How to Open a Financially Successful Pizza & Sub Restaurant

How to Open a Financially Successful Pizza & Sub Restaurant

by Shri L. Henkel

How to Open a Financially Successful Pizza & Sub Restaurant:

Copyright © 2006 by Atlantic Publishing Group, Inc.

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ISBN-10: 0-910627-80-0

ISBN-13: 978-0-910627-80-1

Library of Congress Cataloging-in-Publication Data

Henkel, Shri L., 1965-

How to open a financially successful pizza & sub restaurant / Shri L. Henkel.

p. cm.

Includes index.

ISBN-13: 978-0-910627-80-1 (alk. paper)

ISBN-10: 0-910627-80-0

1. Restaurant management. 2. Pizza industry--Management. 3. New business

enterprises--Management. I. Title.

TX911.3.M27H45 2006

647.95068--dc22

2006013809

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or website is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or website may provide or recommendations it may make. Further, readers should be aware that Internet websites listed in this work may have changed or disappeared between when this work was written and when it is read.

Table of Contents

Foreword

Introduction

Chapter 1: Start Your Own Pizza and Sub Shop

Chapter 2: Buying a Pizza and Sub Shop

Chapter 3: Writing a Business Plan

Chapter 4: How to Invest in a Franchise

Chapter 5: Starting Off

Chapter 6: Internal Bookkeeping

Chapter 7: Budgeting and Operational Management

Chapter 8: What to Serve

Chapter 9: Recipe Development and Production

Chapter 10: Recipes to Sample and Inspire New Creations

Chapter 11: Control Your Costs

Chapter 12: Profitable Menu Planning

Chapter 13: Your Staff

Chapter 14: Successful Employee Relations and Labor Cost Control

Chapter 15: Equipping Your Pizza and Sub Shop

Chapter 16: Successful Kitchen Management

Chapter 17: Public Areas

Chapter 18: Marketing Your Business

Chapter 19: Carryout and Delivery

Chapter 20: Dining In

Chapter 21: A Safe Work Environment

Chapter 22: The Essentials of Food Safety, HACCP, and Sanitation Practices

Chapter 23: Leaving Your Business

Manufacturer’s Reference

About the Author

More Great Titles from Atlantic Publishing

Foreword

Many people dream of owning their own pizza and sub shop, but few actually make the leap into entrepreneurship. Starting a business, especially a restaurant, takes hard work, long hours, a willingness to sacrifice time with family and friends, and a passion to succeed. Even those entrepreneurs with the determination to succeed face daunting odds. Statistics show that between 90 and 95 percent of all new pizza shops fail in the first year with 90 percent failing in the second year; however, in the third year, the failure rate drops to an estimated 60 percent.

Opening a pizza shop requires much more than having a few out-of-this world recipes. All that needs to be done before ever serving a single customer – from purchasing the proper equipment and keeping track of inventory to hiring the best employees and setting prices – can be overwhelming, especially for first-time business owners.

During our 25 years in the industry, we’ve watched entrepreneurs come and go. One of the key ingredients to success is to understand exactly what must be done to build a successful pizza shop, and that takes time. First, you want to read as much as you can about the industry. Pizza Today™, the premier industry magazine, offers potential and current pizza shop owners valuable information, including all the latest industry news. Read it. You’ll find it a valuable asset both during your research phase, as you continue to build your business, and once your pizza shop becomes a fixture in the community.

Come to the International Pizza Expo in Las Vegas. It’s held every March and offers nearly 12,000 pizza professionals under one roof for the sole purpose of helping folks in the industry become more successful. There are over 60 seminars available on topics that range from marketing to production and menu expansion to personnel management. Talk with other pizza shop owners to glean valuable advice from them – ask them what mistakes they made when they were starting out and what, in particular, helped propel them to success. Don’t be afraid to ask a lot of questions. Talking with other pizza shop owners also allows you to network, an important tool for any business owner.

Make sure you read How to Open a Financially Successful Pizza & Sub Restaurant thoroughly because it is more than just a typical how-to book. Rather, it is a comprehensive guide that teaches entrepreneurs, like you, everything they’ll need to know to make an informed decision about going into business for themselves, tips to increase their chances of success in this competitive industry, and a host of appetizer, pizza, and dessert recipes. Included with the book is a companion CD, complete with detailed checklists, recipes, and all the information a new business owner needs to effectively get started in the industry.

