Rookie Considering First Pizza Rest.

Hello, I need some input and many thanks in advance to everyone who has posted to the Think Tank.
I have been reading the Tank posts in depth for several months and the depth of knowledge and the willingness to invest ones time to share it is amazingly generous, especially in this day and time.

That said, here are the details and plans in as short and sweet as possible version. My biggest concern is trying to understand the market potential for this location and the best method to break it down. I’ve seen dollars per week per HH, weekly dollars per population count, and a few other versions so I’m having some difficulty coming to numbers that I feel I can trust that are not overly optimistic.

Here Goes:
Background: Mfg/Distribution hard goods for 20 years (most employees at once was 125)
Degree in Marketing from a medium sized school and also served as Accountant/Bookkeeper for 5 years.
Owned and sold half share of a medium-sized unrelated biz that is still operating 8 years later.
Worked in cafeteria in college various duties, worked in a grill/tavern p/t evenings few years back that had full ABC permits. Fairly knowledgeable about craft beer/ wines etc but stopped consuming myself awhile back. Ready to stop buying and start selling :lol:
Zero pizza experience aside from practicing techniques via YouTube The DoughDoctor (shout out) and Wolfgang Puck. Here I’ve come to the conclusion that I have a ways to go but until I have THE OVEN?? and the setup (environment, purveyors ingredients, etc) putting too much more time into learning the food side is a marginal use of my time. If that sounded disrespectful to the profession it was not intended to be. From other posts I know that there are probably several ways to learn and I feel like I am still open-minded enough to be taught. If that means hiring a good pizza maker as my first employee then that is what I’ll do and learn from him/her. I am seeking out an opportunity to intern/work in a going spot until I can open up. Target date is spring of 2013.

I’ve worked recent years as a real estate broker. I hate real estate because I have no passion for it I finally got stuck with a property that I think is ideal. While using it as an office, I’ve found that driving to eat lunch offers very limited choices without going 5 miles or so. While I have always dreamed of owning a restaurant I’ve never gotten this close to being able to do so. Here is the deal. While I really want this to be a winner my twisted logic is that if I cant make it go, the upfit should help to lease it to someone who can. Not being a defeatist, just always like to have a plan B.

The location I own (with the bank). It is a house converted to an office. Having been unable to sell it for the last 4 years some recent developments may allow me to use it as a restaurant. In doing so, the payment including upgrades will remain the same by re-financing, adding in the equipment and upfitting to code. My monthly building cost for 1200 sq feet, including a half acre of parking will be $1200. Space only, not operating costs, etc. Consider it rent to myself which I, of course, forward to said bank. By entering into the city via annexation I will be able to go to proper zoning that allows restaurants.

One lot off of major intersection. Building sits to rear of property - clearly visible from two main arteries. Flag shaped parking with a circular drive. Adjacent business is a branded gas station. All surrounding property is now being offered by major RE brokerages. Recent road cut through - signalized intersection is complete.

Demograhpics: Town is 4 miles away which is a suburb to semi-major city. 16000 pop.town, County 486000, main city is pop. 50,000 (I said semi-major, it’s the 3rd largest in the state.)
This is county location with many new subdivisions, a college satellite campus, a large hospital-owned doctors office, a large hospice house facility.
Within 1/2 mile: 400 homes
Within 1 mile: 2000 homes
Within 2.5 miles: 4500 homes
All institutions above are within 1.5 miles.
Age and incomes are evenly distributed. Mostly 30s, dual income homes with children
Nearest shopping center is 2.3 miles and has one independent pizza operator with dine-in &delco
Only cars I see serving the area are PJ’s and the indie, most likely Dominos also but need to verify
The PJ serves a radius of 8 miles from their spot which is back in town at 4 miles away.

There are subdivisions being built out that will add hundreds of homes over the next few years.
There is constant talk of an apt complex coming but this cannot be verified.
Another broker is handling adjacent land and gets constant inquiries for a retail strip but nobody has pulled the trigger yet. In a nutshell, I will sit in the center of 4500 homes and 20 businesses while the competition sits back at the edge of town. The growth is happening beyond my spot and is also coming from the other direction about 4 miles away from another bustling road.

Business: Here is the dream so lay it on me.

