Existing Pizzeria acquiring another long time local Pizzeria

[rgjujitsu]

So a good friend of mine who owns a very successful pizzeria is acquiring another long time local Pizzeria. The place he’s buying is nowhere near as busy as his. He does not intend to occupy the space. He’s basically thinking that he will get a percentage of the customer base (less than 2 miles away), the equipment and phone numbers. He also plans on bringing on the owner as a manager did to him being a fixture in the community and great relationships.
My questions are this:

1. How would you value this transaction? Tough to estimate how many customers he’ll get from that base.
2. What concerns/thoughts do you have about him bringing on the old owner? Fyi he is older, 64
3. How does he market the change? What does he say when people call expecting people to order from store x and they answer store y?
   Thanks for any help!

 

[royster13]

All you can do is guess as to how much business will come your way…IMO if the business was yours to get you would have gotten it already…Maybe their product is just different enough from yours that very few will be willing to change…As far as a price, I would be on the real low end…Good luck…

 

[gmac42]

Random thoughts. As Royster notes, his customers are apparently happy with the “different from your pizza”. There is an existing customer base and no matter what some part of that customer base is going to leave and you are going to have to replace it. That takes time and money. There is always some resistance to change whether the change is good or bad; human nature.
I have a friend who owned a couple of jewelry stores that also bought and sold gold and silver. I watched him buy two other businesses exactly like his in the space of a couple of years. He closed both of them down and kept the phone numbers so that they were answered at his two locations. It worked pretty well for him. The problem here is that the jewelry business products are basically the same. Food is quite another matter. Oh, and the friend did purchase them at a less than market price.
The owner will stay on as manager? I have seen this scenario a few times over the years. Not a high rate of success. The previous owner has his way of operating and his product that he undoubtedly thinks is very good. Changing the method of operation and the product is going to hit him in the gut. It takes a special person to make this kind of transition. I have seen it done but very rarely.
Early in my career I owned several franchises of a very popular company. I had an opportunity to purchase a company owned location which I did. I thought I had a built in labor force and it would be easy plus I wanted to be fair and give the employees a chance to blend in with our company. Big mistake. The company store was just average at best in its product and operation. The effort to convert the employees was not well received. They had they way of doing things. Only one person in the business remained with us. In retrospect the best thing I should have done was to shut the business down and hire all new employees while giving the former employees an opportunity to interview for jobs. I don’t mean to say this is the formula to follow for all such deals but it certainly was in this case. It is very difficult to convince the existing employees that there might be better ways to do some things. If you can convince them (and it takes a lot of time and effort) then it takes a lot of time to re-train and then some still drop out.

 

[gmac42]

One other thought. Is this friend operating just one location? Now he is proposing to buy a second one? With one location an owner/operator can affect everything in his business. He is there every day and he is directing the operation every day in every detail. Going to a second location tests the skills of the owner. Now he is going to be in the position of having to work through others. Can he delegate? I have seen some restaurant owners make this transition and some of them simply did not have the skills to work through others. I had a very successful first location and went on to own several more but that transition from one to two locations was an eye opener. I thought I knew enough, could anticipate enough and had enough energy to put in the time. I did not and it was quite the learning experience and I am glad I did it. I think my ignorance was a blessing because had I known how difficult it was going to be I might not have done it.

 

[Piedad]

Quick Thoughts: 1) I hope he discounted the purchase price considerably, since he’s going to close that shop., 2) it may be possible to market the whole thing as a decision by the owner of the store being bought to Join Em", since he could never “Beat Em” … in quality and service. It could even be marketed as a “merger” combining the best of both. Moreover, he is so committed that he has joined their management team to expand the business and continue to serve the loyal base that XYZ Pizza was honored to serve for so many years. 3) make sure that the old owner signs a non-competition agreement, with a non-disclosure agreement included (it works)) promising no badmouthing ever. 4) name a new special pizza, or discount campaign, after the old owner … you know, the “Jimmy’s Favorite”, or something like that.

 

[rgjujitsu]

Thanks for the great feedback guys, as always you guys rock. I’m trying to talk him out of it, I’ll present this to him and keep you posted

 

[Piedad]

Thanks for the great feedback guys, as always you guys rock. I’m trying to talk him out of it, I’ll present this to him and keep you posted

Ahhhhh, I thought it was a done deal. If it’s not yet been consumated, I encourage you to explain to him the negatives. If, of course, he needs backup equipment, and the purchase price refects little “value added” to the used equipment value, then maybe there’s some sense in moving forward.