Reader Question About Pizza Shops

Dear Joseph Dunbar,
I have been doing research for an article on Food Costings on Pizza. The Article is for an Australian Pizza Magazine where I contribute from time to time as a past pizza Franchise owner.

Would you have any advice to assist me in writing this article for pizza owners of Ma & Pappa independent pizza shops. These people are the salt of the earth, compete in dog eat dog world of franchising, chain restaurants. Finding system hard to implement and follow.

So I would like to reach these type of people that work as busy fools in a business that leaves them scratching their head why they aren't doing better then they should.

What advice could you give me in approaching this article in " Food Costs & Margins"

I look forward to any advise or assistance within this important area of their business.

Regards
Stephen Millar

www.pizzanews.com.au

Thanks for your question Stephen. The pizza business is extremely competitive due to the relatively low entrance barrier. Most pizzerias have limited seating and do a tremendous level of take-out business. This is one of the difficulties in hitting a decent cost of sales. A take-out customer probably won't come back for dessert and coffee (highly profitable).

Here in the USA, there are lots of pizzerias offering appetizers like wings, garlic bread, dips, etc. Selling profitable beverages is another challenge. Many families stopping by to pickup two pies to-go don't order soft drinks. When they do order drinks, they probably prefer a bottle vs. the more profitable fountain soda.

Packaging a pizza for to-go orders is expensive. The box, napkins, bags and other consumables account for a big chunk of the pizza shop's cost of sales. The higher cost of sales may be offset by lower service labor costs. The packaging needs to be included in menu pricing formulas.

Some pizza shops have seating for at least 100 patrons. Frequently these seats are filled with customers who order one or two slices. The check average is low but a decent turnover can help drive sales. I worked in a slice shop in my college days and we turned tables every hour. If you are in a low turnover area, try to sell full pies and minimize the number of seats. Use the space to promote other items for sale.

Delivery costs may be a major part of a pizza shop business. If you offer delivery, scheduling and forecasting are very important. Some software packages help delivery operations maintain a customer database. I've seen operators use this database as a marketing tool. During the summer months, the delivery shops do a brisk business with customers at the local swim clubs. Delivery vans and cars can be seen in every neighborhood on a Friday night in most suburbs. On the other hand, the delivery driver may be under-utilized on off-peak nights.

Every pizza shop should know the cost of a dough ball, the cheese portion, a ladle of sauce and the box. Toppings may be priced individually. Many shops charge for toppings by the number of toppings when certain toppings cost a lot more than others.

The competition may come out with a 2-for-1 offer on mid-week nights. Should you match the offer? A good knowledge of your component costs will help you answer the question.

Mid-Week Gross Margin

Classic cost accounting techniques help operators to decide whether to close or stay open depending on expected sales volume. Generally, it is beneficial to remain open if your sales covers all variable costs and contributes to your fixed costs. If you can't even cover your variable costs, you would find more profits by closing your doors.

It may be impossible to change your hours for just one night. It is quite common to find different hours of operation for Monday to Thursday, Friday/Saturday, and Sunday. Many restaurants close one day a week. Most of these locations close on a Sunday or Monday. A few pick Tuesday to close.

Competitor analysis is very helpful. If everyone in your zone closed earlier, there could be a competitive opportunity in staying open longer. You may find you are not contributing to fixed costs the first week or two. Over time, you will catch the late night crowd. There are restaurants in Manhattan with two personalities. During the traditional dinner hours, they offer a quieter atmosphere and a more sophisticated menu. After 9 PM, they turn up the music volume and switch to a simple bar menu.

If you want to evaluate your current hours of operation, you need to find the sales by hour report on your POS system. Ignore the obvious peak periods and focus on the the off-peak. You may see some clear trends. Perhaps Monday through Wednesday sales after 9 PM are very low. Sunday evening could be either up or down depending on your menu and location. Take a look at different formats for the slower periods.

You may have a better chance with booking parties in specific time slots.

I have seen an Irish pub switch from dinner Saturday evening to music and dancing after 9 PM and go until 4 AM. They then tear down the room and go with Sunday brunch from 9 AM until 2 PM. Then they close for the rest of the day.

You need to know your fixed and variable costs. Armed with this information and your hourly sales data, you can harvest more profit from your restaurant.

Starbucks Decides To Control Waste

Last August, I posted an article Eliminate Chronic Waste which described my observations at a New York coffee shop. This location continuously brewed coffee each 20 minutes. They dumped the previous batch down the drain.

Bloomberg.com reports Starbucks has decided to reduce waste through a policy shift on afternoon decaf brewing procedures. After noon each day, decaf coffee will be available on request. Previously, the decaf coffee was continuously brewed.

Who's Dining Out Mid-Week?

I spoke with a family member this weekend about the Saturday cooking shows, cookbooks, kitchen equipment and other post-holiday issues relating to food. Her husband is retired and they enjoy dining out. Typically, they avoid the packed dinner houses on Friday and Saturday nights. They prefer to go to restaurants on Sunday and Thursday evenings.

In her neighborhood, the two fantastic steak houses have closed in 2008. Since they enjoy steak when dining out, this is a disappointment. She asked me for some suggestions on steak oriented restaurant chains. As I recited the list of steak concepts, she stopped me several times to mention recent coupons for 2-for-1 meal offers. I asked if her two favorite spots had offered coupons. She said they both sent coupons toward the end - just before they closed.

Our local chapter of HFTP meets for dinner every month. At this month's meeting, I spent the meal with two women. One of the women dines out frequently mid-week due to long hours at work. A very successful local restaurant group opened a new location in her area about two years ago. I asked her how they are doing in the location near her home. She said they have lowered the menu prices and the quality has slipped from the excellent first year. "I wish they would charge a little more and improve the quality."

I tried to see if she was more likely to dine in a restaurant or go with a take-out order on work nights. She absolutely prefers to dine in the restaurant. Cleaning dishes, cold food and lack of ambiance taint her take-out experiences. She likes to cook when she has the time so most restaurants won't see her from Friday through Sunday. Mid-week is when she likes to go and try new menu items and taste new wines.

The local strip mall near my house has three businesses who have closed their doors. A gas station, a nail care salon and a casual dining restaurant have decided to find greener pastures elsewhere. On three occasions, I tried the casual dining spot for brief meals with business associates. We found the mid-week experiences very disappointing and on two occasions the waitress mentioned the chef was not on duty.

She wanted us to try again on the following evening since she does not work weekends. On our third try, we waited until the evening when the chef could be expected in the kitchen. On this final attempt to enjoy a mid-week meal at this restaurant, we were sold a special by our waitress. All of us ordered the highly recommended special. The completely mediocre rehashed entree insured none of us would ever step foot in this restaurant again.

So who is dining out mid-week in your operation? Do you serve seniors looking for a quieter meal, hard working executives who leave work too late to cook a meal, business associates discussing a new project or coupon shoppers taking advantage of your 2-for-1 mid-week specials? Do you have a mid-week strategy? How do you handle nights when the key kitchen employees have the night off?

It may be difficult to deliver an experience which would satisfy the needs of all these mid-week customers. The woman who wants better quality and is willing to pay will most likely find a spot where there are no coupon programs. The business associates will find a reliable spot to meet. Value diners will clip coupons and find plenty of 2-for-1 deals in my neighborhood.

Its important to pick your position wisely. Most operations will not be able to attract all these mid-weeks segments. Everyone can strive to be reliable and deliver quality meals.