PMQ POLL: Is it crazy to open a second shop?

Pizza Shop Talk The Think Tank
1

Hello everyone, I’ve visited this site many times, but this will be my first post. I’m personally not in the pizza business, so I had no reason to post before, but that might be about to change, depending, perhaps, on your sage advice…

In 2008 my wife purchased a failing pizzeria. I know that restaurants, even pizzerias, are complex beasts that USUALLY fail, but I was making a very comfortable salary as the executive of a fairly large company, and and she was bored home all day with the kids so I figured if it breaks even and makes her happy then it’s a great investment.

Things change and in June 2010 I joined the ranks of the unemployed when my company closed it’s doors. Would you believe, though, that in the two years my wife had been running the restaurant she’d increased the yearly revenue from $125k to over $600k? And this is from a small location (1400sq ft) that was known for failed restaurants, it has terrible ingress & egress, moderate to poor parking, zero foot traffic…really the location has nothing going for it other than being adjacent to an affluent suburb and being on a main street. Her place has great reviews, great buzz, and great brand recognition even though she hardly does any advertising and never offers coupons. Despite the competitive landscape around her (8 indie’s, regionals, and big guys within 3 mile radius) she’s the one paying our mortgage this last year. Did I mention she works four days a week from 9:30am-12:30pm? She quickly decided after purchasing the restaurant that it was too hard to raise two toddlers at a busy pizzeria, so it is nearly 100% staff run. She makes the orders, writes the schedule, makes deposits, and pays the bills. Everything else is done by staff, by her book.

Now that I’ve been unemployed for nearly a year I’ve begun to look at her success and think, “why not run with this?” In the year that I’ve been doing nothing she has continued to grow revenue, which is now between $55k-$65k per month. We have had customers clamoring for us to open a location in the neighboring city and we have an opportunity to purchase another tired pizzeria that has a great location in a major shopping center with anchors like Costco and Staples and 30,000 vehicle visits per day. There is a gorgeous, spanish-style courtyard there with several restaurants surrounding it and it is right next to a movie theater. Competition is much more limited there than at her current shop, and it is within close delivery distance to 20,000 college students all situated within a single square mile. The location was doing $1M in sales when it opened in 2001, but under a recent change in ownership/economic downturn their revenue has slipped to $750k/yr. I’ve run the numbers and I believe that we’d easily be able to recapture the $1M mark, and $2M or more is not unreasonable from the space, which seats about 80. If we hit $1.2M in sales and operate on the same margins as her current shop I’d be making as much as my old salary. Taking into account economies of scale and full time owner-management I think that would be a cinch. I am having a hard time talking myself out of this one.

I’m aware that commodities prices are up, fuel surcharges are up, consumers are tightening their belts, and I could list several more pages of macroeconomic risks, but you can’t argue with the numbers. Success like hers, in this headwind, should not be ignored. I believe she has found a value proposition that actually works in this economy because it allows the consumer to “downgrade” to pizza without feeling like it is a compromise. They can feed a family of 5 for $60 instead of $100 or more if they went to a typical restaurant, and it ain’t Pizza Hut.

As much as I love to brag about my wife’s achievements (she’s 27, by the way) I’ll move on to the question: Is it crazy to open a second pizzeria, now or ever? I read a lot of horror stories and I know a lot of you put your whole lives into your shop(s). I’m not looking for that type of stress. My wife has half-assed it (only for the sake of the kids, of course) and still seen success. If I were to quit my job hunt and dedicate myself to growing her concept I would certainly view it as my full time job, but I very much value time with my kids and some days off, though I don’t care if they are weekends. How can this go wrong if we’re applying a seemingly strong concept to a proven location and adding my experience in managing organizations?

I’m sure you can all give me plenty of ways it can go wrong, and I look forward to hearing each and every one of them. We’re about to put $300k on the line, and I can’t think of any better way to make a final decision than to ask a bunch of strangers :wink:

2

Certainly this is no reason to open up!

But if I found a shop doing $750K for sale for 300K I would certainly stop and look. Alot of people have a problem with their second shop as it take their time away from their first shop which is their money maker. Profits dwindle in the first and the second doesn’t soar above breakeven as they hoped and all of a sudden they’re in trouble. Your story sounds like the time you spend at the new store won’t hurt the first. It sounds like you plan to keep having your wife do what she does at the first store, so nothing should change there. As long as your store breaks eve, your wife can keep paying the bills. Seems like a good situation to me. Just keep in mind that the same concept, even within the same town may have very different results. Within the franchise I am in there are stores in the same towns that have huge differences in their success that are not always tied to demographics or even work ethic. The fact that you wife set up a business that does well with minimal time put in weekly is great, but it is far from the norm. Either she’s lucky or has fantastic business skills or likely a bit of both. This will not be the norm in every market that you open in so be prepared for a bit of a harder time. Never a downfall to too much preparation, right?

