When talking to gourmet pizza shops, the conversation about low-priced pizzas never fails to become part of the conversation. “How can Domino’s and these other guys sell pizzas for $5 or $6 and make a profit?” seems to be a reoccurring statement that is always muttered. Well, the short answers are systems and volume. As they say, there is more than one way to skin a cat. You can sell one pizza for $20 and make a $6 profit or you can sell four pizzas for $5 each and make a $6 profit. Making the same selling more is called volume. The two main keys to success in either operation, being volume or gourmet, are to know what type of operation you have and have systems in place to monitor what is going on in your business.

This article is going to focus on a pizza shop that deals with volume. Yes, they are selling $6 pizzas, but they are doing it right, making money and expanding. The pizza shop is called Panic Pizza, owned by Johnny DiFrancesco and Peter Kyriopoulos. Panic Pizza started about five years ago and was created as a volume business model from the start, but without systems in place in the beginning, they learned a few hard lessons. They learned how to portion control, negotiate set pricing with suppliers, invest in the right equipment and monitor what was occurring within their operations.

Start-up Troubles
“It wasn’t easy starting out,” Johnny said. “We thought we would basically open up, sell some pizzas, market a little and keep prices as cheap as we could, but after a couple of years I realized that wasn’t the case. That’s when Peter came on board and we started restructuring. Being a ‘bean counter’ he found a lot of the issues we were having that were causing problems.”

We realized we did not have real success in any of our stores,” Peter said. “We didn’t have good training in place for start and would just open stores anywhere. We would open up and put a manager in place and didn’t really monitor what was going on. We started realizing that just opening anywhere wasn’t working; there were sites that didn’t have access for customer parking, the management wasn’t trained to understand what was important, like what a good pizza is. When Johnny originally opened sites, it always worked well because if he spotted a pizza coming out of the oven that wasn’t right he knew that something was wrong…maybe it was the oven or something else. He would identify and correct the problem. We had to get systems and train people on how to use them.”

They also realized that by brining in people who had experience in other stores, they were bringing in their bad habits. “Initially we were overstaffing and losing money on labour,” Johnny said. “We had people who came in with a few years of experience and would want a certain amount, and they wanted it in cash, but we told them that everything was on the books. So, we would bump up their wage to get that person with experience up to what they were bringing home before, and then we had a high-wage employee who was bringing their old, bad habits into our systems…it just wasn’t profitable. We started looking at stock and labor and made adjustments. Now we have about 17 percent in labour cost, which according to our P&L, was what we need to do to keep all of the numbers in line to make a profit doing low-cost pizza and high volumes. Each pizza is under $2 in foodcosts, labour is at about 17 percent and portion controls are in place…this, along with marketing and loyalty programs is how you make a profit with $6 pizzas. You have to give the best product you can, and the customers have to be happy, but without systems and constant monitoring, you will lose in the low price, high volume game. It all came back to systems.”

Portion Controlling
Panic Pizza isn’t a gourmet place with $20 pizzas, it is a high volume operation. Their main competition is Domino’s and Pizza Hut and some independents. “We are not a gourmet place, but we do have some gourmet items to offer,” Johnny said.

Everything Panic Pizza sells is portioned and all items are ran on scales. “We pre-make about 60 percent of what we know we will use for the day, so it is already portioned and we are ready for the rush,” Peter explained. “We found that our biggest wastage in stock was coming at night in the busy period. The operator is under so much pressure when the rush hits that they started to just throw product on to get it out the door. Now it doesn’t happen with pre-prepping because they are not under the same pressure.

“On a typical day, when employees come in we have all the capsicum already sliced, mushrooms cut, and the cheese is shredded,” Peter continued. “The staff doesn’t have to do any of this, it is done for them and all they have to do is come in, sheet the pizzas, sauce them and bag them for the night’s use.

Negotiating Supplier Pricing
Peter and Johnny says they believe they are getting probably the same price from suppliers as others if you look at it dollar per dollar. “We don’t have the big administrative support, overhead costs and royalties that are associated with large chains, which keeps those companies like Domino’s going,” Johnny said. “We don’t have that pressure and extras costs that make it hard to hit breakeven points. It is the lack of high operational costs that allows us to compete.”