The research stage of starting a business takes time, but it could very well mean the difference between failure and success, so make time for it. Once you’re ready, you’ll move from research to beginning your business. It will undoubtedly be an exciting time, but remember to take heed of the mistakes you’ll make. You will make mistakes; all business owners do, but make those mistakes work for you. Use them as learning tools, instead of allowing them to get you down.

Late at night when you’re exhausted from a day of preparing for your opening, remember the rewards that will come with your success. You’re embarking on a journey that many people, at best, only dream about. Enjoy it.

A fixture in the restaurant and publishing industries since 1979, Pete Lachapelle is currently President of Macfadden Protech LLC, a position he assumed in 2000. Responsible for the tradeshow division, Lachapelle manages the International Pizza Expo™, Pizza Today’s Northeast Pizza Show™ and the National Association of Pizzeria Operators (NAPO). He’s also the president and publisher of the industry’s most-respected and well-read magazine, Pizza Today™.

Table of Contents

Introduction

The aroma. Isn’t that the first thing that attracted you to pizza? We enjoy the wonderful combination of cheese, tomato sauce, garlic, oregano, and the toppings of our choice. Imagine owning your own pizza and sub shop. You can learn to spin pizza dough and watch the shining eyes of children as they enjoy the show. Subs are simple, and there are many varieties. What could be better than owning a pizza and sub shop?

If you feel like that, this book is for you. I’ll walk you through all the steps of buying and establishing a profitable pizza and sub shop. There are many factors to consider; and in this book and the accompanying CD, I’ll help you make informed and educated decisions about whether you should own a pizza and sub shop.

There are calm pizza restaurants, and there are incredibly busy pizza shops. You can decide which business is suited to your personality and your abilities. We will discuss how to make a good decision and how to develop your business plan. This will keep you focused on the things that must be done to open a profitable pizza shop.

Every business must meet local and state requirements. These could include a local business license, acquiring tax identification numbers for payroll and sales tax, permits, insurance and so on. It is a long list, and each item is necessary. These details will be discussed in detail, to help you operate legally from the beginning.

We’ll discuss how to decide whether to buy a pizza franchise or if you are better suited to run an independent pizza shop. Make the decision about what items you will serve. Once you have chosen your menu items, hire the right employees to work in your pizza shop. This book will explain how to write job descriptions, interview, hire, and train your team members.

You will equip your kitchen and a dining room, if you have one. There are ways to use décor and atmosphere to your benefit. We will develop a plan to set up your work areas and your areas for the public in the best way for your pizza shop.

The food and drink items on your menu will help you determine food costs, suppliers, prep work, and staff. The ingredients for your menu items must be purchased, maintained, rotated, and used in a timely manner. This will help you in the preparation of the recipes you plan to use in your pizza shop.

An important part of the process is marketing. No matter how wonderful your pizza shop is, you still need to attract customers. We will review strategies to bring customers to your shop and to increase your sales. Effective marketing is crucial to your success.

I worked for three years as a pizza shop assistant manager and then a store manager. For about twenty years, I’ve managed a wide variety of businesses. In the following pages I will share marketing strategies we used to increase our sales. We’ll also review things I learned that are valuable when you manage a business and your team members. I’ll share this and much more. Now, let’s get started.

I compiled the resources listed in this book, and they are in a file on the accompanying CD. These resources are listed by the chapter where they were used. I hope they will be helpful in your research.

Table of Contents

Chapter 1

Start Your Own Pizza and Sub Shop

Running any restaurant is hard work, and a pizza and sub shop is no different. In 2003 H. G. Parsa, an associate professor of hospitality management at Ohio State University, showed the failure rate of restaurants was lower than people previously thought. The assumption was a 90 to 95 percent failure rate in the first year and 90 percent in the third year. However, his research revised those figures to 60 percent in the third year. Even the lower numbers are significant and shouldn’t be ignored. I don’t want to discourage you, but this will allow you to go into this business with your eyes open. That will give you a much better chance to succeed.

The old saying is that anything you really want is worth working for. So if your dream is to open a pizza and sub shop, statistics like these won’t stop you. They’ll simply make you more resolved to be successful. Realizing your dream can be a rewarding endeavor—personally and professionally. But, achieving your dream takes more than your grandmother’s secret recipe. Your recipe for success includes a blend of passion, vision, risk-taking and business sense.