3

]

if I found a shop doing $750K for sale for 300K I would certainly stop and look.

This is good to know. The price seemed a bit high to me by today’s standards, but he claims he’s netting $120k/year, and I believe it really is $90k/year. Profitable restaurants in my area sell for 2-3x adjusted net. For this location the higher multiple is likely warranted.

Alot of people have a problem with their second shop as it take their time away from their first shop which is their money maker. Profits dwindle in the first and the second doesn’t soar above breakeven as they hoped and all of a sudden they’re in trouble. Your story sounds like the time you spend at the new store won’t hurt the first. It sounds like you plan to keep having your wife do what she does at the first store, so nothing should change there.

I can see how this would happen, but you are accurate in your presumption that my wife would continue her part time duties at the first location and I would work full time at the new location, while also spending several hours a week at the old location. Additionally, I could centralize a lot of the paperwork and bookkeeping so the time she does spend there would be more productive. All-in-all, the place will get more attention than it does now. I should also point out that she loves the place and does what is necessary, but she prioritizes our children. She doesn’t “half-ass” it because she is lazy or doesn’t care.

keep in mind that the same concept, even within the same town may have very different results.

Excellent advice. The two cities are only a half-dozen miles apart, but the cultures are vastly different. This fact has been one of my biggest fears. In fact, a friend is a partner in a steakhouse that has a location on the busier part of the same street as our flagship store, and they have another location in the very same plaza as our target acquisition. They used to take money to the bank in wheelbarrows–now they use that money to cover the losses on their second place. We’re using social networking sites and direct contact to gauge popular support in the new region. Hopefully my data and interpretation is sound.

The fact that you wife set up a business that does well with minimal time put in weekly is great, but it is far from the norm.

Exactly! It’s perhaps the opposite of the norm, which is what got me on this train of thought in the first place. Other than a brief stint in a pizzeria 16 years ago I have almost no food service experience. My education is in finance and accounting, but my experience is primarily in management and business administration. My wife is the one who worked in restaurants since she was 14. I intended to move on to the next job, and perhaps city, that my skills carried me to. It was seeing the unexpected success of her creation that slowly converted me to a wannabe restauranteur. The thought popped into my head several months ago, I dismissed it as crazy until suddenly it turned on me and became the most logical solution to our cash flow problems.

Either she’s lucky or has fantastic business skills or likely a bit of both. This will not be the norm in every market that you open in so be prepared for a bit of a harder time. Never a downfall to too much preparation, right?

Without a doubt it is as much luck as it is skill that got her to this point. Also, she’s very passionate about food and nutrition and that message is communicated to our customers and has contributed to our popularity. That’s good for her, but the prospect ahead of me is quite daunting. I’ve spent a little time in the restaurant and I am really out of my comfort zone there. I know I’ll pick things up quickly, but it’s almost like I have to learn a new language. As much as there’s a part of me that wants to avoid this discomfort, a larger part of me finds it exhilarating. That being said, I realize that my lack of experience is a major risk. I’ll be learning from the best, though, and I’m good with numbers, customer service, and managing efficient organizations. Within a year I ought to have a strong working knowledge of the restaurant industry. I’ve also kept up with restaurant and pizza industry statistics and read industry periodicals (and forums) ever since she bought the place, so I’ll have some base knowledge on which to build.

Thank you very much for taking the time to offer your input. I appreciate it.

4

I would never ever open a second store if you have cash flow problems.

5

The only thing I have to add is… what happens when one or more key people at
the first store leaves or is fired? If you are busy running a second shop that may
already take more of your time than expected and your wife can’t put in the extra
time needed to get things back on track because of the kids, how would you handle
the situation. It sounds like now she has some good people who take care of running
things well. In this busuness, that can change overnight.

Don’t get me wrong though. I am all for growth and think it would be great to open
a second store. Just be prepared for situations to arrise unexpectedly at either store.
Good Luck.

6

Just a thought. You are doing well financially with the one shop going. Your wife is really hands off for the most part. Why not put a year of full-time service into the exsisting shop to really learn the ropes hands on and build that store into a million plus operation and then transition into a second location. There will always be locations available and giving it a year will give you more insight into actually having to live this lifestyle. This may also help you train and cross-staff the locations to get going faster with trusted and knowledgable employees, being only a few miles apart and all.

