Food cost % in high rent / expensive areas.

[Pizzamancer]

I like your spirit, but I feel you are a bit naive. Have you even studied your competition?

https://imgur.com/UHp10

That is enough wasting my time for you. Domino’s ain’t selling $25 pizzas and I am not putting words in your mouth. Maybe you should hang up your idea of a pizza shop and open a $5 burger shop in the airport.

 

[Freddy_Krugerrand]

Pizzamancer:

I like your spirit, but I feel you are a bit naive. Have you even studied your competition?

https://imgur.com/UHp10

That is enough wasting my time for you. Domino’s ain’t selling $25 pizzas and I am not putting words in your mouth. Maybe you should hang up your idea of a pizza shop and open a $5 burger shop in the airport.

Sir your insults are as weak as your facts.

You want to be right more than you want to be happy. You ignore everything I say and plug in your own answers. Then to top it all off you throw some flip insults at me?

I told you there is no Dominoes pizza on this island. There are four major islands that make up the state of Hawaii. The island I live on is much more expensive than Oahu.

I also already previously told you that Pizza Huts cheapest pizza was $17 here as an example of the lowest price peace of crap, silicone cheese, frozen crust pizza you can buy here. And I provided a link to it.

Round Table Pizza here is $27 for a large. All other independent shops run between $24-$27 for a large pie. You can’t honestly believe that I wouldn’t research prices and competition before I spent my $150,000?

Your insults speak volumes about your jealousy and lack of happiness in your life. Not once did I insult you. I asked you many times to answer my basic questions and not once could you do so.

For everyone else, I really appreciate your input. I learned something new from everyone else’s posts.

 

[RobT]

i don’t see any mention of labor or wages with this.

My food cost is hovering around 25% , but wages are extremely high because of my area (~35%)

I would imagine the wages being very high in Hawaii.

 

[bodegahwy]

Freddy,

150K? I think it is unlikely to lease and improve space, purchase equipment, staff, train, open and operate a million dollar store on Maui for 150K unless the place is already a pizza store with equipment in place. (Yes, I have specific experience on Maui with leasing commercial space, as a leasing representative I worked on a lease in Paia Town and looked at locations in Lahaina and nearby in Whaler’s Village) You might get the build-out done for that, but equiping a place to do that volume is not a shoe string budget project and you can count on other startup costs including inital operating losses requiring additional funds.

As a SCORE counselor I often speak with people considering start-ups of various kinds. Getting ideas and advice and considering them is crucial. Find some local people whose expertise you DO respect and pressure test your business plan with them. Ask your banker and accountant what revenue per foot they see in food service in your chosen area. Find somebody in food service and talk to them about labor, food, utilties, insurance, marketing costs etc.

Things in this thread that raise red flags to me:

1. Likely sales out of 2300 feet to cover your stated rent and utilities.
2. Improbable assumptions for fundamental costs. Specifically food.
3. Insuffucient experience in this business to risk life savings? Is this an “all-in” bet or can you afford to loose this investment if it goes bad?
4. Insufficient funding.

 

[NicksPizza]

I’m late to the thread. Thanks for keeping it thrashing for me. YIKES! Talk about intense over some math You’d think I was involved already

Tiny snap shot of a little piece of the entire operation of a pizzeria:
cost of pizza = $6. . . . . . . menu price of pizza= $27. . . . . . cost percentage of that pizza=22.2%

That one microcosm of the operation is spot on. I think it is very risky, but the math holds true.

Freddy, I think I see where everyone is going, and the message is getting lost in translation. We are looking at our ingredient costs and thinking that you may have some hidden surprises in store. For example, right now, I pay nearly $6 for my combination pies (16"), and I don’t live in a high cost region. I don’t get neatly that price, but that’s my issue.

If you sincerely believe that you can run a food only cost of $6 for a multi-topping pizza, then your math holds. The message is that you are setting yourself up for issues if you build your whole operations budget on that math. One reality that I have not heard discussed is that suppliers are renowned for low-balling new customers and then ramping them up. The other ratios in the business are pretty static in terms of occupation costs, labor costs, etc. There are benchmarks that give best chance at success and profitability. If you are running that food cost as your foundation, and you get a run up on cheese or flour, then you are in dire straits unless you can jack up pricing. You’ve made clear the rent and utility costs are significant. I feel for on those. Yikes.

We who have lots of years and lots of locations are suggesting that the number you are using for the actually ingredients cost could be a weakness when you actually put sauce to dough. Especially today, when cheese is up like 35% over when we all made our menu pricing? $6 for anything more than a 12" pizza in a high cost area seems ambitious and like someone is fishing you as a customer. I may be wrong as I am simply looking at my price sheets.

