I finally change my price structure.

[Daddio]

For the past 6 and 1/2 years I have done a second pizza discount along either free delivery or very cheap delivery. My year end was April 30th so on May 1 that all changed. I readjusted my prices to reflect the actual cost of the products and services I provide.

The new pricing structure has been in effect for 2 weeks now and I have only had a hand full of complaints. There have been several customers that have noticed a price change but they knew it was only a matter of time. I had not made a price change for nearly 3 years.

I have learned a couple things from this latest change. First I waited way too long to make the change. Second people either will not be happy with the price no matter what you charge or they will not care what the price is because they like your food.

When people ask why the change my answer is “We made the changes to be fair to all our customers.” The old pricing was inflated to account for the discount structure and cheap delivery. People who wanted an odd number of pizzas or one large pizza and one personal pizza were being overcharged as were the customers who picked up their order. People who wanted two premium pizzas were being under charged as were the customers that used the delivery service.

The bottom line is my sales have increased, my drivers are getting better tips (even with the higher delivery fee), and my bank account is growing at a more acceptable rate.

 

[Rick_G]

The last statement sums it up. The objective of the game is to put money in the account, everything else is a strategy to accomplish the goal. Bank account growing faster, customers happy as evidenced by sales increasing as Charlie Sheen would say you are winning. Hopefully we don’t hear about you trashing hotel rooms with a bevy of young adult stars now.

 

[system]

Daddio:

For the past 6 and 1/2 years I have done a second pizza discount along either free delivery or very cheap delivery. My year end was April 30th so on May 1 that all changed. I readjusted my prices to reflect the actual cost of the products and services I provide.

The new pricing structure has been in effect for 2 weeks now and I have only had a hand full of complaints. There have been several customers that have noticed a price change but they knew it was only a matter of time. I had not made a price change for nearly 3 years.

I have learned a couple things from this latest change. First I waited way too long to make the change. Second people either will not be happy with the price no matter what you charge or they will not care what the price is because they like your food.

When people ask why the change my answer is “We made the changes to be fair to all our customers.” The old pricing was inflated to account for the discount structure and cheap delivery. People who wanted an odd number of pizzas or one large pizza and one personal pizza were being overcharged as were the customers who picked up their order. People who wanted two premium pizzas were being under charged as were the customers that used the delivery service.

The bottom line is my sales have increased, my drivers are getting better tips (even with the higher delivery fee), and my bank account is growing at a more acceptable rate.

Before I make any comments I have a couple of questions for you. What kind of feedback are you getting from your employees? Are you confident that your sales increase will maintain itself (after all it’s only been two weeks)? How can you correlate your changes to the drivers getting bigger tips? (You brought the subject up and generally, delivery charges lower tips.)

Finally, I believe the implication is that you have eliminated (or drastically changed) the two pizza special and perhaps have raised/changed other prices. As we know, offering a second pie at a discounted rate does not affect the labor that much (it raises the ticket price/driver still has to go to the same place for one pie or 15 pies/etc.) It seems that in one aspect (delivery charge) you have gone the way of the Big 3 but at the same time have required customers to pay more (compared to the Big 3) for quality food. Do you believe this model will work only for you or should other indies/smaller chains be apt to try this as well?

As mentioned previously, I am looking at a possible opening in a (closed) local store. I have done everything in the business except own my own place. I know it’s a pain the rear but have watched a friend do it from the ground up. So the answers to these questions mean more to me than how I can “rip” you about drivers.

 

[Penelope]

Daddio, I am glad that is working for you. You will always have customers that are going to complain of a price increase, I usually do a 5% across the board and had one lady complain because her 1/2 sub went up a dime.

PPG you need to look from things from a customers point of view too. I don’t believe raising or charging delivery charges (if done right) decreases the drivers tips, but actually increases them. It has 2 advantages, if someone doesn’t feel that having the pizza delivered for a cost is worth it or don’t have the money for it, they were probably going to stiff the driver of the tip anyway. and If the business makes it known that it costs money to provide this special service, the customers perception changes and actually tip more. IMHO the ones that say that they thought the delivery charge was the tip, had no intention of tipping in the first place.

