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So you have that irresistible ‘pizzeria itch’ and you’ve decided that the time has come to give it a really good scratching. Here’s a 14-step guide that might improve your chances of success.
Step 1 – Keep three facts in mind.
Before doing anything, know this. First, the world does NOT need another run-of-the-mill pizza or pizzeria. They are everywhere. Second, many pizza-eaters will support a new pizza and pizzeria if it is (a) different and (b) better. If you won’t or can’t be different and better, do not scratch that itch! Third, if opening a pizzeria and having it fail would amount to a personal financial disaster for you, think twice about opening a pizza business.
Step 2 – Find out first-hand what it’s about.
If you already have pizzeria operations experience, you can skip this. But if you’ve never worked in a pizzeria, before doing anything else get a part-time evening or weekend job in a pizzeria and work it for at least one month – as a pizza cook, server, dishwasher, delivery driver, whatever. If possible, hire into a place that most resembles the type of pizzeria that you would like to have. While at this job, make notes of what’s right and wrong about it. In other words, use the experience to gain insight into what you will do when you create that “place of your own.”
Step 3 – Select a great location.
Given a choice between a higher cost “Grade A” location and a lower cost “Grade B” location, the “Grade A” will likely be the wisest choice. A “Grade B” location is one that has one or more drawbacks that can result in less-than-optimum sales. A “Grade B” location is a parasite that will suck blood forever. A “Grade A” location is a site that (a) is highly visible, (b) is readily accessible, (c) has a dense pizza-buyer population within a one-mile radius, and (d) is located on a commonly traveled route used daily by local residents, which often translates into being adjacent a major local draw.
How do you find a site? First, get a detailed map of the area. Second, spend a day or more driving around. Record all “for rent” info, to call later. Plus, take note of where people live and shop. This is best done with two persons: One driving, the other writing and navigating. Third, contact the city and get the traffic counts of the major streets. Fourth, check the newspaper classifieds and also contact local business realtors for “space for rent.” Fifth, check the census data (at a library or city hall) to get the demographics on the various neighborhoods. Note the population density per square mile. However, “houses” do not automatically mean “buyers.” So also note average family size, age, and income. You want to be located within an area that contains a high number of pizza-eaters. Generally, such areas will be high-density neighborhoods packed with families of medium-to-large size, with school-age kids, and average to slightly-less-than-average income. Generally, try to avoid locations that are on low-traffic count roads, invisible to motorists, difficult for motorists (including delivery drivers) to easily access, and that are located adjacent to large expanses of vacant or industrial land.
Step 4 – Calculate your projected monthly profit.
Before closing on a site, do a projected (or pro forma) monthly profit and loss statement. If you have problems with this, get help from a local CPA. The key number here is estimated sales. To derive this figure, first estimate the number of customer transactions that you expect to receive per week. Bear in mind that typically 40 to 50 percent of pizzeria business comes on Friday and Saturday. If you’re clueless as to what the weekly customer transaction count might be, park down the street from the most popular pizzeria in town from 5 to 8 p.m. on Friday and Saturday and count the number of carry-out and delivery transactions.
Then convert your projected weekly transaction count number into a weekly sales number. This can be done by multiplying the transaction count number by an estimated average transaction amount ($). Then multiply the weekly sales number by 4.3 to derive your estimated monthly sales.
Finally, subtract from your estimated monthly sales figure your estimated monthly expenses. This will give you your estimated monthly profit. Be sure to include all expenses. The two largest expenses are payroll cost and food cost (a.k.a. product cost). Derive these numbers as a percent of sales. Additional expenses will likely include rent, property taxes, advertising and promotion, gas, water, electric, insurance, telephone, cleaning and office supplies, building maintenance, cleaning services, trash removal, uniforms and laundry, delivery expenses or mileage paid to drivers, accounting, legal, equipment lease payments, and debt service payments.
Also, when creating a projected profit and loss statement (a.k.a. P&L or income statement), it can sometimes help to create multiple scenarios – including a best-case-sales scenario, a reasonably-expected-sales scenario, and a worst-case-sales scenario. A spreadsheet (e.g., Microsoft Excel) is an excellent tool for this. Use one column per scenario.
NOTE: If you can’t show a decent projected monthly profit based on the reasonably-expected-sales scenario, you probably should not open a business in that particular location. Further, if the worst-case-sales scenario shows a loss so large that it would be disastrous to you, “think twice” before opening a pizzeria there.