7

Sorry, I should have said “income” problems. We’ve got the resources to make the purchase and have a comfortable buffer, it’s my previous income that needs to be, at least partially, replaced. What worries me most is spending the resources, running through the buffer, and then finding ourselves at square one. I probably wouldn’t go build out a new store, but since we’re buying one that has been operating shoddily and still makes a profit I figure it’s most likely that we will continue to be profitable in that location.

8

That’s probably the best and most conservative approach. I have given some thought to this, and I suppose this is what I would most like to do. However, without boring you with my personal finances, suffice it to say that even with the money coming in from the first store our monthly budget requires additional income. I could work in the first place for a year and use savings to fill the gap. If I find that I was more suited to work behind a desk (which I highly doubt) then it’s easy to just go back to looking for a job. The problem comes if I decide that I do like it and by then we’ve burned through resources that may have been needed to open the shop. Also, I should point out that this particular location is by far the best in the city and gets snapped up quickly on the rare occasion it becomes available.

9

The best way I could answer that question today would be to say that we have established policies and procedures and checklists that would be universal from one shop to the next. We also will be using the same point of sale. Since the shops would be close to one another we could cross-staff them. I’m particularly worried about staffing problems in the opening phase. I think written policies and formal training procedures will help to minimize staffing problems.

Losing a key staff member is not easy for any organization to deal with, and I’ve done my share of “muddling through” someone else’s job or department when they’ve left or been fired unexpectedly. There’s always an initial period of stress where everyone has to work harder and outside their norm, but in my experience there is usually more than one person willing to step up and fill the position.

Does this sound like a well-laid plan? Any further suggestions on how to minimize this risk are, as always, greatly appreciated!

10

My biggest question for you is: What are your wife’s thoughts? Does she like the new market as much as you do? Is she convinced that the market penetration of the second location is not being met? How does she feel about your personality and experience as they relate to the pizza business?

It sounds to me as though this is an excellent opportunity to buy an existing profitable place (obviously, you will need to verify their numbers with tax returns, etc.). And your wife has shown a demonstrated ability to run and expand a first rate operation…profitably. So, if she is firmly behind the concept, all other things being consistent, this kind of an opportunity may present itself rarely and you should look to pull the trigger. You will, of course, want to negotiate the best possible price, and if you can negotiate a seller takeback financing deal, great.

BTW, you will need to understand that your wife is the brains in this deal, and although you will have input, she is the CEO and should be deferred to in all matters…not to exclude child rearing, family gathering atire, entertainment selections and toothbrush colors.

Joking aside, this is a huge family decision that will have considerable impact, regardless of your decision to buy or not. I respect your outreach to seek input from insiders, and I am sure that you will only make your decision after carefully considering all of the variables. I wish you and your wife the very best.

11

My biggest question for you is: What are your wife’s thoughts? Does she like the new market as much as you do? Is she convinced that the market penetration of the second location is not being met?

My enthusiasm for the project is an outcropping of her opinion on the matter. She wanted this location when she was looking for the first restaurant, but at the time it didn’t make sense for us to spend that kind of money on what could have been a passing phase. Her big comment/concern/complaint is the multiplication of duties that would result from taking on another shop. That being said, she has often expressed that if she could only have one location she’d prefer it be the one we are looking at vs her existing restaurant.

How does she feel about your personality and experience as they relate to the pizza business?

LOL!–clearly you gave my issue more than just a passing thought (thank you). She wants me to be involved–has even begged a little at times over the past year–but she also is concerned that I won’t stay interested because the numbers we’re working with at the pizzeria are a small fraction of what I’m used to from my previous work experience. I understand her concern, but from my point of view someone else’s millions matter not to me. From a pragmatic perspective I have to be concerned if my earnings are significantly lower than my previous salary, but from a philosophical perspective I’d gladly take a pay-cut to build equity in something of our own–something that belongs to my family. If we can successfully carve out a niche for ourselves in this business I don’t think my ego will suffer because I own a small business vs operating a mid-size one. I believe everything I just said, but I also have to acknowledge that my wife knows me very, very well. I can not completely dismiss this element of risk.

BTW, you will need to understand that your wife is the brains in this deal, and although you will have input, she is the CEO and should be deferred to in all matters…not to exclude child rearing, family gathering atire, entertainment selections and toothbrush colors.

Spoken like a married man! I have taken to calling myself the COO and CFO, while she is, and always will be CEO and creative director. That goes for the restaurant and the other matters you mentioned :wink:

You will, of course, want to negotiate the best possible price, and if you can negotiate a seller takeback financing deal, great.

I negotiated the price to $300k from his original asking price of $390k. The previous owner will be carrying about 50% back on a note secured by a second trust deed on a rental property I own. I thought about selling it so I could pay cash and avoid interest, but, taking all factors into account, it makes more sense to keep a cash-flowing, passive income generating, appreciating asset, rather than selling it to enter a risky venture.