 

[Daddio]

PPG2270:

How can you correlate your changes to the drivers getting bigger tips?

Not knowing to the fullest degree of accuracy, I hesitate to articulate for fear that I might deviate from the paths of rectitude.

 

[system]

Penelope:

Daddio, I am glad that is working for you. You will always have customers that are going to complain of a price increase, I usually do a 5% across the board and had one lady complain because her 1/2 sub went up a dime.

PPG you need to look from things from a customers point of view too. I don’t believe raising or charging delivery charges (if done right) decreases the drivers tips, but actually increases them. It has 2 advantages, if someone doesn’t feel that having the pizza delivered for a cost is worth it or don’t have the money for it, they were probably going to stiff the driver of the tip anyway. and If the business makes it known that it costs money to provide this special service, the customers perception changes and actually tip more. IMHO the ones that say that they thought the delivery charge was the tip, had no intention of tipping in the first place.

Hi Penelope,

In the sense that stiffers are going to stiff no matter what, you have a point. The ones that bother me are the customers that all of a sudden see the “extra” charge and assume (without asking) that the tip is now included. My GM days were back when there were no delivery charges, but I can tell you that as a former driver as well, this does indeed happen.

If (and I mean IF) the charge is implemented to keep businesses viable, then fine. But it such charges are done knowingly to “rip off” drivers’ tips and pad the owners wallets (as in the case of the Big 3,) that will send a decreased sense of organizational commitment to the employees.

 

[system]

Daddio:

PPG2270:

How can you correlate your changes to the drivers getting bigger tips?

Not knowing to the fullest degree of accuracy, I hesitate to articulate for fear that I might deviate from the paths of rectitude.

That’s really funny. But I guess that what you are saying is that you cannot back up the statement that your drivers make better tips as a result of your delivery charge. I expected that, but now intend to move on with the discussion.

How about all of the other non-driver related questions I asked you? Everyone keeps saying that posters here “love” to help out other owners (or potential owners.) Now is your time to shine.

Ohhh wait just one more thing. The friend I mentioned who has worked his butt off the last 8 years in his own store was a former manager/driver just like myself. I did watch and learn what commitment it takes to succeed. Now the logical question for me is why I just don’t ask him questions moving forward? The answer is simple: He would be my direct competition.

 

[Daddio]

PPG2270:

What kind of feedback are you getting from your employees?

There is very little change to the non-family staff so there is little if any feedback from them.
PPG2270:

Are you confident that your sales increase will maintain itself (after all it’s only been two weeks)?

Yes, I am.
PPG2270:

How can you correlate your changes to the drivers getting bigger tips?

The tip rate for every 2 week period over the last 6 years has been 10% - 20% lower than that of the 2 weeks since the price structure change.
PPG2270:

Do you believe this model will work only for you or should other indies/smaller chains be apt to try this as well?

People in general know the value of what they are purchasing. There are going to be customers I lose because I no longer have a 2 for 1 deal, however the customers that want quality food will pay the price if it is fair. There is a chain here that charges dearly for their products which are inferior to my product and priced as much as 1.5 times what I now charge. If the product an indy sells is top quality then the price should reflect that. With regard to the big three and the delivery fee, There is only one pizzeria in my market that is not charging a delivery fee openly and that shop gives a $5 discount for pickup hence a $5 delivery fee is implied. The charge for delivery in my market ranges from $4 to $9 dollars on standard orders and some charge $12 for orders over $200.

 

[system]

Daddio:

PPG2270:

What kind of feedback are you getting from your employees?

There is very little change to the non-family staff so there is little if any feedback from them.
PPG2270:

Are you confident that your sales increase will maintain itself (after all it’s only been two weeks)?

Yes, I am.
PPG2270:

How can you correlate your changes to the drivers getting bigger tips?

The tip rate for every 2 week period over the last 6 years has been 10% - 20% lower than that of the 2 weeks since the price structure change.
PPG2270:

Do you believe this model will work only for you or should other indies/smaller chains be apt to try this as well?

