perfect. 100% on both. At the pizza pizzaz competition I place 13th. Not great but then again I have only been doing this for a little over a year. I am pretty proud of that finish. I marketed that we were judged to have one of the Top 15 pizzas in America in a National Competition.

I still owe the former owner another year and a half of payments for the purchase of the business. I now have the opportunity to move the store. There is a Chef who has a catering place less than a mile from me. He has a full kitchen including fryer and stove (which I don’t have right now) He even has a pizza over but it is REALLY old and won’t fit our signature 24" pizza. I spoke with him today. I could move in with him and spit the rent (which is $1300 or $650 each) and utilities. I could use his equipment and he would be able to use mine. I figure this will save me about $1000 a month. I could also have full service catering for my customers in the upcoming Graduation season. It seems like a win win situation. I could move my phones there pretty easily and I figure it would take just a day or two. I spoke to the franchisor and he was fine with it. I would still be in the same city and area code so I could take the phone number. It is basically still the same neighborhood. The franchisor said to figure it would cost about $1000 to move. I would need to move my double stack of Bakers Pride y-600’s, Hobart BIG mixer, walk-in cooler, pizza prep table, pepsi cooler, and various shelving units and tables. The chef said I would need to pay to get his ovens out to make room for mine and have them taken to his home garage which is nearby. So I have several questions.

  1. Would you make the move.
  2. Is the $1000 estimate to move about right?
  3. I was going to try to sell the store and ask $40,000 will this help that?
  4. Any input is appreciated as I’m sure I am missing something.

Thanks a lot!

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

As a former Detroiter, I don’t exactly where you are, but I would nix the move on several accounts…

You’re taking on an unknown “partner” - not the best business move…

You didn’t do you due diligence when you 1st bought the place & you are now making positive inroads…don’t give up!!!

Keep up the positive efforts until you feel you’ve reached a profitable point, then re-evaluate a move to a new location (w/your equipment) or sell, but remember, you’ll probably have to take back a partial note…

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

How much do you owe the previous owner? I’m sure he doesn’t want to take the place back???

what about talking to the landlord and negotiating a lease. Possibly a 5 year lease… 1st year 1000/ month… (lowering 500)… then back up to 1500 month… ? it might be worth a try… If you show the landlord your financials… he may sympathize.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

I am in Taylor MI. I still owe about $16,000. The former owner has someone who will pay $15,000 for it right now if they get it back so they really don’t care, they got theirs.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

maybe renegotiate the terms on the note? lower the payment, increase the time period.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

I really have my doubts as to whether you could pull off a move like that for $1000. In my area just to transfer utilities,phones etc. costs you almost 1/2 that. Moving the ovens (his out and your’s in) will take some manpower if they are anything like mine(1200 lbs each). You will need a good sized truck for moving the equipment.

Customer seem to be creatures of habbit. A very popular party lounge in my town decided their space was too small and moved to a larger building about 3/4 of a mile away thinking they would bring their existing customers with them and add more. After they were open in the new location for a few weeks they realized that even though they had more people in their new location very few of them were from their old location. They are now re-opening the old location. So think of what the impact on your bottom line will be and whether you can build your customer base rapidly in the new location.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

What weekly sales level would you have to hit in order to make 60k a year in our current location with your current fixed expenses?

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Okay, I’ll offer my two cents:

Right now at your location you stated you average $3k/week for the past few months and prior to that you were at $2,300/week. That is a store that is on the bubble. You’re even moreso on the preverbial bubble because now you’re without a lease and you’re month to month on payments.

Personally, if it’s affordable, I think a move is a fantastic idea… but with an exception. The sharing of a business with any other business just feels… uncomfortable to me. It’s kinda like having a roommate. Remember those days? Everything’s great for a couple months then you both start to get on each other’s nerves. Don’t think your proposed situation is any different because it will happen.

So, about the move:

I would recommend you start shopping. Look for a free standing building in your area (not too far from where you are now) that is available and for lease. Preferably, this building is a former restaurant. Either way, talk to the landlord of this building and tell him you want to move in there, but there will of course be some leasehold improvements to make it “your” pizza place. You want the landlord to pay the upfront costs of the improvements and you will pay for those improvements through the term of your 5 year lease that you’re willing to sign with him.

By going this route you will have obtained a new 5 year lease in a free standing building, the landlord pays all the leasehold improvements, and the cost of the move is still low like it would be done with the scenario you offered to the forum. As far as credit is concerned, I wouldn’t worry about it too much because I honestly can’t remember a commercial lease I signed where they even bothered to look at the credit (maybe I’m just a good salesman).

By doing this you will have given your store a brand new face lift and moved it from a “not so good” location to another location that will automatically increase your sales just because it’s “new”. This strategy has been done many times over by the big boys. I can remember being a part of this strategy in a Domino’s store I once managed. We went from a strip center to a free standing building in the same parking lot and unbelievably increased sales almost 50% right off the bat. This store was no slouch either, posting sales of $8k/week one week and going to $12k/week the next… and it STAYED there.