All the discussions about other parts of the operation, I believe, are being discussed because of that $6 cost of a combination pizza in the “gold plated” marketplace. It may be giving people a bit of pause for concern that you have a flaw in the assumption that it will stay that way. Planning on that percentage is aggressive, and will potentially hamstring future flexibility.

I have a couple questions I want to ask in PM about some details in your pizza costs.

 

[Daddio]

I think every one has been caught up in the heat of the discussion and failed to see that on page 2 of the thread Freddy change the question from food cost based to profit based.

Freddy_Krugerrand:

So let me ask this question instead. What profit percentage should I shoot for on a pizza? I have never seen this discussion before.

Is a 10 percent profit on a pizza crazy? 8 percent, 5 etc. Could some of you give me a ballpark of the profit you make on your average large pizza?

Or maybe a better question is what is everyone’s ideal profit percentage on total food sales (after all costs) ?

 

[NicksPizza]

Same problem with this question is that the definition will lead to lots of different perspectives. “Profit” on a pizza will mean many things to as many people. If you are talking about something close to contribution margin versus everything I did not spend on dough/sauce/cheese/pepperoni, versus pizza plus box, versus pizza plus pro rata of fixes costs, versus pizza plus pro rata of all operations costs, etc.

In addition to the ongoing conversation that should continue, I have a PM in to the Op that may give me an idea what he is asking and what the fundamental feedback could be that could be useful to him. I’ll post if we have a good conversation that is useful here.

 

[system]

I agree with Nick that this questions is too non-specific to get an answer. The other thing that worries me is freddy asking 10,8, or 5% profit on a pizza. Even if we are talking bottom line net profit… 10 or below sounds disasterous in that area. There are going to be so many expenses that are not being included that those percentage numbers will quickly turn RED and then it is all over. Also, Steve’s question of the $150k investment… I hope the space was a pizza shop and has $100k+ worth of equipment included. I am in the Midwest and I cannot touch a full and correct buildout and startup for that amount. Maybe a delco at best but a full service dine-in. Sorry freddy but I worry you are off by a lot on the initial investment and reserves that you need on hand to get up and running. Steve’s suggestion of SCORE is a great one, as is going too talk to another pizza operation on one of the islands. Maybe one that would be interested in a business partner too open another location on Maui? :idea:

 

[Freddy_Krugerrand]

qcfmike:

I agree with Nick that this questions is too non-specific to get an answer. The other thing that worries me is freddy asking 10,8, or 5% profit on a pizza. Even if we are talking bottom line net profit… 10 or below sounds disasterous in that area. There are going to be so many expenses that are not being included that those percentage numbers will quickly turn RED and then it is all over. Also, Steve’s question of the $150k investment… I hope the space was a pizza shop and has $100k+ worth of equipment included. I am in the Midwest and I cannot touch a full and correct buildout and startup for that amount. Maybe a delco at best but a full service dine-in. Sorry freddy but I worry you are off by a lot on the initial investment and reserves that you need on hand to get up and running. Steve’s suggestion of SCORE is a great one, as is going too talk to another pizza operation on one of the islands. Maybe one that would be interested in a business partner too open another location on Maui? :idea:

Let’s talk about my budget and plans. The $150,000 was my own money. I wish to open a pizza restaurant without any debt. Whether that is enough money remains to be seen but that should change the dynamics a little considering its not a loan. And the fact that I could borrow additional funds (but I really, really don’t want to).

The space I was looking at was an old pizza place so it already had the hood, sinks, walk-in, electrical, grease trap and floor in place. If I don’t choose this location I would only consider a former restaurant. I know I do not have the funds to do a complete brand new build out.

Here is a rough list of my expected costs. If any of them seem out of line or you see something I am missing please contribute and let me know. I plan to buy a majority of my equipment second hand. I have approx $10,000 worth of decor already purchased for the dining room so that is covered.

(2) Edge conveyor ovens $20,000 (new)
Pizza Press $1,000 (used)
Food preps to get started $3000
Shelving for back of the house $2000 (used)
(2) Make Lines $8,000 (maybe used?)
Booths and Tables $8,000 (used)
Outside sign $2000
Employee payroll upfront costs $5000
Ice Machine $1500 (used?)
Pizza Warmer $500 (used)
Boxes and Paper Supplies $1000
Menu Board $1000
60 quart Hobart mixer $5000 (used)
First and Last rent $15,000
Salad Bar $3,000 (new)
Additional Fridge for Salad Bar $750 (used)
Utility Start up $2000
Marketing Start up $2000
Dining room build out (lights, floor, paint etc.) $5000
Tools for prep $2000 (new)
Cash Register (NO POS for start) $700 (used)
Uniforms $500
Permits and insurance $2000
Counter build out $5000 (new)
Pizza Cutting station $1000 (used)
Pizza plates, pans, forks, etc $1500 (some stuff new some used)
Misc. unforeseen costs $10,000

I get a rough total of $110,950 This would leave me about $40,000 left over debt free.