People in general know the value of what they are purchasing. There are going to be customers I lose because I no longer have a 2 for 1 deal, however the customers that want quality food will pay the price if it is fair. There is a chain here that charges dearly for their products which are inferior to my product and priced as much as 1.5 times what I now charge. If the product an indy sells is top quality then the price should reflect that. With regard to the big three and the delivery fee, There is only one pizzeria in my market that is not charging a delivery fee openly and that shop gives a $5 discount for pickup hence a $5 delivery fee is implied. The charge for delivery in my market ranges from $4 to $9 dollars on standard orders and some charge $12 for orders over $200.

Well, I never thought this day would come but um…thanks for your professional opinions. :?

 

[Daddio]

You will notice there have been posts deleted from this thread. I chose to do this to keep the subject matter relevant to the original post. Please respect the fact that there are opinions that differ and do not resorting to flaming other members of this forum.

 

[NicksPizza]

Daddio, way to go. Taking a bold step like that takes some organizational courage. Definite risks in losing customer loyalty and employee commitment if things go haywire. As you pointed out what many of us have found . . . loyal customers understand the realities of running a business, and will pay a reasonable increase (though they would prefer not to pay). Every price increase we have had led to bottom line revenue increases, even though we lost some customers along the way. We always picked up new ones that were in the current model, and we commenced to developing their loyalty. Success is for the bold and the wise.
PPG2270:

Daddio:

PPG2270:

How can you correlate your changes to the drivers getting bigger tips?

Not knowing to the fullest degree of accuracy, I hesitate to articulate for fear that I might deviate from the paths of rectitude.

But I guess that what you are saying is that you cannot back up the statement that your drivers make better tips as a result of your delivery charge. I expected that, but now intend to move on with the discussion.

Actually,it appears to me that Daddio did provide supporting data . . . though from a very small sample. That is the same data you offer when discussing the concern that increased Del Fees make customers think they don’t have to tip. Unless you do have a random sample design where you correlate data sets and match samples across markets and then use the relevant statistical significance test to judge the results. Basic observation is either good or bad . . .

 

[bodegahwy]

We have had a delivery fee now for about 8 years. We have raised it a few times over those years, most recently last Winter to $2.50. About 90% of our deliveries are done in company cars using company gas. If I take driver wages, gas, auto repairs, cost of purchasing autos, and mileage for those deliveries made in driver owned cars, and divide by the number of deliveries in a year, the cost to deliver is roughly $4.20. At this time, I do not think that we could raise our delivery charge again.

Here are a few facts:
Our drivers average about $4 per delivery for tips. We do not find that customers are confused about what is a delivery charge and what is a tip. Since we live in a resort community, many people here are in tune with tips.

Over the last 3 years in the tough economy carryout has risen from about 20-25% of sales in the local’s season to about 35%. I do attribute this to the combination of delivery charge and tip that can be saved.

On our most recent menu, (at the printers right now) we raised the price of apps and salads and kept pizza where it is. It is my intention to reduce the value of our average coupon and get the price increase there.

 

[system]

NicksPizza:

Actually,it appears to me that Daddio did provide supporting data . . . though from a very small sample. That is the same data you offer when discussing the concern that increased Del Fees make customers think they don’t have to tip. Unless you do have a random sample design where you correlate data sets and match samples across markets and then use the relevant statistical significance test to judge the results. Basic observation is either good or bad . . .

I agree that my personal observations were only from my experiences in my area with my customers. The only difference is that I’ve had people at the door ask me something to the effect of “that includes the tip right?” For every person who asks, there are probably a few more who assume.

It is no secret that I also post at TTPG. Having said that, I am not alone in my observations. Many have posted the same results for their customers in their areas. Where there’s smoke, there’s fire.

Again, this thread is about drastic changes in pricing all at once and the raise in delivery charge is just one aspect of that change. But anyway I digress. Should customers pay extra to have their food brought to their homes? You bet they should. And they should do so in the form of tips.

