We're doing it!

Pizza Shop Talk The Think Tank
1

OK guys and gals, we are doing it. I posted a while back about our store. We were a Toarminas franchise in SE Michigan. We are supposed to be “The Cadillac of Pizza’s” according to the franchisor and our prices reflected it. With some changes from the corporate recipes I was able to enter the Pizza Pizzazz Competition at NAPICS and I placed 13th (after about 14 months in the pizza biz) which I thought was pretty good. But even having great pizza could not get us going financially. We were stuck at an average of about $2300-$2500 a week in sales. SOme weeks we did better but the best ever was only $4500 and the worst was about $1500. So we moved our stuff and are changing our name. To compete with the area stores that are trying to see who can sell the cheapest pizza we are going to be pricing our large chesse and pepperoni pie $1 cheaper than the competition so that means it will be at $2.99 (our competition sells them at $3.99) I spoke to a couple of distributors and told them that I want the cheapest stuff possible. But none of them handle fake “pizza cheeze” or budget pepperoni and I don’t know what exactly to ask for so does anyone know a manufacturer of fake cheese or low cost pepperoni? Please keep in mind that to me quality is not relevant. I went out of business with great pizza, now I’m gonna give the market what they want, cheap pizza that they can choke down for less than anyone esle sells it for. But I do need help doing this so any thoughts on how to cheapen things up as much as possible would be appreciated. Remember the customers in my area really don’t give a hoot about quality, price is king! Thanks!

Kyle

2

move your business somewhere else, i personally feel you are selling out and will have to make a tremendous amount of pies just to pay the electric at 2.99 per

3

I don’t believe you’ll be in business at your new location long either…sorry…I don’t mean 2 rain on your “parade”…

even “cheese food” costs…

try this link…

http://www.schreiberfoods.com/schreiber … Ingredient

alttho I’m considering an LC biz model for a new location, I wouldn’t consider the path you seem to wish 2 follow…

4

There have been 2 competitors that opened up in the last 12 months near me.

The first was doing $4.99 pizza, pretty crappy pies. They are doing about $8000 a week.

Then a guy opened up and he is doing $3.99 pizzas (Godawful pies worse than the $4.99 guys pies) he is around $7000 a week.

I was doing great pizza at $9.99 and have been ruined financially. So who has the right idea?

5

You probably profited the same at $9.99 (zero) at $2500/ week as you will doing 15K/ week at $2.99. Even if you skimp and use crappy products, your food cost will approach 50% My labor to sell about 2000 pizzas a week is around $7000/week for instore and drivers. Fixed costs, insurance, where’s the profit? Have you done a breakeven analysis to see where you need to be to just pay the bills?

6

again, I don’t mean 2 b rude…

but lets look @ the math…

the 1st store seems 2 b selling 225 pies/day…

the 2nd store seems 2 b selling 250 pies/day…

lets split the difference…

@ your price point, you’ll need 2 sell over 350 pies/day! Can/will your market support that? Can you indeed produce that #, considering most of those order will hit you between 5-8 pm…

volume covers all sins, as I’ve stated b4…if you have a conveyor oven, the staff, the ability to make all that dough etc…

Me, I’m still leaning to the no delivery/LC model, but this is an odd location…

I reckon you can make a “go” of it @ $2.99 but I would go head-2-head w/a $5 grab & go and compete w/a decent product, built on volume…

7

The thing with reducing prices of pizza so low is that the food cost % increases. Example, selling a Large 1-Topping Pizza at $9.99 will cost you about 32% food cost, selling a similar pizza for $2.99 will cost you 50% or more food cost. You must take this in to consideration.

8

I figure cost on the pizza as follows

6 oz cheese @ 2.15/lb .81
1.75 oz pepp @ 1.85/lb.20
Dough .15
Sauce .15
Box .25

Cost = $1.56

FC % at
2.99 52%
3.99 39%
4.99 31%
9.99 16%

Keep in mind that at 9.99 we were using 14 oz of cheese and 3 oz of pepperoni so I didn’t ever run a 16% food cost!

9

But have you calculated a breakeven point? What sort of labor do you expect to run?

10

Step back a minute and take a deep breath! Okay, first… are both in business doing those numbers today? If so, the trend here says you’ll do 2.99 pizzas and run $6000/week. You will have to sell more pizzas to get to their numbers. In addition, 52% food cost will close your doors. If you charge $4.99 and hold a 31% food cost, that’s “doable”. I assume this is carry-out pricing, no delivery, no dine in.

A 2.99 pizza will cost you more in labor due to the sheer numbers you’ll have to put out. In addition, there are only so many pizzas any place can sell at any price. I dare say that even if you were to give away free pizzas every day, sooner or later, the number of pizzas going out the door would drop.

So, Patriot’s math shows 475 pizzas for market saturation. Let’s say you are able to push out 250 pizzas a day (over 50% of the market). $750/day is your revenue or just over $5000 a week. At your slim margins, there is NO WAY you can make 20% profit, but let’s say there is for argument. Your “profit” is 52k. Again, simply unattainable profit margin. But start dissecting that 52k and see which poor house you’re in.

