Small Market possibility - I'd like some opinions

Pizza Shop Talk The Think Tank
1

As most of you may know, I try to stay away from smaller markets, not want ing to go into areas where there are less than 5,000 addresses. However, I think I might’ve found something here and I want to get some opinions from small-market operators. I’ll give you a little background information on the town, Concordia, KS.

  1. Total address count - approx. 3,000
  2. County address count - approx. 5,100
  3. Traffic count - over 13,000 cars per day
  4. Competition - 1 Pizza Hut (Deivery, dine in, carryout), 1 gas station that sells pizza.
  5. Avg. income - $31,398 per household

Additional info: One small 2-yr college with approx. 1,000 students, 0f which 240 are in dorms.

I’ve talked to the potential landlord of a high-traffic strip mall and have tentatively agreed on basics which include:

  1. Rent of $6.50/sq foot for 1,622 square feet.
  2. Leasehold improvements of approx. $9,000 covered by him, thrown into the lease for the first 5 years, thus making the total rent payment $1028.58/month.
  3. Additional construction costs of approx. $5,000
  4. Equipment package of approx. $25,000
  5. Signage, smallwares, and computer systems of approx. $8,000

These figures, with others, have me calculating a break even of somewhere in the range of $4,200/week. So, with these numbers in mind, give me a “best guess” of sales to be generated in this possible location based what you small market operators have experienced. Thanks in advance. -J_r0kk

2

First, your rent figures don’t compute? $6.50/sq. ft? Per year or what?

Second, if you’re talking 3,000 population WITH a PH, I’d say you would be lucky to take 1/3 of the total market share. What kind of figures do you project for gross sales per capita? Is the $200,000 break even figure give you much room over that to make anything worthwhile? Sounds like there’s plenty now for PH, but for another serious operation I would be concerned for room to make survival worthwhile.

I’ll be curious what the other readers have to say.

Good luck if you do it! :roll:

3

He said 3000 households, which means more like 7000 poulation.

I am running a near monopoly in 2500 people (1300 households) with no college, and a similar median income. We run at $3800 average over our last quarter of sales (with no alcohol . . . 50% delivery 40% takeout 10% dine). If you run the commando marketing plan that has worked for you before, I would not find $5000 to $6000 weekly out of the question depending on overall market arrangement.

Any other restaurant competition at all out there like burgers or steak houses? Public shools (high school/elementary)?

4

CRUISER,

Thank you very much for your opinion. I’ll educate you a little on rent and how it’s computed. When a landlord is asking $6.50/square foot, unless otherwise stated, that figure is “per year”. So, if you take $6.50/square foot and multiply by 1,622 you get:

1622 x $6.50 = $10,543 divided by 12 months = $878.58/month in rent

You also wrote:

Second, if you’re talking 3,000 population WITH a PH, I’d say you would be lucky to take 1/3 of the total market share.

I wasn’t talking 3,000 population. I stated there was a total address count of 3,000 addresses. I do agree with you in terms of market share. That’s EXACTLY the number I was thinking. My calculations are as follows (thanks to Tommie’s research, but abridged)

3,000 addresses x $20 (potential dollars) = $60,000/monthly potential

2,100 county addresses x $20 (potential dollars) = $42,000/monthly potential

This formula gives me a monthly potential of $102,000… or $25,500/week. Let’s say Pizza Hut is getting all this business and I get 1/3 of those sales:

$25,500/week x 1/3 = $8415/week

With a break even of $4,200/week, this can result in profits of approx. $1,554/week or $80,800/year.

You also wrote:

What kind of figures do you project for gross sales per capita?

That is kinda the question I was asking. With this chain I’m affiliated with, I’ve formulated potential sales by market (i.e. small market, mid level market, campus market, military market, major market). These sales figures are based on sales/week per address. I’ve found that the small market stores actually have better response than their counterparts, netting between $1 and $2 per address. This figure has been holding steady at these numbers since my research has started. However… the reasoning behind this post is that I have personally never opened my own pizza store in an area with under 5,000 addresses and I wanted to get the opinions of the many small market owner/operators in this forum to give me a, “Yes J_r0kk, you’re right on the money with your projections” or, “No J_r0kk, you’re a little off because I’m experiencing this…”. So CRUISER, if you’re a small market owner/operator, let me know your thoughts. thanks, J_r0kk

5

NicksPizza writes:

Any other restaurant competition at all out there like burgers or steak houses? Public shools (high school/elementary)?

Good question. What are you thinking?

1 Cafe Gaston Pizza 'n More
2 Casey’s Carry Out Pizza (Gas station pizza)
3 Pizza Hut
4 Dairy Queen
5 Dragon House
6 El Puerto
7 Kristy’s Family Restaurant
8 Mc Donald’s
9 Sonic Drive-In
10 Subway Sandwiches & Salads
11 Taco John’s
12 Tumbleweed Steakhouse & Tavern
13 Wonderful American Chinese
14 KFC

Notice the nonexistence of BK, Wendy’s, Taco Bell, Domino’s, PJ’s?

Schools:

Concordia Elementary School
Concordia Middle School
Concordia High School

It looks to be your basic, small market type town. So go ahead Nick. What kind of ideas do you have up your sleeve. -J_r0kk

6

This is an EASY question to answer. In small towns (I have 3 small town stores) only one thing really matters… That is the FACE of the store. What I mean is, there needs to be one person, one driving force, that is there for every thing, all the time. One person the town can attach to the store. Without that, forget it. I have found, I can only be that person in one town. The rest require a special kind of person to manage the store, but more important manage the town.

Hear me well! My area is littered with the carcasses of operators that thought they could drop a few bucks and have a share of MY market. The only shop that competes with me is the only one with an owner operator, from the town, involved in the town.

7

My concern with this market is the effects a PJs or Dominos would have on your business if they were to open there.

I think it’s possible to do 8,000-8,500 in the current enviorment. But if PJs or Dominos does come in they’ll take 1/3 of your sales. Leaving you doing 5,600-5,950.

Just my two cents.

8

driverx writes:

This is an EASY question to answer. In small towns (I have 3 small town stores) only one thing really matters… That is the FACE of the store. What I mean is, there needs to be one person, one driving force, that is there for every thing, all the time. One person the town can attach to the store. Without that, forget it. I have found, I can only be that person in one town. The rest require a special kind of person to manage the store, but more important manage the town.

You make a great point. I agree with you 100%, as I also make it my number one priority to capture my market. I don’t leave a manager to run a store unless he’s been trained and has bought in to my philosophies. I’ve also read the following:

Hear me well! My area is littered with the carcasses of operators that thought they could drop a few bucks and have a share of MY market. The only shop that competes with me is the only one with an owner operator, from the town, involved in the town.

From an objective standpoint, give me your thoughts on this particular situation, in a town of which you’re not involved, but rather one lonely Pizza Hut. I’m curious to know what you think actual and potential sales would be with the demographics I posted earlier.

td_VP192 writes:

My concern with this market is the effects a PJs or Dominos would have on your business if they were to open there.

I think it’s possible to do 8,000-8,500 in the current enviorment. But if PJs or Dominos does come in they’ll take 1/3 of your sales. Leaving you doing 5,600-5,950.

I don’t want to get too overhyped about this situation, but I truly think, with the limited competition, that $8000 number could be possible. I don’t think Domino’s or PJ’s will be dumb enough to attempt this because of the town’s extreme rural locale. Also, the address counts don’t match up with their target number, so I’m not worried.

Let’s re-form this question so that I can get some actual numbers…

All small-market owner/operators, based on your dollars per address generated in your store with the competition you currently have, what kind of sales would you generate in a town with these kind of demographics?

Guys, thanks so far for the return posts. I truly respect everyones opinion and look forward to getting some more feedback. -J_r0kk

9

I’d be real careful- I have been to Concordia for bird hunting- not much going on. Pizza Hut has done well- they have the monopoly in many small towns as the de facto sit down restaurant. I think it is too small for me.

On the other hand- farm income should be way up- I would want a dine in- not a delco- they seem to really like beer too.

Be careful…

10

Pizza Dolphin writes:

I’d be real careful- I have been to Concordia for bird hunting- not much going on. Pizza Hut has done well- they have the monopoly in many small towns as the de facto sit down restaurant. I think it is too small for me.

On the other hand- farm income should be way up- I would want a dine in- not a delco- they seem to really like beer too.

Be careful…

Amazing… with a name like Pizza Dolphin I’d have figured you more for the south Florida area. I agree with you about the Pizza Hut and their monopoly on the small market towns. However, in my recent experience, they haven’t been much of a factor in terms of us claiming marketshare. Actually, in all honesty, I feel they’re the easiest of the big 3 to go after because of their oversaturation and watered down talent at the management level, so going after them has been like stealing candy from a baby in recent years (sorry ADPizzaguy, but it’s true). And yes… we have dine in (with beer), carryout, and delivery services available.

Thanks for the input. With this scenario I’ve put before you, give me some numbers guys… based on your small market experiences.

Thanks,

   J_r0kk
11

Actually, I was trying to get the big dining picture of your little piece of heaven. Everyone is scrambling for some dollars! The schools give you the great leverage you already know about and use.

I think you exactly right that if you can get an average of every household doing $20 a month, you are great gravy. However, there are lots of fish in your pond, and that could be more than you can ask for. Even at $15 average, 1/3 is almost $6500 a week and a reasonable profit, but not what you were projecting.

I take in about $12 per household avergage. We have a somewhat depressed economy ($28,000+/- median income level) around our end of the county, lots of fixed income seniors and scant few customer source stalwarts (one small elementary school). When we get beer/wine involved, we anticipate growth to about $15 per household until another pizza place arrives. We’re building more as we go as well. In small towns, it really is important to develop a broader scope attraction to pull from surrounding towns and county addresses. The farther you can push your sphere of influence, the better you’ll be . . . and you seem to be very aggressive and successful about that.

The single personality someone else mentioned is also great. Kids love to feel like they know the pizza guy. You’ll also have the upper hand in getting involved in community stuff. Corporate places aren’t so good at it, but you’ll have some flexibiliy to do the town festivals and fall fairs and stuff with churches. Weave yourself into the community, and they’ll go to bat for you every time.