Making Money in Pizza
September 20, 2012 by Jimmy Lewin
My wife and I have eaten a lot of pizza this summer; way more than we usually eat. It’s not really a problem for us because we have gotten so much exercise hiking in the mountains.
Our unusual pizza consumption occurred to me as I was evaluating a pizza restaurant concept that a prospective client presented to us for our evaluation. I’m not going to discuss the details here because it is proprietary, but I do have some thoughts on the pizza restaurant business that I wanted to share. In fact, I’d be interested to know what you think.
It is my view that if you want to make money in the pizza business, there are two main ways to do it: low end and high end.
Low End Pizza
You make money at the low end by charging affordable prices and keeping costs low.
This usually means that a pizza shop is located in an older strip shopping center or business district where the rents are low. It also means that labor costs are low and there is little training provided to employees. Marketing and advertising costs are kept to a minimum. Awareness of the shop is left to word of mouth and a bright sign and that attracts foot and vehicular traffic.
Start-up costs are often modest as there is a proliferation of used pizza ovens and other kitchen and restaurant equipment all over the internet.
And most importantly, the owner or an owner’s family member is on-site during all hours of operation.
High End Pizza
My sense is that you make money on the high end by doing something upscale – indie.
This means that you develop an upmarket pizza concept and put it in high-end neighborhood where there are plenty of patrons with disposable income who will come to enjoy your gourmet pizza and other entrees at the $15-$20 price point, accompanied by a glass or two of wine.
While the start-up costs will be in the $500,000-$1 million range depending on how you do tenant improvements, the margins on gourmet pizza and adult beverages will make the investment pay off.
You’ll spend money on training and marketing but you can easily build those costs into each and every pie.
About this time, you are probably wondering why I haven’t suggested any of the large number of branded (usually franchised) pizza outlets. I don’t have to list them – you already know the names.
Well, I think that the branded establishments probably do very well, but this piece is targeted at entrepreneurs, not Wall Street types.
While I am confident that some franchise operators, especially multi-unit operators, can do very well, my sense is that the single-unit owners who are paying 8% -10% of gross sales in franchisor fees and advertising contributions have a tough time earning a decent living.
Remember, when you invest your money in a business, you are entitled to not only a wage that reflects your day-to-day contribution, but you are also entitled to a risk adjusted return on the capital you have invested. It gets difficult when you are giving 8%-10% off the top to give to the franchisor.
Making Pizza Pay
Listen, who doesn’t love pizza? If you do it right either on the low end or the high end, things should work out just fine.
How do you do it right?
- Give your customers a great pizza, whether it is priced at $5 or $15.
- Give your customers great service whether they are eating in or taking away.
- Know your customer and give them what they expect.
- Make sure you have enough cash when you get started.
- Don’t get cute. Do what works.
Hey, once you’ve launched the new pizza shop, give us a call. We’ll be right over for a slice or two.
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