Step 5 – Devise a compelling pizzeria concept.
Once you’ve located a “Grade A” site, come up with a total-package concept that will be more compelling to pizza-buyers than what the area competition provides. To be compelling, the concept must offer something to pizza-buyers that is different from and better than what the competition offers. If that’s not possible to do, think twice about opening a pizzeria. This total-package concept is comprised of everything that a customer encounters about your business. That includes the pizzeria’s name, slogan, signage, décor, service offering, menu offering, pricing-promotional scheme, and pizza type and quality. Additionally, it helps greatly to have a compelling point of difference that can be used to differentiate your pizzeria from all others within the mind of the pizza-buying public. Books by Jack Trout – such as Differentiate or Die – can offer help. Also, you can find a couple articles on the topic at www.correllconcepts.com (in the “Correll Comment” section).
Step 6 – Formulate excellent pizza recipes and methods.
Simply put, to maximize sales, the look and taste of your pizza must be more appealing than that of your competition. If it’s not, you will never optimize your success. Here’s how to go about this. First, experience the pizza of every pizzeria in town. Note each one’s strengths and weaknesses. Then pick out the best and use it as a benchmark for your pizza design process. Finally, through small-batch trial-and-error testing, create some great sauce and dough recipes, pick out the optimal brands of ingredients for those recipes, and determine ingredient portions for each pizza. In so doing, make sure you come up with a different and better pizza design. If you need help with recipe ideas, go to the free Encyclopizza which is located at www.correllconcepts.com. In addition to recipes and ingredients, other factors that affect pizza character include dough-handling method, dough-flattening method, pizza-baking method, and type of ovens.
Step 7 – Create an efficient store layout.
Once you have a site, obtain some 24 x 36-inch paper (or preferably mylar sheets) with a one-quarter or one-eighth inch blue fade-out grid. This can be found in an office supply or art store. Then take precise measurements of the interior space, noting the location of doors, windows, posts, utilities, bathrooms, and other “fixed” items. Then create scale drawings (example, one-quarter inch = one foot) of multiple layout scenarios. Finally, boil it down to an ideal layout. Naturally, the layout and type of equipment that you select for your pizzeria should be based on your pizzeria concept and pizza prep methodologies. Other factors to consider in creating the layout are: Maximum hourly transaction volume (or number of pizzas produced during the peak hour), product flow, worker flow, storage requirements, security measures, manageability, and visibility by and impact on customers. In terms of worker flow, an ideal layout is one that minimizes travel distance during both high-volume, full-staff hours and also during low-volume, minimum-staff hours.
A common predicament is that the “perfect location” may turn out to be one that’s a little tight on space. In this situation, one tactic is to convert 36-inch aisles into 54-inch aisles and then line the aisles with 18-inch storage racks, thereby eliminating need for a dedicated storeroom. Another tactic is to install an outside walk-in cooler (accessible from the store interior, of course). A further tactic is to convert the mop closet into a combination “janitor closet/manager’s office.” Managers really love this one. Other tactics include a unisex bathroom in place of two bathrooms, shortened pizza make-lines, smaller ovens, stacking goods above the ceiling, and so forth.
Finally, be aware that local construction and health codes affect restaurant layouts and equipment. They have, among other things, requirements for bathrooms, sinks, drains, electrical boxes, storage, and so forth. So obtain that information from the local health department and city building department before planning your layout.
Step 8 – Draw up a complete equipment list.
First, create a complete list of everything that the store must have in it to open, including small wares and office supplies. Then conduct research to determine the optimal model or manufacturer for the various items on the list. Attending pizza expositions can be helpful here. Also, visiting restaurant equipment supply places can be informative, particularly if you connect with a knowledgeable sales rep. Be wary about purchasing a new or untested piece of major equipment (i.e., oven, mixer, or POS system). If a product has not been out for at least five years, it could be helpful to obtain from the manufacturer a list of names and phone numbers of current users of the product. Then call several of these people and ask “How’s it working out?” and “Would you buy it again for another pizzeria?” When it comes to new products, there can be a huge gap between what the seller says it will do and how it will actually perform.
Step 9 – Select an equipment supply company.