 

[Daddio]

Cash Register (NO POS for start) $700 (used)

Point of Success and others have software programs free that you can upgrade later and with $700 you should be able to find used computer equipment that will meet all you needs. PLUS a POS is far better than a cash register because you have more flexibility with your menu and more accuracy with your orders.

 

[bodegahwy]

Just doing quick and dirty math… I would budget more like 300K for a startup sit down place with a target of 1M sales. If it was in a location that had not been a restaurant before and I had to do electrical, hood, walkin etc, I would add another 150K to that.

(2) Edge conveyor ovens $20,000 (new)
Assuming cost of ovens is correct you need to add freight and installation $5000

Food preps to get started $3000
What are “food preps”?

Outside sign $2000
Depending what local sign code is… most signs will be closer to $5000

Ice Machine $1500 (used?)
For a high volume store Ice is one place I would not buy used. $5000.

Pizza Warmer $500 (used)
That will get you a used Hatco warmer that will hold four pies. Is that all you need?

60 quart Hobart mixer $5000 (used)
What about slicers? Can openers, cut tables?

Marketing Start up $2000
Way low. Your yellow pages ad will cost 3X that. You are trying to build to 1M in sales right? On 1M sales most of us would be spending about $4000-$5000 per month. I would front load that with an ADDITIONAL 20K for the first 120 days.

Dining room build out (lights, floor, paint etc.) $5000
Way low. $25,000

Tools for prep $2000 (new)
Make line pans, buckets, dough trays another $3000

Cash Register (NO POS for start) $700 (used)
No way in today’s world you run 1M sales on a cash register or a cheap POS. You need the tools to do the job and that means multiple stations including front of the house, bar, kitchen and manager as well as credit card clearing etc. $20,000

Uniforms $500
$2500

Permits and insurance $2000
Selling beer? $8000

Pizza plates, pans, forks, etc $1500 (some stuff new some used)
Need plates, glassware and flatware for a sit down place? $6000

Misc. unforeseen costs $10,000
Better double or triple that $25,000

Inventory ramp up: $8000

Operating losses first two years: $75,000

Cost of living for owner without salary for first year???

 

[bodegahwy]

I opened for business 12 years ago this Tuesday. I bought all the equipment in place for 35K from a PJs that closed after 8 months due to owner’s health. It is just a delco… no seating. I even got their phone number with advertising in place… it was already ringing! Equipment included stack of MM wide belt ovens, all counters, makeline, and walkin with shelving. If I had purchased the equipment used and had to bring it in and install it the cost would have been more than double without looking at the makeup air and the hood. Never mind the A/C!

I had to buy a POS, freezer, mixer, a sign, make-line pans and a lot of dough trays but most other small wares were there as was a fine phone system. That stuff was about 35K too.

Including first year losses it cost $110K to get through the first year and that WITHOUT taking ANY pay for myself. So 70K for stuff and 40K losses (includes startup marketing costs).

That was 12 years ago. I got the deal of the century. Prices have risen since then. If I included the value of my labor that year at $10 per hour the cost would be about 150K.

Add the sit down component, increase in costs over 12 years and not buying an entire package in place… plus your higher rents etc contributing to higher initial losses… and getting to a 300K startup budget is pretty easy.

 

[Freddy_Krugerrand]

(2) Edge conveyor ovens $20,000 (new)
Assuming cost of ovens is correct you need to add freight and installation $5000
Freight definitely, I’m confused about the installation. I can’t install the oven myself assuming the hood is already there?
Food preps to get started $3000
What are “food preps”?
Food to get started, dough, pepperoni, olives, etc.

Outside sign $2000
Depending what local sign code is… most signs will be closer to $5000
I have a friend who owns a sign shop who will do it at cost.

Ice Machine $1500 (used?)
For a high volume store Ice is one place I would not buy used. $5000.
Thats good advice.

Pizza Warmer $500 (used)
That will get you a used Hatco warmer that will hold four pies. Is that all you need?
For starters probably.

60 quart Hobart mixer $5000 (used)
What about slicers? Can openers, cut tables?
I have that listed under prep tools. & pizza cutting table.