Delivery / Carry Out, Small dine-In of about 10-15 seats if the HD will approve since I’m on a septic sys.
Delivey/CO only if not.
Hours: willing to go 11-10 weekdays, more if so advised, 11-11 weekends
I want to offer only pizza and salads at first to keep requirements down on Hood/Fire Suppression.
Maybe a few subs. Eventually add wings and possibly a weekend pasta special, etc as Cash Flow allows.
Here is the kicker: I aim to build 4 regulation BOCCE Courts out front beside the parking area.
I intend to add a deck off of the largest room (now a conference room) that steps down onto a concrete or rock patio, that will lead to the bocce courts which will have a few picnic tables and umbrellas. All visible to the intersection. Intent to 1) offer entertainment and add revenue with court rentals on weekends.2) increase lunch by offering free courts until demand allows to charge.
Labor: I will work full-time which I imagine means start getting my mail delivered there until profit is sustainable. Hire wait staff, one delivery person and go from there. Being in the south, outdoor bocce is viable 8-9 months of the year.
Wow, this is longer than I intended.
I have an advertising budget of about $400 a month built in for a year, plus whatever I can do on foot.
The traffic count by my front door is 7500 cars per day. Add in the other street from which I am VERY visible and the count goes to about 16000 cars per day.

The gas station sells about 6-10 pizzas per day Hunts Bros out of a display along with biscuits, hot dogs, etc.

Ultimate goal is to run up dine-in seating to about 30 indoors (two years out), add an outdoor wood-fired pizza oven under a shelter courtside and add beer and wine. Host birthday parties, corp events, etc.

First things 1st. Does this sound like a territory that is ripe for picking or am I way too early?. Based on what I see around this neck of the woods (other local areas that are fully saturated with retail) I have about convinced myself that I should be more worried about the intersection getting loaded up with strip centers and the nationals invading and scarfing up the market. I guess I’m hoping to get in and get established before the inevitable happens : new retail space availability attracts new comp.

Please, school me an thanks again in advance.

Southern Pizza Rookie

p.s When I was a kid, my late father played the banjo(ragtime music) in a now-defunct pizza parlor on Friday nights. They played silent movies, had two banjos and a guy on a piano. I would go and sit and watch the crowd and man, everybody was having alot of good clean fun. I somehow think in my mind that this could be a neighborhood family place that adds something different.

Sorry…I’d pass on the operation…converting a house into a restaurant is a poor option, IMHO…

If you make a pro forma, I believe it’ll show you a poor profit potential (ROI)

I agree that converting a house is not the best bet for a restaurant.

Your septic system is probably domestic size and would possibly require substantial up grading.

Floors may have to be reinforced to support heavy equipment same for the roof to support ventilation and HVAC equipment.

Electrical and plumbing is another consideration. Handicapped access and rest rooms need to be considered. Fire protection requirements also.

George Mills

Thanks for the feedback gentleman. I would like to clarify a couple of things regarding the structure.

Since it was converted to an office the handicap access and restrooms are done and approved. It is an open floor plan that was basically gutted, partitioned front to back and I could go on.

That aside, I am getting health in for a feasibility evaluation and expect to see just what you are telling me. The thing is, I can afford to add a kitchen to one side on a slab and have space to do so.

However money is not plentiful, my biggest concern is Market potential.
What do you think of the pop/demographics/competition that I described?

The reason I stress this question is that I am also considering razing the building and putting in a 3 unit strip and utilizing one unit. I have a salon that is ready to sign on for either the house or a unit.

Thanks.

Will/does the market needs additional space?

If so, that would be my recommendation…but as you said $$$$

At least if the pizza biz doesn’t pan out, pethaps the R.E. venture will…

Thanks Patriot. That is the question. If anyone would like to weigh in on the demographics in regard to starting a small delco please help me out.

I’ll recap:

Newest developing area in the county
16000 cars per day at the intersection which is visible from my spot that is 100 yards away
Age/income covers the spectrum with mostly middle/upper middle income
30 something’s and up
Across the street from me: 400 home subd.
2.5 mile radius 4500 homes
Nearest comp 2.5 miles an indie
Area also served by PJ & Dominos
Population within the zip code that is 300 sq miles is 26000
Population within 2.5 mile radius is approx 13500 people
Non-pizza comp. within my radius is a burger place struggling along wacky theme and an angry owner and a Chinese sit-down, delco
The pizza subs indie doing at least 1200 per day weekdays (surveillance) good product and staff

Within 1.5 miles I have a 30 employee medical complex, a 30 bed brand new hospice center, a community college no housing, a charter school with 35 teachers, and two fire stations, a growing plant with 50 employees. All of these are 3 miles from the nearest comp.