One of the first things you need in order to fulfill the dream of owning your own business is to create a solid vision on how you will accomplish your dream. Developing a solid vision will help you write your business plan and sell your concept to lenders and potential investors while communicating your vision to the multitude of people you will work with to make your dream a reality.

This understanding will help you make decisions when faced with compromises, budget concerns, and unexpected obstacles. The sections below will help you do the soul searching needed to solidify your vision.

Pizza History

Pizza made its first appearance in the early 1900s, when Italian immigrants first came to America. Italian immigrant Gennaro (or, Giovanni, depending on the source) Lombardi opened the first pizzeria in 1905 in the Little Italy section of New York City. By the 1930s, pizzerias had spread across the country. Something that contributed to the popularity of pizza was the soldiers returning from Italy during World War II.

Pizza is one of America’s most popular foods. It is a convenient and enticing food that we eat at slumber parties, buy for work lunches, and many other events. What is a football game without a steaming pizza? College students can live on pizza for entire semesters. I had experience with this personally at the pizza shop I managed. It’s astounding how much pizza college students eat. By the end of the 1990s, Americans were eating 350 slices of pizza per second, and children between three and 11-years-old said pizza was their favorite meal in 2000.

Pizza was made for Americans. It is convenient, covered in cheese and can be eaten with your hands. By the late 1990s, pizza was one of our favorite foods. During this time, three pizza restaurants ranked among the top 11 restaurant chains in the United States: Pizza Hut ranked third; Domino’s Pizza ranked ninth; and Little Caesars Pizza ranked eleventh.

Ways to Explore Your Passion

Can you see your dream pizza shop when you close your eyes? Is there a fleet of delivery trucks with your name on the door? Would you decorate with the colors of the Italian flag? Does the aroma of garlic and bubbling cheese tickle your nose?

Set aside some uninterrupted time to consider your personal and financial reasons for wanting to open a pizza shop. You may need to commit your energies and nest egg, take on a partner or commit to a long-term loan. Keep in mind that you won’t be profitable overnight—are you prepared for the financial and emotional investment?

Any time I consider a major move in my life, I like to create a list of the positives and negatives. Every venture has risk (negatives), but the positives for you should outweigh the negatives. This will help you get a clear picture of what is involved and help you to set realistic expectations. Then you will be better prepared to build, buy, or lease your facility, launch the new business and create a solid foundation to succeed and to turn a profit.

Now that you’ve given some thought to your idea, create a one-minute elevator pitch. If you were in an elevator with a wealthy investor, could you describe your vision (and convince the person to invest) before you reach the 20th floor? A couple of things that will help you succeed with your pitch are to show your passion while emphasizing the tangible benefits. This is good practice because you will probably need to deal with a banker before your pizza shop opens.

How Much Money Do You Need?

The following worksheets, from the Small Business Administration, can help the potential pizza shop owner estimate the expense to get started. This list will help you estimate how much financing is needed to get your business started. Keep in mind that everything on this list might not apply to your business. It’s best to estimate the monthly amounts for each item. You may need to make some phone calls to get some information.

(We will discuss these various items in more detail throughout the book.)

These are details about expenses you will face in the early months:

Take the time to investigate all the options. There will be additional costs after the initial setup is complete. Include them in your calculations.

Your down payment should be a quarter of the sale price. The amount of your down payment will affect the final price. The seller may agree to a lower sale price, if you offer a larger down payment and so on.

Many amounts may be prorated, including: insurance, payroll, taxes, employee benefits, licensing fees, marketing expenses, etc.

Determine how much cash you have available for initial purchases.

You may need to pay deposits for all utilities even if you have existing residential accounts. Speak with the companies to determine the amounts.

Obtain all required licenses and permits.

Legal fees for negotiation, contract review, and closing should be included.

Figure the costs to meet building code violations.

Some equipment and utensils may need to be replaced or purchased. Maintenance agreements for large purchases should be included.

Opening marketing costs need to be estimated such as replacement of signs and any promotional coupons and incentives.

Your doing business as needs to be registered at the local courthouse.

Include any loan fees you will need to pay.

Depending on the type of business entity you decide to establish, you will need an attorney to draw up the necessary documents.

