Proof Pizza Business Model Page | 1
PROOF PIZZA
Business Model BUSX 301 Jai Patel, Greg Meisse, Samantha Aug, Julian Carroll, Steven Schultz 5/13/2014
Proof Pizza is a strong investment option. Proof Pizza is in an industry that is currently growing rapidly and provides the necessary values to its customers to thrive. Proof will offer rapid delivery, customization, promotion of the local economy, healthy options, and consistency. Proof will supply these values to its mass customer base in the fast casual dining industry which serves all population segments. Additionally, Proof’s social responsibility trait appeals to health and community oriented individuals. Proof will be able to reach the segments through its primary advertising campaign of social media. Proof will utilize social networks such as Facebook, Twitter, Instagram, and Yelp to make the company known to the public. In order for Proof to begin providing value to the community, it will first raise capital through a mixture of debt and venture capitalists. Through the money raised, Proof will be able to purchase all of its materials, accounting for its fixed costs, and have money to pay off initial variable costs. Then, the first payment of revenue will be acquired through sales of the offered food and beverage items.
Proof Pizza Business Model Page | 2
Value Proposition Proof Offers Fast Service – Pizza Cooked Under Two Minutes Proof is able to create a quick and efficient service due to its assembly line and quick cooking processes. With the assembly line method, customers are quickly served with little variance from the process, reducing down time and possibility of mistakes (Bhasin, 2012). In addition, Proof is able to rapidly cook the pies through utilizing a 900 degree brick oven that cooks them within two minutes (New, 2013). The two techniques allow Proof to have a high turnover rate for its customers, which increases revenue and customer satisfaction without jeopardizing quality.
Proof Offers a High Level of Customization Proof offers a large variety of cheese, meat, vegetable, crust, and sauce options, in effect making the entire pizza customizable. In order for Proof to stay competitive, it must be able to stay above the trend that has been created in the late 21st century, the rush for “highquality ingredients and customization (Oches 2013).” Proof will be able to embrace the trend by offering the customers six cheese options, seven meat options, and 17 vegetable options; the items will include vegan protein and cheese options and a gluten free crust, all produced locally which will give Proof Pizza two more vegetable options while the rest are the same as compared to the top competitor in the industry Blaze Fast Fired Pizza (Blaze Corporate webpage). The increased customization will make sure that each customer has many choices to choose from so that he or she may continuously buy the pizzas without getting tired out by the menu, increasing customer retention rates and revenue.
Proof is able to Give Back to the Local Economy Proof is able to help stimulate the local economy and fulfill the want of customers to “buy local (Weisul, 2010).” This form of “buying local” is highly desired and is becoming a “growing influence (Weisul, 2010).” There has been a movement to help the local economy by buying local since the recession, which has caused local stores and restaurants to increase their profits by 8% from the past four years (Lyon, 2014), which Proof plans on promoting and help facilitating in order to draw in more customers to further its revenue margins. Since Proof buys all of its ingredients from local farmers, the revenues generated by the farmers stays “inside the community,” which in turn boosts local spending and stimulates growth (Schwartz, 2009).
Proof Will Offer a Healthy Menu Proof will introduce a healthier version of pizzas through utilizing quality ingredients and offering various lowcalorie options such as the 100calorie slice. The most prominent value trend in 2013 and 2014 has
Proof Pizza Business Model Page | 3
been an increased demand in healthy food and ingredients (Butler 2013). Executives in various fast casual dining restaurants believe that the demand for fast casual pizza “will not only continue, but will expand (Butler 2013).” In order for Proof to maximize on this trend, it must have a healthy menu and offer healthconscious options for its products, such as vegan protein and cheese options or salads.
Proof Will Offer Consistent Service for Customers Proof will offer consistent service and portions to the customers. Customers “want consistent quality product and services (Wooden, 2014),” in order for them to do repeat business with the company. In order to maintain the repeat services, Proof will make sure that each time a customer comes to Proof Pizza, he or she will receive the same positive experience starting with the worker and ending with the product through training programs for the employees and monthly evaluations.
Proof Will Offer Coal Oven Pizza Proof will offer coal oven pizza giving the pizza a unique taste. Coal oven pizza is in demand and liked by the public, shown through the 4/5 approval rating, based on 604 reviews, for Coalfire Pizza on Yelp (Yelp Reviews, Coalfire Pizza) and the 8/10 rating, based on 215 reviews, for Anthony’s Coal Fired Pizza on Foursquare (Foursquare Reviews, Anthony’s Coal Fired Pizza). Proof will be able to combine the fast casual atmosphere with the restaurant style coal oven pizza which has not been done by any other fast casual pizza restaurant (Orches, 2013).
Value Proposition Has Been Proven to Work Rise in the Industry – 8% Fast Casual and 3% Pizza The fast casual pizza business has been growing rapidly, indicating that the values are desired by customers. According to the NPD research group, the fast casual industry has rose by 8% over the past three years (Brandau, 2013) while the pizza industry has grown by 3% (Barrett, 2012). The increased trends are showing that both industries that Proof Pizza would enter into are on the rise and are being demanded.
Market is Growing – 45 stores opening 2014, 500-1000 Projected to open in next 5-10 years. Currently, the fast casual pizza market is concentrated in the west coast of the United States with fifty stores in the category through various companies. The largest, Blaze Fast Five, currently has ten franchises open, but is planning on expanding by adding fortyfive more throughout the country in 2014 (Jennings 2013), but the CEO has stated that it is a “feasible accomplishment” to be able to open close to 500100 stores in the next five to seven years (Orches, 2013) The demand is being filled, but as it is mostly west coast based, and there is still a strong market available on the east coast for Proof Pizza to claim.