At $4.99, if you can take 1/3 of the market, you’re actually bringing in more revenue per day, your food cost is lower and by golly, you might make a profit and not end up on food stamps.

You’ve pretty much given up on quality and have decided that price makes your market. If your location is as good as “the other guys”, then you should be able to pull in 1/3 of the market. If your food is better than theirs, you could do much better.

Which came first… the $4.99 or the $3.99 guy? How long ago did the $3.99 guy move in? If the $4.99 guy hasn’t closed up or dropped his price, then $3.99 isn’t the clear winner. Your numbers prove that $3.99 isn’t the winner. So, why do you want to undercut him?

Let’s look at things a little differently. What if you kept at least most of the quality and dropped down to $7.99 or $6.99? Your current recipe costs $1.88 for the cheese and .35 for the pepperoni for a food cost of 2.78. Even putting that at $4.99 won’t be much worse than your skimpy pie at $2.99.

I think the most important question to ask yourself is … are either of the other places making any PROFIT? If they aren’t, they will close. These cheese prices are hurting them every bit as much as they’re hurting you.

By the way, 6 ounces of cheese is less than what LC put on a 14" pie back when I worked for them. I don’t think I’d do less than LC.

11

Wow did i strike a nerver with you? Are you getting undercut and losing business? Because I had the exact same attitude when these guys came to town. Yet they basically put me out of business!

Snowman, I see your point. The 3.99 came first but not by much, maybe a month or two. But the 4.99 guys have a better location in the neighboring town that is richer (for lack of a better term, as neither town is rich) I am told they are both making a profit.

I have worked for 18+ months selling great pizza and I do now qulaify for food stamps. My house was already in foreclosure once and I was luckily able to bail it out with some help from family. See I got no place to go but up! Even if I do barely break even, I am still in the same boat. I am a business major and all of this pizza business around here goes against everything I learned in business school. The old build a better mousetrap thing doesnt work in my local market pizza industry. It is all about build a cheaper mousetrap, heck even if it doesn’t catch mice as long as it’s cheap people will buy it. My business classes taught me that only two poeple win in a race to the bottom, 1. the consumer who gets lower prices and 2. the first one to the bottom. Seeing as everyone thinks I’m nuts to go to $2.99 I think it will be a little while before someone goes to $1.99, but mark my words, if I make moeny someone WILL DO IT!

12

Are these guys running a $3.99 pizza BUFFET? Is there something you aren’t telling us?

I’ve never seen anyone selling $4.99 pizza stay in business longer than a year.

13

Hello Kyle,You say your a ‘business man’ so why would you go to work everyday to NOT make money? Here is my suggestion,Why don’t you focus on making really good hoagies/subs and maybe just maybe this will bring more customers in your store.Then you can work your ‘business man’ magic.For instance,1 FREE sub/hoagie w/every large 1 topping pizza.This will still keep your bargain hunters happy and you’ll still make a decent profit.Use the word FREE in your hangers,etc… Hope this helps ya bro,hate to see a hard working pizza bro kill himself for nothing.

                            Niccademo   'keep your dough off da cieling'
14

It sounds to me like your chasing the title of the person who goes broke the fastest with the cheapest pizza.

It also sounds like have forgotton all your business principles to try and prove that you can make the business work.

At times I found the going tough and not making the weekly costs but I stuck with my plan to make the best possible pizzas and give service levels people used to get before the chains came in with cheap prices and get them out the door, low service syndrome.

The only way they can get cheap prices out in quantity and make money is the advertising support they can generate.

You may have the cheapest pizza but without the advertising backup you will be pushing S*#t uphill with a stick, because not enough people will know about you to get sales to the levels to break even let alone make a profit.

If you have a business background I would expect you have learnt about the 4 P’s of Marketing - Product, Price, Promotion and Place. You need all 4 to make it work. I have always added a fifth P, that being persistence. Maybe it is time to re-read these principles and adjust your thinking. I have a discipline in Sales and Marketing which I refer back to with all decisions I make whether it be pricing policies, advertising or promotion - even where I am targetting business to. And I am persistent in what I do - remember persistence beats resistence.

I’m dead against cheap pizza marketing but in your area if this is what makes it work and you want to go down this line then go for the $4.99 - $5.99 and put the extra in getting your message out there. Then you may break even or make a few bucks. If you do it at these prices with a half decent quality then you may make it and take some trade from the ones you say have terrible pizzas.

I really feel for you with your previous experiences but I think your past hurt, and I caution to say humiliation, may be clouding your judgement.

Remember your business principles on pricing - if you price too high to start with you can easily reduce your price without too much loss, but if you price too low to start it’s very hard to increase your price without an adverse affect from your customers.

Take all the advise everyone is gving and mix it up and take the pertinent points and re-look at your strategies and either decide to go for profit or get out now.

The pizza cemetery is full of cut price heros and I would hate to see your name on a tombstone.