Your lender will require life and disability insurance with the lender named as sole beneficiary. Sufficient property insurance will also be needed.

When you buy a franchise, you’ll have additional fees to pay. We will discuss this in more detail in Chapter 4.

Figure your labor costs to prepare for your opening.

You may need to pay a restaurant consultant, labor-relations specialists and computer consultants.

Since you are a new account, some creditors and vendors may require payment in full, up front.

Don’t forget to change the locks after the sale is finished. You never know who might have a key, and there’s no reason to take the risk.

You should check security system prices. Once you make a decision, you may need to transfer existing service or set up your own service.

It is advisable to have a contingency fund that will keep the business afloat for the first six months. Many expenses will be higher in the beginning, including payroll since you should over hire and over schedule your employees. In the beginning it’s better to have too many people on staff instead of too few. Many businesses without a contingency fund will fail in the first few months.

Furniture, fixtures, and equipment will account for a decent amount of money. Your amounts will vary depending on the location and property you choose. This worksheet will help you break down these costs in more detail.

Is It for Me?

Once you determine if your dream is financially viable, you must decide if it’s right for your family. Can your family deal with you working until 3 or 4 a.m. on the weekends? Do you like to travel and take time off? If so, you need to understand that owning any type of restaurant is a seven-day-a-week job.

After talking with your family and getting their support, determine what important traits you bring to the venture. Do you love to cook? Can you deal with people in a positive way? Do you work well in a fast-paced environment? How are your marketing and sales skills? Do you prefer to write a check and let professionals handle the details, or do you want to be consulted on every detail? There are various skills a restaurant owner needs. The following checklist is a way to assess the traits you need.

How’d you do? If you possess the majority of these traits, you’ll probably do fine as pizza and sub shop owner. This is only a partial list, and you might want to keep the list of things you should work on for future reference. Remember that you can save a lot of money by doing your own repairs and operating a profitable business.

Learning the Ropes

It is important for you to learn about a specific business before you decide to start your own. Domino’s Pizza realizes this, and that is one reason a person must be a store manager for one year minimum before he can own a franchise.

I’m not saying you must work for Domino’s, but you should work in a pizza shop and get to know the business inside and out. This is most effective if you work in a shop that is similar to the shop you have in mind. If you want a sit-down restaurant, working in a carryout-and-delivery-only shop will be of limited help. It would be good to devote at least six months to this learning process before you’ll be ready to start on your own.

Be honest about your other skills. Have you always had problems with math? You should consider a bookkeeping class at the local community college. Many business owners hire an accountant for the major issues, but you will save money if you handle the daily accounting.

Another good way to learn about the business is through networking. Talk to pizza shop owners, and find out about their experiences. If you don’t want to approach your potential competitors, do an online search to find pizzeria owners in other regions who might be willing to talk about their operations.

A great resource is Pizza Today®. It has 40,000 subscribers and contains articles that focus on marketing, training, menu development, safety, and business practices. You can also attend trade shows like the International Pizza Expo™, the Chicago Pizza Expo™, the New York Pizza Expo™, and the National Association of Pizzeria Operators (NAPO).

Membership in NAPO will provide you with:

A direct mail database of 10,000 pizzeria operators

Pizza Expo booth discount coupons

A monthly newsletter

NAPO Web site listing with hyperlink to your site

Permission to use the NAPO logo in your advertising

Some of the Big Boys’ Stories

Do you have doubts about whether you fit the pizza/sub shop owner profile? Following are the background stories of some major pizza franchise owners:

Papa John

John Schnatter worked in a local pizza pub in Jeffersonville, Indiana, during high school. In 1984, he converted a broom closet in his father’s tavern into a pizza shop. He had to sell his 1972 Camaro to purchase used equipment. The tavern customers bought his pizzas, and he expanded in 1985 by opening his first Papa John’s restaurant.

Today Papa John’s has almost 3,000 restaurants in 49 states and 20 international markets along with over 100 Perfect Pizza restaurants in the United Kingdom.

Buddy LaRosa

Buddy LaRosa began the Cincinnati pizza chain. Buddy was originally named Donald Sebastiano LaRosa, but was called Buddy by his uncles. He grew up in an Italian-America household, and he helped at his uncles’ fruit-and-vegetable stand.