Take your equipment list to one or more equipment supply companies and ask them to quote you a total price on it, including installation cost. Along the way, get a read on the service ethic and knowledge of the company. Price is one factor to consider in selecting a supplier, service attitude and knowledge are the other. Select the supplier that you feel will do the best job for you, everything considered.
Step 10 – Establish a business entity.
In conjunction with your attorney, establish a business entity that best fits your needs. Most likely your lawyer will advise against a sole proprietorship. Probably s/he will recommend a limited liability company (LLC) or, perhaps, a sub-chapter S corporation. If you have investors with special needs, s/he might suggest a limited partnership.
The attorney should file for government permits and tax numbers. Once the business entity is established, you then should open a business checking account.
Step 11 – Put your financing in order.
This, of course, is something that you should begin as early in the process as possible. However, it often can’t be finalized until you’ve done steps 3-10 above. The first decision is whether to (a) borrow the money from a bank or rich relative (debt financing) or (b) take on an investor or co-owner (equity financing). With debt financing you maintain ownership of the business but acquire monthly debt service payments. With an investor you have smaller debt payments but give up a portion of the ownership and, thereby, relinquish a portion of future profits. Sometimes a “mix” can work well.
For a bank to cooperate, you’ll need unencumbered salable assets at least equal in fair-market value to the amount of the loan that you’re seeking. If you don’t have this, that’s where taking on an investor comes into play. If you don’t have sufficient available assets to support a bank loan and can’t attract an investor, then you can attempt to finance the project through such schemes as multiple credit card loans (which is a tenuous approach at best and something that we do not recommend). You can also explore the “used equipment, sweat-equity do-it-yourself construction” angle as a way to reduce start-up cost. Finally, sometimes it’s possible to obtain a loan from a government agency such as the Small Business Administration (SBA loan). However, this can be a complex, lengthy process not open to everyone.
Regardless of who you approach – lender or investor – they will likely want to know (a) your intended location, (b) the concept going into it, (c) your projected monthly sales and profit (P&L statement), and (d) what the business will have or do – that your competition doesn’t – that will make you successful. This should be presented in a written document, the prettier the better. Also, if possible provide a pizza sampling. Odd as it might sound, if the would-be lender/investor finds your pizza to be “the best I’ve ever had,” it greases the funding wheels.
Finally of course, you will need to tell the potential funding source the total investment cost of the project. This figure should include every cost involved in getting the store open and operating successfully. Naturally, this would include all construction, leasehold improvement, and equipment and supply costs. It also should include funding for all start-up or pre-opening expenses, which typically involve opening food inventory, first month’s payroll, pre-opening professional services (architect, attorney, CPA), pre-opening advertising, grand opening expenses, licenses, security deposits, and the like.
Step 12 – Apply for construction and health permits.
Sometimes a city’s building department will accept accurate detailed drawings done by you. However, more commonly they require drawings done by a certified architect. This is a “cover your butt” move. So, be prepared to have an architect convert your layout to “blueprints.” To do this, s/he will need to have the electrical/mechanical specs for all your power equipment. You can find most of this in product literature and/or obtain it from your chosen equipment supply company. Also, some equipment suppliers have a design/drafting person who can create blue prints in lieu of an architect, or at a lower fee. Once you have final drawings, apply for building permits. Also, take a set of drawings to the health authority that inspects food service establishments and apply for their permit.
Step 13 – Draw up a detailed pre-opening/grand opening plan.
First, sit down with your contractor(s) and establish a completion date and work timeline. Second, establish your projected opening day date. Third, draw up a list of pre-opening activities that you must execute prior to that date, along with a completion date for each item. Among other things the list should include (a) designing your opening advertising and (b) hiring and training staff. Fifth, conceptualize your grand opening. However, do not schedule it for when you actually open. A successful grand opening can “blow away” a new staff, resulting in a disastrous outcome to the business. Plan for the grand opening to occur after the initial (or soft) opening advertising has lost effect, such as, say, 60 days after opening. Also, consider doing your opening advertising in “stages” to, again, avoid overwhelming a new staff. For example, if your advertising involves mailers, you might divide your market area into sections and mail to one section per week.
Step 14 – Keep a positive attitude.
Opening a business of any kind can be a daunting endeavor with numerous daily challenges to surmount. Holding a positive attitude – that is, firmly believing that the future will ultimately turn out the way you want it to – is an essential ingredient to new-business success. Indeed, it may well be THE essential ingredient of the successful start-up entrepreneur.