So, while I think a move is a good decision (if it’s affordable) maybe you should try this approach as opposed to the one you mentioned. Hope this helps. -J_r0kk

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

About $6000 per week in current location, about $5000 per week if I moved to the new location.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Transferring utilities won’t be an issue, everything is already there. I would need to move my phones but nowadays phones seem pretty easy to deal with. I do agree that customers are creatures of habit. I would need to do a nice marketing splash to announce our newer, bigger, better location with all new menu items. Also, in my current location there is zero, and I mean ZERO foot traffic. The new place is next door to a Subway Sub SHop that has a lot of traffic. Plus the actual “traffic Count” on the new street would be substantially higher.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

You have a couple of options here. First off, don’t worry about losing your current customer base. Some will follow and some will not. At 3000/wk, that’s what any pizza business will do just by opening the doors and handing out some menu’s.

It’s crunch time for you. You are losing money. I would sell the place back to zero out the note and say"good by" and take that shop as a learning experience, college in a way.

Take the man up on his offer and open up under your new name and develope a reputation that you would be proud of.

Hit the marketing side hard, as if your life depended on it- it does,right?

Sometimes it’s better to give birth than raise the dead.

It takes a lot of time and money to overcome a bad reputation. Yes, it can be done. However, you can start fresh and hit those same sales almost immediately and soon be hitting 5’s and 6’s weekly-Marketing, marketing, marketing!

I am opening up a another shop with the same situation as yours. The doors open Monday. It was a pizza shop and catering business combined. You have to make sure everything is spelled out and also “trust” is a major factor. This kind of operation can work.

Sometimes you must take the leap of faith.

Gather up all the marketing information on this site(it’s worth thousands and you get it for free) and make that turn around in your life. I’ve been in your situation before. Seeing your dream turn into a nightmare is crushing. This is an opportunity to turn it all around.

One last thing on your journey in the pizza business, some people hit pay dirt from the start, most don’t. You take your lumps and bumps along the way, at the same time learning the trade. Those of us that stick it out by dropping the “I know it all” attitude and asking for help such as on this forum have a very highly likelihood of success. Boy o boy do I wish I had this forum back in the day before Al Gore invented the Internet.

PM me if you would like to chat.

Good luck!

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Honestly. I’d just sell the store and get out of the business for a couple of years while you build up more capital and increase your overall business knowledge. Take some accounting courses, work in another pizzaria as a General Manager, etc.

Once you’ve had time to recover funds, gained more knowledge, learned from your mistakes, you might possibly start out with a bang on your next store. Sometimes I wish, I could just sell our store and get a fresh start also.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Shame about poor if any due dilligence.

Question is did the previous owner overstate sales in writing and was there any evidence to support his figures? You may have a legal avenue to recoup your costs if he intentionally falsely overstated revenue and profits and cannot prove it.

Maybe talk to a attorney for advise. Also front the owner and tell him that you will be talking to the Tax man (IRS ?) as he would probably given them one set of figures (for lower taxation payment) and you another (much higher). This may get him to refund half your outlay.

I’m with j_r0kk about moving and re-naming. You have an avenue to bring in customers with some creative (if slightly stretching the truth) marketing.

You said you came 13th in the Pizza Pizzaz and say you market that you are in the top 15 pizzas in the US. Why don’t you get really into it and use it to the max. if you divide 15 (top 15 pizzas) into the US population (300 million) you get 20 million. Advertise that you were judged as being in the top 15 and say " 20 million judged us as having great pizzas … where are you getting yours?". Yeah it is stretching it a bit but this is what marketing is about, creating an awareness.

If your pizzas are good and you put the advert together and get it out there you could easily double or triple your sales.

A guy over here in Australia, not far from me, was part of the winning team of the best of the best world pizza championships a couple of years ago. The press built it up to say he was the outright winner and he also had all the marketing support for winning the state based and Australian based competition. Now days people line up outside his shop to get his pizzas. He used to have 1 oven now he has 3 and has outgrown his shop. He is in a semi rural, border of the metropolitan area without densely population to draw on yet he needs 3 ovens to cope. It’s all about marketing.

For mine I would bite the bullet and try and screw the previous owner just like he screwed you and then get the creative cap on and build a strong campaign along the lines I outlined. I would do press releases, big bold banners, even try to get on to talk back radio and highjack it to get your message out. Push the barrier to the point just under actually falsifying yourself. Even if you get the relevant agencies on your back saying you have misappropriated your advertising all you have to do is do a retraction in the press. Who cares you have got your message out there. The public will react to the initial slog not the timid retraction.

Time to be ballsy with the previous owner and take him to task and time to get ballsy with your advertising along the lines of the 20 million.