In the early 1950s, he came home from serving in the military, got married, and soon became a father. Around this time, he helped his mother and aunt sell pizza at church and realized this could become something bigger. The American public was just becoming familiar with pizza. Buddy borrowed his aunt’s recipe and bought a pizza oven after he cashed in a $400 life insurance policy in 1954. He used some of the money to rent a small building near his uncles’ fruit-and-vegetable stand.

Buddy’s first eat-in restaurant, The Italian Inn, opened in 1961. He sold the first franchise to the bread deliveryman in 1967, sealing the deal with a handshake. His business expanded to 25 restaurants by 1980. LaRosa’s branched into the pizza delivery business in 1984.

Domino’s Pizza

In 1960 Tom Monaghan and his brother, James, started a pizza shop in Ypsilanti, Michigan. They chose the name Dominick’s Pizza. With a $75 down payment and $500 they borrowed, they bought a store. James decided he wanted out about eight months later. He traded his share in Dominick’s with Thomas for a used Volkswagen Beetle. Tom changed the name to Domino’s Pizza and sold the first franchise within a few years. In 1978 the 200th Domino’s franchise opened, and in the 1980s, the first international Domino’s opened in Canada. Domino’s now has over 7,875 stores throughout the world.

East of Chicago Pizza

East of Chicago Pizza Company began in 1990. At that time they had a single store in Willard, Ohio. It has grown to over 140 locations spread throughout Ohio, Indiana, Virginia, and Florida. These stores make their signature deep pan pizza dough fresh every day.

Scott Granneman opened his first pizza shop in 1982 in Greenwich, Ohio. The Greenwich Pizza Barn serves traditional thin crust pizza; but, he wanted to set himself apart from other pizza shops, so he created the deep pan crust that is served in the East of Chicago restaurants.

The company continued to expand, and they opened their 100th store in 1998.

Choose the Best Business Method for You

There are three ways to launch into business for yourself:

1) Start from scratch.

2) Invest in a franchise.

3) Buy an existing pizza operation.

We will discuss the basics of buying a pizza and sub shop and how to invest along with the positive and negative aspects of each choice. Before you can secure financing, prepare a business plan, and we’ll discuss how that should be done.

All three methods (scratch, franchise, existing) can be the basis for a successful business. There are emotional and psychological differences along with financial variations with each. Weigh the pros and cons for yourself personally before you decide which avenue to take. Consider your personality, your strengths and weaknesses, your expectations, and consider your potential customers’ needs. These factors will help you determine which method is best for you.

Jump Starting a Business

One option is to purchase an existing business. This will open doors quickly. But, be sure you are ready to be in business right away. Also, there are reasons the business is for sale. Are they things you can fix or overcome?

There are some common reasons a business is struggling. These things will cause you problems. Your first priority will be overcoming the existing problems:

The location may be bad.

The existing business may have a bad reputation.

Their products may be overpriced.

It is possible you won’t be able to find a business for sale. If you do find the business you want, make them an offer they cannot refuse. First, you should do adequate research before you make an offer.

Quality franchise organizations have market restrictions and assigned territories, and the franchise you want might not be available in your area. Popular franchises often require higher investments and a great earning potential.

Starting from Scratch

Starting your pizza shop from scratch will allow you to choose every element of your pizza shop in order to create the business you have dreamed about!

This worksheet will help you determine the best approach for you to start a business that best suits you.

You have evaluated the method that is right for you; now it’s time to move ahead.

STUDY YOUR OPTIONS

Making the decision to start a business is a serious one. As a potential business owner, you should ensure that you have completed all the necessary research before deciding on a venture. Know the costs associated with the business up front, the hours necessary to run it, how many employees you will need, familiarize yourself with licensing issues—including Health Board requirements, and know what you expect as a profit margin. If you start out well-informed and knowledgeable, you will have a greater success rate.

So you want to own a pizzeria or sub shop? There are many routes available. Some will cost more money up front while others will consume more time. There are franchises, sole proprietorships, buffet-type pizza shops, sit-down restaurants or a cafeteria-type shop. Choose the one that appeals to you the most.

Each type of business has different aspects that you will need to study. For instance, starting a mom and pop pizzeria will give you a one-on-one relationship with your customers and will not cost as much in initial startup funds, but you will work long hours if you want to make the company a success, until such time as you can put a full-time manager that you trust to run the business. No one will care about your restaurant the way you will as the owner.