It sounds to me as though this is an excellent opportunity to buy an existing profitable place (obviously, you will need to verify their numbers with tax returns, etc.). And your wife has shown a demonstrated ability to run and expand a first rate operation…profitably. So, if she is firmly behind the concept, all other things being consistent, this kind of an opportunity may present itself rarely and you should look to pull the trigger.

I have come to view this as just what you say: a rare opportunity. I’ve worked through ways to approach the individual risks, but the prospect as a whole strikes fear in my heart. There is a short list of people I know who successfully operate in the food service industry for a sustained period of time. Many who are “successful” still live stressful lives. I’m very thankful for forums like these where I can try to solicit balanced opinions from experienced professionals in this industry.

Joking aside, this is a huge family decision that will have considerable impact, regardless of your decision to buy or not. I respect your outreach to seek input from insiders, and I am sure that you will only make your decision after carefully considering all of the variables. I wish you and your wife the very best.

Thank you for your input, your sentiment, and your time. I will be sure to keep you all posted on the final decision.

12

I have to agree with qcfmike! There are people out there with far more experience that can fail in the circumstances of the proposed second shop. There is just too much to risk. Why not run that first shop deferring to your wife on all important decisions and learn the ins and outs not just of the industry, but her operation as well. It seems that if she is not working much in the shop and you have managers in place, you could eliminate some people, work full time and generate an income all while building the shop into an even more profitable business. A great system is one thing, but being able to make important decisions on the fly is crucial and not the kind of thing you want to just wing. I am sure she would assist you in every possible way, but it just seems far more practical to learn in Shop #1. I know you had mentioned income issues and that being the reason for the second shop, but it would be fairly presumptuous to assume that you would strike gold automatically in the second shop. I can definitely understand your predicament and must admit
COMPLETELY envious of your wife’s operation in the first shop. The second shop does sound great as well. Really take your time with this one and weigh the pros and cons. Most importantly remember that it usually takes a hell of a lot of time, hard work, and money to get any shop off the ground, even taking into account your wife’s shop’s great reputation. You may find that it is not for you, your wife is making it look easy, but that is not the norm by any stretch. Good Luck with your decision!

13

This is good advice. I’ve arrived at the point where I’d like to be more involved in what she is up to, so one way or another it looks like my job search is over. We’re still giving strong consideration to adding the new shop, but if we decide not to I will be going to work for the missus.

I know you had mentioned income issues and that being the reason for the second shop, but it would be fairly presumptuous to assume that you would strike gold automatically in the second shop.

I assume this would be one of the riskiest ventures I’ve every undertaken, but I should point out that I would never consider building out and starting a new store from scratch. My hopes and expectations for the second location are pegged to the previous performance of the existing restaurant (pending verification of seller’s claims, of course), and my assessment of our value proposition as compared to theirs. Am I naive to make a distinction between starting from scratch and purchasing a place with a track record?

Really take your time with this one and weigh the pros and cons.

I’m doing my best to view the opportunity from a neutral position, but we both know how hard that is. I appreciate everyone’s input.

14

Yes I was on the conservative side but one thing to also take into account is that you will be pulling an income from the first store during this time. Hopefully after a couple of months of growth you will not even need too touch savings to live. Take into account that it has been a year since you lost your current position. That is money lost. At least the next year could come close to a wash in the big picture and give you and your wife a better idea of how this would work being married and working together…because as many will share with you…that can lead to disaster really fast! Good luck either way.

15

I was the experienced operator who opened up store 2.

i would never do it again.

16

Would you mind sharing your biggest mistakes & regrets? Did you end up closing one of the stores? What were the primary factors that led to its difficulty or failure?

17

Since your wife is obviously great with the hands-off system, I’d say HER chances of opening a second store with success are good. Unfortunately, (with no disrespect intended), that has little to no bearing on the probable success of YOUR store: From what I gather, you don’t even plan to ATTEMPT to repeat her business model - you would be the “standard” owner/operator. That doesn’t mean that you would not be successful, but it does mean you have to totally disregard everything you see at her store - different people, different situation, different system.

18

Very good point smeag… One thing that stood out too me was that it has been a year since you found yourself in need of new employment and has at any point your wife asked for you to get involved in her operation? Have you shown interest? Not too sound like an a$$ but is this second operation more of a settling on something or really what you want too do. She has built her store with the right people in place. Are you deep down commited in doing it for your store or as I am a little afraid too think… you want the 4 hour a day schedule she has and think you will be able to repeat her success so quickly? I am not saying it is not possible…but every operation is so unique and never repeat that easily. I wish you luck either way…but still think you should go hands-on for a while before you take this very large next step. :idea: