Pricing Concerns

Some of you may know that I purchased my store back in April and the previous owner only had a 2-4% profit margin and 45-55% food cost. Since then I have done major changes to the menu items and pricing. I now have the food cost at 28-32% and a 18-22% profit margin. By doing this though I have made another problem for me to solve and I have no idea how to solve it. My store is in a very low income area and every cent matters to them. Come to find out, my customers would rather buy a $5 Little Caesars pizza than my $11 pizza although they admit that my pizzas taste way better. Anyone have any advice on how to fix this issue. Ive almost thought about making a $5 pizza that has a lower topping quantity to meet my food cost percentage. The downside that I see to this is that I will be lowering my brands quality just to make a dollar. Any suggestions would be greatly appreciated!

I’m sure some people will always go that way. You can’t make it change how you do things. If your margin is 20% you are doing something right.

Is there possibly a smaller size pizza you could make that would appeal to your market while still maintaining your quality ?

I currently have a 7",12",14",16",18", and 30". These are all sizes that the previous owner had and I want to get rid of one or two of them but all of my sizes get sold equally. It doesn’t appear the customers prefer one size over the other. We also sell salads, calzones, pastas, and subs.

I would go with 10", 14" & 16" and stick to your prices. Don’t get in the rush to the bottom of the profit graveyard because some people want $5 pizzas. Let them go. You are in business to make money not feed the public cheaply at your expense. You will sell less but make more money sticking to your pricing.

You can’t survive on $5 prices. You already know that.

I’ve had much success bundling items and getting the check average up.

Customer will perceive they are getting a value.

Your situation is difficult as the previous owner was in the pricing game.

I had a little Caesars open up down the block from me last month, I still don’t understand their business model. The numbers just don’t seem to add up.

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I understand why folks do not want to you “rush to the bottom” but at the end of the day your demographics will tell you where you need to land…In my area, higher price places have tried and they just do not make it…There are only a certain number of folks that will pay premium prices for premium pizzas…If that is not enough for you to remain viable you have to adapt…And it may be that you can not make money at the other end either…So maybe you need to try for somewhere in the middle…Good luck…

I’m just thinking out loud here, but how about offering your largest pie (by the way, I agree with your decision to eliminate all but 3 sizes, and Dave’s suggestion that they be 10", 14" and 16" looks right to me too) as a plain cheese pie called “The Budget Maker” at the lowest possible price consistent with your roughly 30% food cost standard. That might speak to the “market profile” need for a low-cost family meal, while still serving you well by 1) making a sale that still meets your food cost model, and 2) getting your upscale product into more living rooms. Customers who want more can simply ask for (and pay for) additional toppings … the good news for them is that they are still getting a much better product every single time. You could even give up a couple more percent on the food cost (just for this one product)in order to lower the base price (for the plain cheese pie only, not the toppings) a little more, while looking to establish a consumer “Go To” preference.

That is a brilliant idea! The stipulation I believe I would have to have is that toppings can not be added to this pizza otherwise customers will almost always default to that pizza and just add their desired toppings. I just did the math and that pizza would be around $4-$5 while staying within a reasonable food cost. In an effort to stay away from that price model I could sell a 18" cheese pizza with an order of breadsticks for $9.

I know this doesn’t help at all but we are at 23% net margin and we do a ton of coupons

I agree with the other posts about cutting down to a reasonable number of sizes. We have three. 12", 14", 16". If we had a sit-down component I would consider a 10" as a single serving size but with delivery I need to keep a minimum value for delivery costs to make sense. I would hate to stocking all those doughball sizes!

Forget little Ceasars. You can not make money on $5 pizza and you can not get the customer who shops that price point to move up. Even if you promote and get an order from them, they will just go right back to LC when the promotion is over.

Stick to your guns on price and tell a quality story. Promote as you need to but make sure the math works on the promotion. We run coupons in a range from 14% to 20% depending on the season and our pricing is built with that in mind.

Do you automatically give the customer the coupon price or do they have to ask for the price? That was my big change that upset the customers. The previous owner had a coupon for every item she sold so the actually menu price didn’t matter. She was doing 35K in sales a month and 8K was given away in coupons. We are currently doing 45-50K a month and only loose 3-5K a month to coupons.

We give most coupons with out asking, unless they are like a BOGO we collect those

We give about 4k a week away in coupons I would guess, haven’t ran a report but last night alone we had 1100 in discounts

Measuring how much you do in coupons is useful… but I would caution against tracking sales numbers before coupons or using order totals before coupons for calculating costs. It can lead to some real distortions in your review of numbers. Same goes for including sales tax in sales figures.

35K in orders with 8K in coupons is 27K in sales.

By all means, track how much you are discounting to find the balance between promotional offers and the volume they drive, but the discounts you give a NOT sales.

If your food costs are constant, what difference would it make to allow adding toppings? What I mean by this is that if the plain cheese pie is a permanent menu offering at this price (the one that is priced to conform with, at least, your food cost formula), and the toppings are also priced to conform with your food cost constant, then the customers will always be buying pies that are priced at the formula that guarantees that the total food cost for that pie is always maintained. My point is that you would always price the plain cheese pie and all toppings to insure that your food cost in in line with your goal.

We come at this from the opposite approach. We offer only 2 sizes - 12"/18" in NY thin and 12"x 12" sicilian with no specials, coupons, and have been busier than we like most days. Each pie is priced as a basic cheese and then toppings are chosen by the customer. There are no combo’s or pies with names that come with specific toppings other than a ricotta pie and tomato sauce cheese pie. We price our pies for a large profit but use imported Italian cheeses, make our sausage in house, import Sicilian oregano on the stalk, infuse our own olive oil with garlic, make our own croutons, and use a private label pepperoni that we shipped to Norma Knepp to use on her pie that won the Italian Caputo Cup in NYC recently. We serve no alcohol, no TV/music, no sandwiches, no wings, no fountain soda (0nly canned/bottled), and people are coming in like crazy and never balk at our prices - $20 for a plain cheese NY pie. If you go cheap on ingredients and price you are going to attract the chain crowd and will lose everytime. We have gotten at least 1 call a night since opening 3 weeks ago from customers telling us how much they love our pies and we got a call last night from a customer who called to apologize for their mothers rudeness to one of our employees. We are shaping our customers to our pies because we only can make products we love to eat. People have asked where is the cheese and garlic shakers and we inform them the pies have all that applied during the making process and are served in balance. Everyone who has asked has commented that they didn’t need the shakers and have come back again. The TV, newspaper, and radio, have all contacted us for stories. We are doing the radio and newspaper, but are holding off on the TV for now because we don’t want to be too crazy busy and the quality suffers. We often have 1-2 hour wait times and people are good with this. I say make the pies you love and people will come because they feel the love and taste the quality. Walter

I apologize if my statement was confusing but the 35K is with coupons already removed. If coupons were not used then she would have brought in 43K in sales.

If you are having these sales with your new food cost %, it looks like your doing ok.

It can be a real challenge bringing a place that catered to low prices up.

I always say " concentrate on making the best product you can and giving great service " and you will see repeat business.

The above post is saying that wait times are 1-2 hours for him…That would not fly in my store. My customers are used to getting great service quick…

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You are correct. I did miss-understand your post. From my point of view 8K discount on 43K orders is high but not crazy. In my world I would like the number to be about 6K on those sales but if I were in a promo mode 8K would not bother me.

I agree it is tough to bring prices up and it is also tough to sell cheap because then you need lots of product, employees, and costs go way up and profits can shrink despite doing big volume. We are a mom/pop operation so when it gets busy there is no way to speed up things. Our social cause and philosophy of coming to us for a relaxed no device experience has led to people hanging out an hour for a pie. They talk to each other, watch the pies being made, which is something that is becoming extinct in our world… Walter