Gee now I’m geared up over this I think I better do some creative thinking for my own business. :lol:

Shame we only have 20 million in the whole of Australia :cry:

Dave

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Forgot to log on

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Gotta say that I’m squeemish about the “roomate” scenario with the other business sharing the same space. If you had more separate space, it would seem more practical.

j_r0kk had my idea. If you are going to move, see if you can find the “bomb diggity” location and make it your own with a shiny new long-term lease. I find that any time I am on the hook to someone else with my business, I lose flexibility and the brazen courage I need to make big decisions and take measured risks for my place to grow its brand, products and reputation.

It also sounds like the franchise isn’t really offering ANYTHING to you. If all they offer is a monthly “mortgage payment”, then it sounds time to get into the pool with the big fish and create your own expertly choreographed identity. If the name identity of the franchise is that great, then okay. But, if you use none of their products or marketing materials, then cut losses and make your own name. Pay your “fool tax” (purchase payments) that so many people have learned about . . . overpaying for a business to some degree or other.

Then, grab onto the ideas and strategies kicked around here every week.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

[quote=“NicksPizza”]
Pay your “fool tax” (purchase payments) that so many people have learned about . . . overpaying for a business to some degree or other.

quote]

Nick.

You have shamed me yet again :lol:

Like a lot of us I paid too much even after doing the due dilligence. The seller had good “black” figures which have been subsantiated since I’ve had the store but showed losses on Tax reporting.

I met with his accountant and had him explain all of the tax reports and issues I raised and he and the owner assured me they were kosher.

After a few months I realised he was paying a lot of wages “under the counter” and not paying the compulsory superannuation (9% of gross wage) as well as understating other areas. Because he pulled so much out of the actual sales to taxable reportable sales he had to underestimate outgoings. I based the returns on the “black figures” (actual takings) vs the outgoings and they looked really good, but the real outgoings eroded the profits substantially.

This store unbeknown to me, even with its great name for pizzas and strong sales figures, was known by the younger set as a place to buy “grass” off certain staff. I virtually had a complete change of staff from the start and now only have two left who are very good, honest and hard workers and were not there when the drugs issue was going on.

I have well and truly paid my share of “fool tax” and been ripped off like Gusto. Luckily for me sales are strong and have increased by over 10% in the time I have had the shop, but the real costs have been to the detriment of my income (or lack of it).

One thing we did was to give the place a complete make over with inside decor and fittings, window and neon signage and a new trading name. All up cost was around $30 - 35K. It has been hard but there is a bigger light at the end of the tunnel and I don’t think this time it is an express train.

None the less please feel free to remind me of the “fool tax” anytime as the old cosmic kick in the pants is a good leveler every now and then. :lol:

Dave

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

since you asked, my best answer is:

that’s lot of information and still not enough for solid advice.

j_0rrk has a good idea and looking at a 3rd or 4th alternative, ie renting another space, location, size.
sounds like it may cost you as much, $1000 may not do it, to move in with your friend as it would to find a different and possibly more suitable location in the long run, and you could keep your “identity” intact, something that has value,

good luck,
Otis

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Dave,

I’m still making payments on mine. Every month, I get reminded of the lesson I learned after the fact. We knew we were likely over-paying a bit, and took the chance anyway given the siituation and market conditions. Looking back, we would have offered a different amount, but don’t regret that ‘tax’ very much. Mine was wayyy less than some folks have been surprised with. Live and learn (and avoid bankruptcy whenever possible :wink: ).

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

Thanks for sharing your thoughts. I met again today with the guy who is in the space now. He has a contract with some senior housing and provides meals for them. He said that he thinks he will be too busy with that to operate any retail now. But I am free to utilize the whole kitchen. I spoke to the franchisor. I will be the only store to have a fryer and I want to expand the menu but he is already trying to tell me what I can or cannot sell. I am not wanting to go through the grief of brekaing off the franchise agreement. Any idea how you would handle this guy? Let me know.

Gusto

PS. Keep those ideas coming I really do appreciate them.

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Re: Need input ASAP, jrokk, Nick, Otis, Dave, and everyone e

I think he has the problem not you.

  1. You say he was compliant in the falsifying of the sales figures. You have him by the short and curlys if you can prove it. Tell him you want out without any repercussions and if they are you will bring this up. I would also go for refunds on fees etc if you can prove his involvement.

  2. The group had 20 stores now down to 11. Must be a great franchise opeartion. This guy has real problems.

  3. You said the product sucked until you changed the recipe, then you got the accolades in the competition with YOUR recipe, NOT his. He has the problem.

  4. Your lease has expired. If you give up the lease, close the shop this closes the franchise. Now he is down to 10. The cancer is well and truly eating away his business. He has REALL BIG problems.

I think it is time to take this guy head on and put the pressure back on him. Hit him right bewteen the eyes with his failure. I would think his franchise declining so rapidly would weaken any leagal avenue to force you to stay or pay. Franchises are their to grow businesses not send franchisees broke.

Get out and get into the new joint and do it your way - product, advertising, fit out etc and you take every dollar. Why pay a loser a fee to send you broke. All he is doing is getting fees off you to prop up his own failure. Tell him this and tell him your out of here.

Good luck and hope YOU steer your own destiny.

Dave