Thoughts on the potential for this area VERY much appreciated!

Pizza Rookie

The location I own (with the bank). It is a house converted to an office. Having been unable to sell it for the last 4 years

You describe a thriving, growing area, yet you can’t ‘move’ this place. Why not?

You mention driving to lunch, but what about dinner?

Fair question. Appraised land value before new zoning was 295k w/o the structure.
The adjoining lot is slightly larger and is priced 475k.

Together we had a major chain approach us in '08 to combine and build a drugstore. Then the collapse and most banks here are still shying away from spec developments.
Just say politics and leave it at that.

I am in for under 100k and get frequent offers from investors in the 200k range.

Now, with the upgraded zoning I can benefit from the new potential or market it likewise. Hence, I am on this board attempting to get input as to how the demos translate to the pizza business.

So, are you indicating that these are good numbers? What is your background?
On the dinner question, the options are what I described above. As for venturing outside the radius the options increase in multiples.

Thanks and Merry Christmas!

I’d sell and try to make that $100K.

Every Jim, Joe, and Jill thinks pizza is the easiest business in the world. WRONG. Its just like any other eatery. Many people think owning a ‘franchise’ is easy street. WRONG.

Being a successful realtor requires 4 things: a seller, a property, a buyer, and someone adding you to the transaction. Running a restaurant involves many different activities, people, parts, targets, ever changing targets, plenty of extra cash to cover your misses on all of the above.

I asked about dinner because that is what will keep your restaurant open. No dinner, no business. Two hours of lunch sales will not keep a business open, especially if your focus is on pizza.

On the other hand, if the location has that many cars driving near, have you considered retail? No major changes required to the building, lots less $$s required to start up, and probably a lot less $$s to get you through the first 6 - 12 months.

If you can truly sell,the place & net 100+K, run & cash that check!

This is where you lost me. This is not entirely directed at you SPP, but realize we get these posts several times a month from “newbies”… Why are people driven to spend their life savings and take on significant amounts of risk in a business they have no experience in?

The restaurant business seems to be unique for some reason. People seem to think “hey, I can cook… I’m going to open a restaurant!” I like doing home improvements, and I’m pretty good at it… but I would never consider throwing my life savings into a construction business that I have no experience in.

If you were an experienced restaurant (or pizzeria) operator I’d say let’s take a look at the numbers. But with no experience in the business, my first thought would be to lease the building. You said you were “in” it for less than 100k, so I assume you own it outright?

If you’re getting offers for 200k from investors there must be some demand for the space. Why not just lease it? I have no idea what your cap rates are, but I’m guessing you’d cash flow just as much off of the lease as you would from operating a restaurant there (guessing based on the demographics) with a heck of a lot less work and headaches.

If being in the restaurant business is a “dream” and not just a business opportunity with this space then spend a couple of years (while collecting your rent) working inside of restaurants and pizzerias to get some experience.

This is not an easy business. Lots of us make good money, but I would guess the majority of the successful operators on this board went into their businesses with a fair amount of experience.

Now if it were me, I probably wouldn’t even be considering leasing the space. A $100,000 profit on a less than $100,000 investment would be tough to walk away from. I can nearly guarantee it will be several years before you accumulate that much profit in the restaurant business.

I can nearly guarantee it will be several years before you accumulate that much profit in the restaurant business.

This really stuck out to me as I totally agree.

Well, this has been eye-opening to say the least. This feels like the Shark Tank :shock:

For the record, I have not, in my very open and candid posts, indicated or suggested that the Pizza business is “Easy”.

As for the simplicity described in being a successful realtor, I can’t remember claiming to be successful at it. There are 2500 licensed agents and brokers in my area, so try that for competition. That sounds like a grass is always greener comment if I ever heard one. Since I sold my business in 2004 I have been working as a broker, building my relationships, and selling some properties on commission and investing on a small scale in personal properties. I have also been traveling, evaluating and working in businesses that were being sold during my spare time. So far I have not found what I am looking for. For several months now, I have doing as much research as possible into various service businesses.