Marketing Start up $2000
Way low. Your yellow pages ad will cost 3X that. You are trying to build to 1M in sales right? On 1M sales most of us would be spending about $4000-$5000 per month. I would front load that with an ADDITIONAL 20K for the first 120 days.
I’m not sure where this 1M in sales thing came from. I would be happy making $1000 profit a month (first year). I have another business that can run without me and cover all my living expenses. Also I have budgeted $1000 a week for my salary in my break even analysis. On my break even analysis I need to sell 75 pizzas a day.

Dining room build out (lights, floor, paint etc.) $5000
Way low. $25,000
You think? On a space that was already a restaurant? Where are all these expenses coming from. I planned on doing a lot of the work myself.

Tools for prep $2000 (new)
Make line pans, buckets, dough trays another $3000
OK

Cash Register (NO POS for start) $700 (used)
No way in today’s world you run 1M sales on a cash register or a cheap POS. You need the tools to do the job and that means multiple stations including front of the house, bar, kitchen and manager as well as credit card clearing etc. $20,000
Again, I am not sure about any 1M in sales. I know i need a POS as soon as possible. My restaurant will not have any waitress only food runners.

Uniforms $500
$2500
You got fancy uniforms

Permits and insurance $2000
Selling beer? $8000
I was thinking Beer within 6 months of opening. Thats good to know about the insurance.

Pizza plates, pans, forks, etc $1500 (some stuff new some used)
Need plates, glassware and flatware for a sit down place? $6000
Plastic plates, plastic glasses and flatware “used” for $6000? How is that possible?

Misc. unforeseen costs $10,000
Better double or triple that $25,000
You can never have to much money.

Inventory ramp up: $8000

Operating losses first two years: $75,000
Why do you take a loss the first two years? It’s not possible to be profitable from the start?

Cost of living for owner without salary for first year???
My break even analysis takes into consideration a salary of $1000 a week for myself.

Thank you for the information, keep it coming I am learning something new with each post.

 

[bodegahwy]

“I’m confused about the installation. I can’t install the oven myself assuming the hood is already there?”

I am not familiar with the ovens you mention so… can not comment on whether they can handle your proposed volume… but most ovens are going to require the services of an electrician and a plumber (gas). You do not just plug these things in.

What are “food preps”?
“Food to get started, dough, pepperoni, olives, etc”
Oh. Most of us call that “inventory”. I can tell you that we carry about $6000 in our off season and up to 10K in high season at roughly half the volume you are proposing.

What about slicers? Can openers, cut tables?
I have that listed under prep tools. & pizza cutting table.
In that case your budget is too low.

I’m not sure where this 1M in sales thing came from. I would be happy making $1000 profit a month (first year). I have another business that can run without me and cover all my living expenses. Also I have budgeted $1000 a week for my salary in my break even analysis. “On my break even analysis I need to sell 75 pizzas a day”

The sales number comes from the rent. You are dreaming if you’re budgeting 50K first year profit. In any case, this does not change the fact that your marketing budget is small fraction of what it needs to be.

Dining room build out (lights, floor, paint etc.) $5000
Way low. $25,000
“You think? On a space that was already a restaurant? Where are all these expenses coming from. I planned on doing a lot of the work myself.”

Obviously I have not seen this place you are talking about. On the other hand I have started three busineses.

Uniforms $500
$2500
You got fancy uniforms

Cheap shirts are $20. Each FT employee will run through 6-8 per year of them They add up fast.

“Plastic plates, plastic glasses and flatware “used” for $6000? How is that possible?”

Plastic? Your health department allows that? In any case, plastic looks like sh!t and does not last.

Operating losses first two years: $75,000
“Why do you take a loss the first two years? It’s not possible to be profitable from the start?”

Ahh… the crux of the matter… realistic financial planning. Almost nobody is profitable from day one. I woud not advise anyone to count on it.

Cost of living for owner without salary for first year???
My break even analysis takes into consideration a salary of $1000 a week for myself.

Already addressed.

 

[royster13]

The cost of failure…“priceless”…

 

[bodegahwy]

One last post… and I done with this topic:

“On my break even analysis I need to sell 75 pizzas a day” (Both the number of pies and the price are rosy assumptions for a new business with an inadequate marketing budget)

Let’s combine that with some other presumably hard numbers from the thread above and some pretty solid numbers from other sources:

75 pizzas per day at an average of $20 (average pie sold is somewhere between 1-2 toppings, not the 4-5 you mention will sell for $25-27) assuming sides and drinks will come to about 50K per month.