“We have committed volumes and prices with distributors, which the primary distributor right now is Campoli,” Peter said. “We commit to buy certain products and volumes from them all year round and our prices are set. If prices go up or down we are paying the same. We also have volume rebates that kick in at the end of the year. Our philosophy is go with the people you know and our theory is that we know that our cost of sales are going to remain at a certain margin and there will not be a week where it will be up or a week where it will be down…it is going to be steady every time and we can hit that nail on the head. We know from that point on our labour cost has to stay at “X” percentage, our advertising has to stay at “X” percentage and we can plan six months out and farther. Once again, it is all about consistency.  Rather than trying to save 10 percent this week or whatever, it is always the same and we know that throughout the year.”

Investing in a POS System
Panic Pizza invested in a POS system (a Maitre’D system) that they said costs them upwards of $35,000 per store. “Now, with these POS systems, we can monitor and look at which crew works best, identify theft quickly, see who isn’t following systems and monitor specific sales,” Peter says. “When you are selling $5 and $6 pizzas, the details become the fundamentals. The system is fantastic. On a Friday night, we may not be at a store, but we will get a phone message or alert to our mobile that lets us know if any of the stores have gone past a certain percentage of labour costs or if something is out of the normal range. The POS system also does payroll and is integrated with MYOB, which is an accounting software package for small business. The POS system also aids us with other functions like marketing.”

Marketing: New Openings
When a new Panic Pizza opens they go through phases of marketing. They start with a lot of pamphlet distributions introducing all of the specials and letting people know they are in the area and promote package and meal deals to bring customers on board. Panic Pizza distributes 10,000 to 15,000 brochures each month. They have also started doing Panic Days for new stores where, for one day only, all pizzas are one dollar. When a store launches it will happen a couple of times in the first few months. “When we do this there are the lines start at about 11 in the morning and are there until 10 at night,” Johnny says.  “When we first did it, we limited it to five pizzas per person, but that was too much, so now we limit it to one per person. Lines are sometimes 300 or 400 meters long and it instantaneously creates a whole new database of clients because we capture their client info in the POS system. They have tried the products, they are given their loyalty program card and get credits on it and then are not far from getting a free pizza with our loyalty program from the start. We consider the costs of this promotion as a contribution towards marketing a new store.”

Loyalty Program
The loyalty program is a reward system. Everything has a value assigned and is allocated as cents, what they call Panic Pizza Money. When you acquire $8 in Panic Pizza Money, you can buy up to $8 in products or use whatever amount you have acquired towards purchases. Each person is given an ID card and the POS system tracks everything. The cards are swipe cards and the POS company makes the cards. With the reward programs, sometimes you have people who accumulate points and never redeem them, so that works better than giving away products.

Sponsorships
Panic Pizza offers sponsorships to local clubs and associations and is doing this through purchasing. They will go to local clubs and offer to sponsor their junior clubs with the condition that they have their logo on the uniforms. The clubs and parents are given an ID loyalty card that is programmed with the POS system so every time a member of that particular club comes in and makes a purchase, 10 cents goes towards the sponsorship of that club. It is up to the clubs to determine how much Panic Pizza contributes and Panic Pizza gives then a check to them to use how they want.

In Closing
Selling pizza for $5 and $6 each is not for everyone, just as owning a pizza shop that sells gourmet pizzas for $20 or $25 each isn’t for everyone. Both have their markets…some people need to feed a family of five or more at an economical price and some couples want to go out for a nice, high-end dining experience. Knowing who your target market is and designing your operations around them is the key to winning and losing.

“We believe in doing what you do best and don’t worry about other things,” Johnny says. “We are not going to try to pretend to be something else…we sell $6 pizzas and $7 pastas and that’s what we do. The quality is not gourmet, but it is not bad. We are fast, affordable and consistent and now have systems in place so we can operation efficiently and profitably. With the changes we have made, it wasn’t some much about how much we saved, it was more about looking at how much we were wasting. Ninety-five percent of the pizzas are at the $5.50 or $6 mark, but there are items you can add and pay an extra dollar to get, but about 95 percent of the orders are the $6 pizzas and we are selling over 2,000 of them at each store each week. Our marketing is becoming more specific now. With this operation it is all about systems, marketing, loyalty programs and community sponsorships.”

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