In regard to the difficulty of the pizza business, it sure seems that much of the difficulty lies in the operations, staffing, site selection and development, equipment selection and maintenance in addition to purchasing savvy, cost controls and labor retention. Sounds like another business that I ran for many years quite successfully. In all honesty, if you have ever owned a business that has any employees and that manufacturers or assembles something, well, it just sounds like work and we all know work sucks. So you makes your choices and you live with them. Ironically, the conveyor pizza ovens that I read about and have evaluated look and operate much like the Shrink Tunnels that we packaged products with for many major manufacturers except they ran at a much lower heat. But if they got just a tad bit off, you would have a blister or a tear and you would have to re-wrap that product. They were very sensitive since the poly film rolls were each slightly different. We had 16 of those machines running at once. We even warmed a Thanksgiving dinner through them once when we fried turkeys for all the employees. While not a restaurant, we had 25 major brands that we packaged for. They each had a quality team that came in to check on us (sort of like the food inspector visiting.) We ran a food-grade warehouse meaning he FDA popped in on us, always at the wrong time. We had to run pest control for 800,000 square feet of storage space and we had coolers that you drove forklifts into.
We were two guys with 80-125 hourly employees. Life was hell for 10 years but we earned a check.
Throw in a couple of dozen angry truck drivers, countless visiting inventory teams, and a very basic inventory control system for each of those accounts and you start to get the picture. My point is, I think I understand what pressure is and know all about babysitting employees who think you are getting rich while they toil away.

As for the cooking, well I see two things. One: tremendous support, training and available labor. I also see when I visit some of the local establishments across our city pizza kitchens staffed by high-schoolers making dough that have been working two weeks in the field and their product is pretty good. A local guy has been out of college for 4 years and he has 9 locations around the tri-county area. His sister worked for my agency for awhile and I have been able to get some pretty good insight into his operations, etc. She worked for him for 2 years. I’m not the smartest guy in room, ever, but as I said, I am trainable. I think that I have been humble and candid on this thread about my limitations and my ambitions.

Someone mentioned “newbies wanting to spend their life savings”. I don’t recall talking about personal net worth or any of that but I would not consider myself a fool or a spendthrift. IF someone has a dream or an inclination to try something, I’ve always said live and let live.

As for cashing the check and running, that may not be bad advice. A wise person once said a man never goes broke taking profits. $100k is really not that much anymore though. After Uncle Sam gets his hands on it… OK, so leasing may not be a bad way to go and if you think that as a licensed real estate broker with his own office and agents to manage (and all of the liabilities that go along with that) that I haven’t considered that then I must have really given the indication that I am plain stupid.

So, let’s say I lease it out. Max I would net is $1000 per month and that is with a few more improvements. Wow, $12,000 per year. However, at $12,000 a year negative now, the market appreciation is keeping up without the tenant hassles and the prospect of a lease hindering a quick sale. In our state, the lease survives a sale. With the new zoning one appraiser says the value might pop up another $50-75k. I’m waiting to get the banks thoughts on that. So then what? I’m back to collecting rent each month like I do now for some properties that I own along with the ones that I manage. Now, based on the comment that it would take “several years” to accumulate that much profit in the pizza business I am going to come back to you with a DIRECT QUESTION. Shouldn’t we be talking discretionary income? Are you telling me that most of these pizza operators are making $30k or less per year, year after year? If that’s the case, you’re right, I’m not interested. I also doubt anyone would open a second location if the first was only netting that much. Am I wrong?

I would be interested to know how many pizza operators are paying a nice rent check to themselves or an LLC which they control or is everybody paying rent? You see, the devil is in the details and even this Joe knows that. The statistics that I read surprising showed that the majority of the pizzerias in the US are free-standing. Around here, that is rare. Most are in strip centers controlled by developers. I know of a few operators who have built their own strip and occupy one of the units, leasing the rest.

The most surprising thing to me is that all you guys sound really smart and well-seasoned in business.
However, for the most part, my initial post has been picked apart, dissected and read back to me in a somewhat negative way. ( Patriot and George, thanks for your candidness on the building itself. That I am afraid may be my biggest headache.) But, still, it was really not the question asked?