Dave

15

If you insist on $2.99 pizzas, please follow the advice to perform a breakeven. I’m sure that if you do not have a form for this, someone will give you one to use.
The only other suggestion, which I would request be considered is to price the first pizza at $4.99, the second at $3.99 and the 3rd and $2.99. Of course you can adjust the amts or quantities to fit your needs. You could also consider have the $2.99 be touted as a 2nd pizza.
As mentioned earlier, use your knowledge and clear vision to put your desires and thoughts on paper. Let what is on paper be your guide, not your instincts.
Bubba in Florida

16

All I am trying to do is take a chunck out of their ares like they took a chunk out of mine. I just need to hang on and break even for another 18 months til my land contract is paid off and then I can sell the store for $15,000 and pay off my relatives who loaned me that to open up this nightmare.

Maybe you don’t quite understand where we are located. Just South of Detroit in Wayne County Michigan, home of the most foreclosed homes in the nation! Home of a One State Depression. Number 1 in unemployment, number 1 in foreclosures, number 1 in children in poverty. Quality means bubkiss around here it is ONLY price that matters. Here are some examples of pricing and specials.

Large Cheese + 2 items round or deep dish Only $6.25 all day every day, extra items 90 cents. No coupon, no limit!

Three Medium Pizzas with Cheese + 2 toppings only $15.50 FREE DELIVERY

2 Large Pizzas with 3 toppings, Cheeseybread, 2 liter only 10.99 FREE DELIVERY

1 Large pizza w/ cheese + 1 topping $3.99

These guys are not going out of business! I really wish I could make money with quality but I tried that and failed badly! I will look at my break even stuff again, but all I need to do is make $1 profit and I will have beaten the last 18 months combined. I should have given up a long time ago, but I just have a real problem accepting defeat.

Is my frustration showing?

17

I think the best words of wisdom come from WA Dave. You are probably going down the emotional path. If you continue, at least make sure you “bundle” the packages. That way, at least you can get a greater amount for the low price point you are offering. From my limited experience, I tend to think customers (at least mine) prefer a “deal” vice a goumet pizza. However, I have also found out that even with a higher price, I compete very favorably with the PJ, DOM, ST outlets when I discount, even at a higher price. By sticking to a quality product (not gourmet), I think I am going to able to make my business a profitable one. Granted, I have 4 “big boys” doing their best to bury me, but I am optimistic. I do think the complete “lowest possible price” for an independent will eventually lead to failure. I wsih you the best of luck, but perhaps, a less emotional approach of “getting even” will serve you best. No matter, best of luck

Bob

18

Kyle,

Here’s an idea for you:

I see your competition is having this huge price war on carryout pizzas. I say to you, “Let them have their war”. You don’t have to battle and undercut to gain marketshare. What you need to do is be smart about your situation. Instead of focusing on carryout sales, focus your attention and advertising budget on the delivery aspect of your business. It’s okay if you only do 10% carryout. I’ve been very successful with stores that manufactured very minimal carryout sales.

Here are your key points you need to impact:

  1. Product - You don’t need the best ingredients money can buy but make sure each pizza looks great.

  2. Service - You can battle the other delivery companies on this aspect alone. If they’re averaging 40 minute deliveries make sure you’re averaging under 30 minutes.

  3. Lit cartop signs - Make sure each driver in your store has one on his/her car, lit, 100% of the time.

That’s how you beat these guys. Don’t play their game. Make a new game of your own. And remember this: No matter how rich or how poor, they gotta eat, so it might as well be from you.

-J_r0kk

19

Kyle did you learn anything in business school. I realize that you can throw out most of what they teach, but DO A BREAKEVEN ANALYSIS!!! Just because some place does 10K per week, doesn’t mean you will. Even if you do, it doesn’t mean you will make money. I didn’t make shit when I was doing 10K. I’m now doing 20+ at a $9 large and finally reaping the benifits of my years of “charity work.” You say that making $1 will be better than your last 18 months. Maybe you need to give up your pride of not “accepting defeat” and get a job that will put more than 100 times your last 18 months income in your pocket in just one night. Maybe if you are dead set in staying in the pizza business, you should consider a new market. People are willing to transfer to new cities for their jobs, why not do this for your business. You have 50 pizza restaurants to serve 65,000 people, while I have about 30 competing for business from 200,000 people. There are obviously better markets than where you are at. One Last Time: Do a full breakeven anayisis!!! If you can’t make it work on paper, you sure as hell won’t make it happen in real life. Just because the other places are still there, doesn’t mean you will be.

20

I DO understand…I am a former Detroiter!!! I still have a brother working in the restaurant biz near you…

You are going down the wrong path, with a poor “mind-set” & I believe you’ll fail…I don’t know what “biz” school you went to, but ya need to get a refresher course!

I believe in the LC model, and am still considering it for the new spot…I can still put out a “decent” pie in the $5 range and push the volume button, w/o delivery…

but you are cutting your prices to the point that even volume won’t help you, because you can’t produce the required # of pies on a daily basis…you haven’t considered that…

perhaps ya got burned b4…this time you r burning yourself & won’t last 6 months…

Semper Fi - Woodward Ave Rules