 

[system]

Daddio adjusted his prices accordingly to make his business more sustainable in the long run. Yes he will end up losing a few customers, he will have a few that “whine and complain”, and he will gain even more with new promotions and putting out a great product for a fair price. This thread has nothing too do with the pay or tips received by his delivery drivers. PPG2270 says himself that people should pay to have food delivered to their house with tips. That said…why is it brought up to the pizza owners on every post? He should start a campaign against the millions of people that have their dinner delivered each night! You need to make them aware of how you feel about this and get them all on board with how he believes the delivery world should work.

You read through all the posts and like Steve says…he can’t raise delivery charges at this time even though he is basically losing money on each run. Does he ask for a share of the tips from his drivers? I doubt it. Does he pay for vehicles, gas, etc? Yes. Do his drivers make a good wage while working for him? I am guessing, and Steve please fill in the blanks if you would, and I promise this is the last time we address this, I bet they make a very nice hourly rate with tips included being a resort area. Like you said…your customers kind of know they need to tip and do so accordingly.

Sorry everyone, but even though some believe that drivers are the most criticle link in the business world…the truth is that to run a successful business it is only one of a thousand cogs in that gear. They all have to work TOGETHER to make the big picture work. PPG2270 you now talk about opening up your own shop…and like I said before… best of luck too ya… I hope you succeed because it is small business that makes the world work. I also said I hope you open your mind and eyes to see how you have to make the whole process work and not just the coveted delivery drivers. :idea:

 

[wa_dave]

Richard.
You have motivated me to finaly adjust our prices and reduce the number of deals and specials available.
We have been quietly increasing the deals and specials prices since taking over the shop where everything seemed to be on a deep cut deal.
Today I finalised our new menu and price aligned some pizzas by taking the cheaper ones up to the main sellers prices, keeping our Large size main sellers the same price, but increasing the small and family sizes slightly (eg 28.50 to 28.90 - same 28 price area), keeping the Large Gourmets (fast increasing, good margin lines) the same but increasing the small and family sizes and raising pasta prices around 10% (still more than competitive priced).
We also increased our special multi pizza deal prices, Large size marginally and Family size more (under priced previously) and took out 1 pizza meal deal (garlic bread and drink and pizza) and replaced it with a drink/bread combo added to the full price of the pizza - customers still get a saving but we get another $1.50 - $2.
With the majority of our pizzas sold being the Large size we slightly fine tuned the mix but to the extent that customers won’t notice it as the price “appears” not to have changed as the lower cost items now are the same as the previously higher priced ones which we left the unchanged.
With utilities charges increasing 40%, rent having an annual 5% increase, wages ever increasing and not to mention increasing costs of goods the new prices were desperately required.
There is so much news in the media and on TV regarding prices going up that consumers are past the complaining stage and just pay up so the timing to do a price increase is fine, allbeit 6 months too late.
Plus on the whole our customers are happy to pay our prices as the National franchise chain (Domino’s type cheap prices) that opened up 100 mts up the road 12 months ago has made little or no impact on us> We kept our sales levels.
If we maintain current volumes we should be able to pick up a minimum of $500 + per week, but of course this will mostly go on increased costs to us.
I just needed a cosmic kick up the rear end and a refreshingly honest post such as Daddios to get me moving.
The changes go to the menu designer today and will become effective in June.
Yes, we do charge delivery and yes our drivers still get tips, but tipping is nowhere as big as in the US and our wages are much higher and drivers get a great delievry allowance so tips are a bonus and drivers are not phased if they don’t get any. (Sorry had to include this last paragraph )

Dave

 

[system]

qcfmike:

Daddio adjusted his prices accordingly to make his business more sustainable in the long run. Yes he will end up losing a few customers, he will have a few that “whine and complain”, and he will gain even more with new promotions and putting out a great product for a fair price. This thread has nothing too do with the pay or tips received by his delivery drivers. PPG2270 says himself that people should pay to have food delivered to their house with tips. That said…why is it brought up to the pizza owners on every post? He should start a campaign against the millions of people that have their dinner delivered each night! You need to make them aware of how you feel about this and get them all on board with how he believes the delivery world should work.