Please guys, read through the post/replies thoroughly. NOT ONE REPLY ATTEMPTS TO ANSWER THE QUESTION: DO THE DEMOGRAPHICS LOOK FAVORABLE?

In closing, I appreciate the time all of you took to read my post and to reply. I’m just saddened a bit by the angle this plea for help took. I’ll keep you posted if I do go through with this and open up, and then we will all know the answer to the question. The think tank is still a great resource and I am blessed to have stumbled upon it when I did. It has given me a special appreciation for how much thought and effort each of you put into your business to make it work because there was a time years ago that I did think it looked very easy. I always tip the help well and make it a point to speak to the owner with a big thanks if he is available. As we both know, if its working then it’s work!

Let me wish each of you a heartfelt Merry Christmas,. I think I’ll make pizzas for lunch. :stuck_out_tongue:

Newbie + Think Tank = Shark Tank - Fool’s Tax…

You asked, we replied, as we saw the answer, not as you see the question…

IMHBCO, no…7,000 households, 4/5 total pie joints, the demographics won’t support your operation…yes, it could be done, but the ROI is not there…even if you were a hands on operator, your time/money may be better spent elsewhere…

I love when people ask for advice from people that have done this for years and years. They don’t get the answer they want then try to argue about it.

On average it takes 7-8k people to support 1 chain delco. There are exeptions but I dont think its 5 pizza shops for 14k people

SPP,

NOT ONE REPLY ATTEMPTS TO ANSWER THE QUESTION: DO THE DEMOGRAPHICS LOOK FAVORABLE?

The answer: NO. And yes, I’m trying to talk you out of this venture.

Shouldn’t we be talking discretionary income? Are you telling me that most of these pizza operators are making $30k or less per year, year after year?

The answer: YES. Far more pizza operators go out of business and don’t earn a dime. That doesn’t mean that some aren’t successful and some are very successful. Every year, I see 4 - 10 go under, and a new crop comes in and buys them, for anywhere from $30K to $150K. They last a year or 2, depending on how much they’re willing to ‘throw’ away. You make $30K/yr sound like chump change, yet I know several operators who’d love to be making that!! There are others who take home $40K (yet they’re not paying any taxes, sales, fed, insurance, withholding etc…).

Imagine losing $200K your first year in operations and another $150K in your second year. You’re nearly $350K in ‘the hole’ after 2 years and you’ve paid several heavy fools taxes! If you can only imagine ‘easy money,’ then you’re not thinking about this seriously. That $12k/yr in leasing profit looks pretty good at this stage - you’d be up $24K. Restaurants EAT some serious cash and quickly.

The reason I suggested you sell and make the $100K, is because I’ll take a 100% return anytime. Even though, as a realtor, you make the location sound like the best thing ‘since sliced bread,’ to me, it appears to be a bad idea - if you’re serious about a restaurant, then bulldoze that building and start-over with a newly designed restaurant. However, unless you have some serious cash, the bank isn’t going to let you do it. So you’re stuck with the building, pretty much ‘as is.’ In reviewing the failure rates of restaurants, I doubt the bank would lend money. However, franchises have this great deal with the SBA where inexperienced people can obtain loans for build-outs while having zero experience in the industry. The dirty side to this is that a lot of them FAIL. And failure means bankruptcy.

There’s always ‘some kid just out of college’ who hit it big, whether its the pizza business, music, software, stocks, etc… Its usually BAIT for someone who has cash (that took them decades to earn) burning a hole in their account. Think about that.

I would guess that most operators ‘lease’ their space, while a few ‘rent’ their space. Very few own their space. The difference between leasing and renting is, one plans on being there, while the other needs a ‘quick’ exit strategy.

I’m all for an easy dollar. In fact, I spend a lot time thinking about how to make more of them. Not even on that list of ideas, is opening a pizza delco in a rural area.

I find it interesting that you mention competing with 2500 agents, and the next field you picked is just as competitive. Pizza!!! If there’s a demand for it, then you’re swimming in competition, if there isn’t much competition, then it means there’s likely NO DEMAND.

Merry Christmas! :slight_smile:

Cool, after all that, you guys addressed the demographic. I did not attempt to make anything look ideal, just shared the stats.

As far as looking for a particular answer, NO, just an answer based on the numbers which we finally have.

I guess my work is done here, thanks.