Food & Supplies (yes 30%) $15,000
Labor excluding manager (you) $15,000
Rent $ 7,800
Utilities $ 5,000
Work Comp $ 500
Insurance (assumes delivery) $ 500
Marketing $ 3,500
Maint & Repairs $ 300
Delivery expense $ 1,000
Phone & Internet $ 350
Bank Fees (incl CC) $ 800
Laundry $ 200
Various $ 400
Dues, pubs, pro fees, $ 200
Shortage, bad checks $ 50
Employee Benefits $ 200

Ooppssss that’s over 50K per month and you did not get paid yet!

Now… what happens if your sales forecast is wrong and you do 30K in a given month instead of 50K? Or what if your average pie is $18?
A more realistic business pattern will have you doing 20 pies during some seasons and 150 in others. Can your proposed facility handle the higher volume? If not, you will not achieve the average you are shooting for.

Back when we were doing exactly this volume (600K plus per year) we did almost 50K in our biggest week and about 3K in our slowest. (Dig way back in my posts to find my posts that week… Christmas week 2007 I think, but it might have been 2006)

 

[system]

Freddy I also would add that you will need to be a $1m plus business too last at those prices. You question that number but 75 pies a day at your estimate of $25-27 each… you are already at a $700k plus business for your break even. Unless you just want a never ending job with endless hours and not a structured business… you need too shoot for a $1.5m plus at this location or more. :idea:

 

[Freddy_Krugerrand]

Bodegahwy, I’m sorry to hear that was your last post your information has been really helpful. If I don’t hear from you again, thanks! I hope you don’t think I was arguing with you I was just trying to explain the way I broke it down in my head.

It was good to see that your breakdown was very very similar to mine. Using your numbers I would need to sell 65 orders a day @ an average of $25 a sale (which is a lowball average sale estimate) to break even. My figure was 75 orders to break even and that included my salary and a few more things. So at least I have my numbers near where they should be.

I figured my extra $40,000 for marketing and first year problems. I know that $2500 is not enough for marketing that was merely my first 30 day budget.

Can I ask where the rest of you got your $350,000 to open your pizza place? Banks don’t loan that kind of money (at least not anymore). I thought I was doing well to have $150,000 of my own money in cash. Guess I need to save more money.

 

[Pizzamancer]

bodegahwy:

Also I have budgeted $1000 a week for my salary in my break even analysis. “On my break even analysis I need to sell 75 pizzas a day”

I was going to just stay away, but I couldn’t help it.

Your market is that rich and the Domino’s went out of business there? If it had that much potential, you would already have two Domino’s and a Papa John’s. The best advice I have ever hear is to open a pizza shop in a town with 10 pizza shops, not in a town with one (Makes it easy to know which market eats pizza).

Do you really think it is that easy to have a $50,000 a year job with a $150,000 investment?

Profitable from day 1?

All this (not even going to touch food cost any more), and you don’t even know how to make pizza dough?

Best of luck with that.

 

[NicksPizza]

Freddy,

I got your PM, and it makes some basic sense . . . 6 topping pie costing out about $6, though I suspect that might be on the lower side for working numbers.

Some of the questions people have asked do bear some consideration on your part. You don’t owe us an explanation, but definitely needs to be part of your realistic assessment of the marketplace. What really are your competitors? What do you think has kept the economy pizza places from setting up shop sine the volume you indicate would be more than adequate for one?

As for finances, unless you are a labor unit in the place, do not plan on taking anything from the business for at least 6 to 12 months. Taking a market-reasonable wage is one thing . . . . owner cash distribution is short sighted.

In the type of volume you are talking about moving you are creating a HUGE risk point buying any refrigeration used. I got by on my shop given our small volume, and great fortunes in the units I got. Others I know have had disaster. No chance in hell you should open with a used ice machine for a dine in shop in a higher end market.

Used melamine can get you by in a casual pizza joint. It all depends on the style and brand you are creating. If you are looking for a mid scale to upscale sort of place, you will confuse the customer into thinking you are cheap and overpriced. The message has to carry all the way through . . . menu items, food quality, service style and level, staff uniforms, decor, style of chairs, smallwares, glassware, space between tables, lighting, music, signage, etc. All have to convey the same impression on the customer. We use 8" pizza pans for plates in our shop as they are nigh indestructible, conveys the traditional pizzeria feel, and goes with the shop I built and the ceiling lamps we hand built. We have “45 minute” chairs . . . they are comfortable for up to 45 minutes to an hour. If I gotta turn that table more times, then need different chairs . . . If I want to convey higher impression with higher price point in the market, then again different chairs and fewer turns.

Sooooo much to consider. You may have found a diamond in the rough that turns out to be a great project. Plan like it is going to be as much work and effort and expense as the majority of places, so you can be surprised by surplus and not by restriction and inflexibility.