You read through all the posts and like Steve says…he can’t raise delivery charges at this time even though he is basically losing money on each run. Does he ask for a share of the tips from his drivers? I doubt it. Does he pay for vehicles, gas, etc? Yes. Do his drivers make a good wage while working for him? I am guessing, and Steve please fill in the blanks if you would, and I promise this is the last time we address this, I bet they make a very nice hourly rate with tips included being a resort area. Like you said…your customers kind of know they need to tip and do so accordingly.

Sorry everyone, but even though some believe that drivers are the most criticle link in the business world…the truth is that to run a successful business it is only one of a thousand cogs in that gear. They all have to work TOGETHER to make the big picture work. PPG2270 you now talk about opening up your own shop…and like I said before… best of luck too ya… I hope you succeed because it is small business that makes the world work. I also said I hope you open your mind and eyes to see how you have to make the whole process work and not just the coveted delivery drivers. :idea:

Some quick points:

1. Drivers are indeed a cog in the gear of a successful business. But without that particular cog you are running a pick-up/eat-in establishment. They are therefore big cogs in the succeses of a delivery business.
2. I almost feel as though you are goading me into this but anyway…I realize that not every shop pays drivers tip credit wages, but the ones that do are already asking for drivers’ tips to supplement wages.
3. It is really hard to compare stores that have company cars vs. ones that do not. The “extra” burden is in the hands of the ones responsible for vehicle function and maintenance.

I believe in a “fair” business model for everyone. Keep the employees happy and that is one less item to worry about. If I have a superior product and superior employees, the extra $.50 the customer pays for a pizza (in the menu price, not in a service fee) will not only be worth it to them but will bottom line costs. In my opnion (and in the way things were done for years) ALL costs (including that of delivery) should be accounted for in menu prices. If we get to the point where a delivery fee is $4 this will not only encourage the customers to refuse to tip, but will create an atmosphere in which the overwhelming majority of orders will be pick-up. Great for the business, but bad for the driver. I know, so what you say? At that point the delivery counts will be so low you will have a hard time keeping such employees, creating turnover and decreasing that coveted employee loyalty factor. Folks, there is so much more involved with the delivery charge concept than just lowered tips for drivers. And it is not just a “drivers point of view” that has to be considered, but a much more important view - THE CUSTOMERS’.

Can price increases be implemented and keep the customer base intact? Yes, it is necessary.

Can menu prices be such that revenue covers all facets of operations? Yes, that is the way it was done for decades before these delivery charges were implemented.

Now…let’s move the discussion away from the drivers aspect and focus on menu prices covering all operating costs. I’d love to hear why this cannot be done. (And I don’t want to hear about Big 3 $10 pizzas -they are crap.)

 

[Daddio]

PPG2270:

Now…let’s move the discussion away from the drivers aspect and focus on menu prices covering all operating costs. I’d love to hear why this cannot be done.

IN MY MARKET people will ask if there is a discount for picking up the order if a delivery fee is not charged. It all comes down to local protocol. Yes you could make a menu that covers all the costs of the operation (sans delivery fee) but the customers who do not use the service know they are paying too much. I believe the bug to get off the second pizza deal and free deliver, was planted by Royce when he said when buying a single pizza he would go down the road the the place that didn’t have 2for1 pricing. It got me thinking about FAIR PRICING. The easiest answer to give a customer when they inquire about the price structure change is “In order to be fair to ALL our customers we only charge for the products and service you chose to take.” If they require an explanation beyond that, there is a simple answer to that as well, “You chose to have your pizza delivered and there is a cost involved in that service that must be included.”

To PPG2270, I would ask that you refrain from dragging this thread down the path of the driver compensation rant.

To qcfmike, I would ask that you refrain from expressing animosity to anyone in this thread.

To both of the above, I will delete posts that go in those directions.

 

[Penelope]

PPG2270:

Can price increases be implemented and keep the customer base intact? Yes, it is necessary.

Can menu prices be such that revenue covers all facets of operations? Yes, that is the way it was done for decades before these delivery charges were implemented.

Now…let’s move the discussion away from the drivers aspect and focus on menu prices covering all operating costs. I’d love to hear why this cannot be done. (And I don’t want to hear about Big 3 $10 pizzas -they are crap.)

This business is dynamic, as Daddio and Dave pointed out they are changing their price structures to reflect what there customers want.

Operations and menus have to based on YOUR customers and economy, What their schedules are, what they perceive as value and what their tastes are.

In my business, I do about 40% deliveries and I do charge a delivery fee. Even though overcharging 60% of my customers would be great for the business, I don’t feel that the customer would see the value of such pricing.

I don’t foresee pricing going back the way it was 20 years ago, but because of these dynamics it may come to a point where the delivery fee is taken away and added back on to the menu pricing, or may actually come to a point where delivery costs the business too much money and is eliminated all together.

 

[system]

The bottom line is that you can not cover all business expenses under a flat pricing format. It does not work in any industry. When you go to the car wash. Do you pay $6 for a basic cleaning or $12 for the works? Or does everyone pay $9 and just get what they want? When you get your hair cut…do I pay what my wife pays? Hell No! Well…because I have no hair left…but also I am not getting a cut, color, wash, dry, style, etc… I used to get a $12 cut from a nice girl and my wife would get a $250 afternoon vacation at the salon. Should we all just pay $100 and let it even itself out…NO! I just ordered takeout Chinese and had it delivered. It was $23.98. That was including tax and a $3 delivery charge. I tipped the girl $5 on top of that. She drove a company car and did not mention her tip or anything else but here is your food, sign the…ready for this… iphone with signature pad app… that was new… and I gave her a cash tip. I really do not care if she reports it or not. Side note: I did ask about the iphone…but she had too run and they only had them a week…I will ask more later. All this leads to you price your food accordingly and fairly to make your business work in whatever city you may be. You then charge the customer for additional services. Be that extra cheese or a 4 mile delivery. In the end…you also hope that they will tip the person that brings their delivery too them. Yes, some will not. Most will. Some will give a lot more than needed. Every market is different. Look at Dave in Australia and Richard up North keeping the Canadian border safe. The way they have to market prices and pay their employees is a lot different than the states but in the end…it all evens out.

 

[wa_dave]

I don’t know if the pricing is the same there as here with the “Big 3”.
A year or so ago they moved away from pick up price and delivered priced by having a rider on their advertising of “just add $9 for delivery”.
Lately they have reverted to $7.95 pick or $10.95 delivered (min $20 order for delivery). So infact if you ordered 6 pizzas for delivery you pay $65.70 vs $47.70 for pick up, making the delivery component $18.
With delivery accounting for around 60% + of most chain stores business their pricing and profits are inflated by the delievry fee for each pizza, not as a one off $5.50 - $8.00 delivery fee we charge on top of the total order value.
Who has the guts to be the first to go down the “pick up” and “delivery” price structure ? I can hear compaining customers phones ringing off the hook now, but somehow the “Big 3” get away with it :?:
I would dearly love to have the balls to adopt this pricing schedule and then have delivery as a cost effective service rather than the negative return it currently has, despite the delivery fee we charge.
The fact is that somewhere in the pricing, delivery is factored in, be it as an add on fee on top of the menu board prices, or as the “Big 3” show it as pick price or delivered price.
Delivery service comes as a cost and should be accounted for in your pricing, just as you cost in the cooks, order takers, kitchen hands etc.
When we do our cost analysis on prices we include, food costs, labour, rent, durables, utilities etc to get down to the bare bones costs then make the pricing adjustments against our targeted 28% food costs price point.
Our new prices are set and ready to go to the menu designer and then print and all of the above have been costed in, and our menu clearly states min order for delivery plus that a delivery fee is charged extra. Customers know they have to pay a delivery fee and choose to have it delivered or come in and pick it up.

Dave