Proof Pizza Business Model Page | 4
Customer Segments Proof Will Serve the Mass Market There are over 3 billion pizzas sold annually in the United States (Statistic Brain, 2013), therefore our product appeals to many Americans. We serve a wide market and make no distinction between customer segments. At Proof we create value for anyone who enjoys either pizza, salad, or drinks. In an effort to appeal to the needs of everyone in the mass market, we will provide both vegetarian and vegan options (Haupt, 2012) . Furthermore, we will offer kid’s meals to attract people with families.
Proof Will Cater to Health-Conscious People The healthconscious will be one of our most valued customer groups. Pizza is widely available, what will make our brand stand out to many is our commitment to organic ingredients (Whole Foods, 2004). These are the people that will be willing to pay more and travel longer for our product. In all that we do, we must remain loyal to those who will ultimately be our base.
Proof Will Cater to Community-Oriented People Our next, most important, customer demographic are those concerned about the community. Part of our value proposition is stimulating the local economy and making locally grown organic food more readily available to all in the community. Liz Barrett, of PMQ Pizza Magazine, had the following to say about the current pizza market: Technomic insiders also advise that restaurateurs who want to stay ahead of the curve will do so only through brand evolution; concept freshness; attention to the needs of their customers; creativity in pricing structure; attention to social media and thirdparty online deals such as Groupon and LivingSocial; the offering of value beyond price (i.e., food quality); attentive service; order accuracy; and speed and convenience. (Barrett, 2012) We intend to offer all these things in the hope of attracting a large part of the mass market.
Customer Relationships Proof’s Customer Relationships are driven by High Customer Retention Rates Our customer relationships will be driven by customer acquisition, customer retention and increasing sales. We will utilize advertising, promotions, supplemental items and possibly a CRM system in order to achieve our customer relationships. Initially, we will need to advertise to raise awareness about the opening of our restaurant. Once we have acquired a decent amount of customers, we will strive for customer retention. Promotion is one way to retain existing customers, which we will use as aftersales
Proof Pizza Business Model Page | 5
support. This will give customers special discounts which will ultimately lead to increased visits and purchases (Lawrence, 2012). We will have a rewards program as well as personalized promotions such as birthday discounts which can be effective in establishing customer relationships (Lawrence, 2012). In doing so, we will be expressing our gratitude to our loyal customers. Once we reach a high number of loyal customers, we will work on boosting our sales. This includes increasing average revenue per customer. Suggesting supplemental items with meals is one way that we will do this. Studies show that loyal customers are more likely to purchase additional items at checkout (Toporek, 2013). Proof employees will learn customer’s preferences through their past behavior and be able to predict future purchases. Additionally, we may use a CRM system to further predict customer behavior and preference. Studies have shown that customer retention is extremely important. According to the Gartner Group, 80% of sales come from 20% of your existing customers (Lawrence, 2012). CRM is also very helpful in boosting sales and customer retention. Benchmark studies show that CRM systems account for customer retention improvements of up to 27% and revenue increases of up to 41% per salesperson (“Interesting Collection Of CRM Market Statistics”). Yet, the cost may be too much for Proof to incur in the first couple of years. For example, SageCRM.com has an annualized cost of $828 peruser, while the leading CRM system, Salesforce.com, is $780$3000 depending on the amount of capabilities ("Crm vendor pricing:," 2009). We can reconsider this once we have earned a sufficient amount of revenue. Peter Wolf, president of CRM advisory firm Azamba Consulting Group, suggests that business owners “approach CRM in steps. There is no reason to dive headfirst into the deep end” (Vanegas, 2011). Our loyalty program will increase our customer retention while boosting our sales. Studies show that 54% of customers would consider increasing their business with a company that offers loyalty rewards, and 46% already have (Burnett, 2014).
Proof Will Act as an Intermediary Between Local Farmers and Customers Proof Pizza strives to be an intermediary between local farmers and community members, while facilitating a connection between the two that is beneficial to all three parties. Our company will consist of two types of customer relationships: personal assistance and communities. As soon as a customer gets on line, they will be greeted by a worker who will begin building the customer’s personalized pizza. Also, at the point of sale, our employees will assist customers through the checkout process and ensure they receive the correct order. Additionally, our company will utilize user communities to strengthen our customer relationships. We will do so by providing fresh and local ingredients to our customers and supporting the economy of our local farmers. As a single store business, we want to maintain a strong connection with our customers as well as our suppliers.
Proof’s Customers Expect Convenience, Quality and Consistency Proof’s customers will expect order accuracy, friendly service and quick service (Tristano, 2013). According to Technomic Consumer Brand Metrics Q2 2013 report, these are the top three expectations of consumers of fast casual restaurants (Tristano, 2013). Because we serve the mass
Proof Pizza Business Model Page | 6
market, our customer relationships involve a wide range of people, such as onthego customers, college students, and health conscious people. The Technomic survey, which consisted of 2,000 respondents, showed that 96% expect order accuracy, 95% expect friendly service, and 90% expect speedy service (Tristano, 2013). We will ensure order accuracy by training our employees to use active listening when taking orders. Our line manager will also monitor employees and assist customer who are not happy with the quality of their order. Secondly, we will implement a prehiring process that takes employee personality and behavior into account. Although credentials and experience are important, it is essential that our employees provide great customer service. Thirdly, the assembly line style of our restaurant will provide quick service. Along with our coal fire oven which will make the pizza in just three minutes. Studies show that it is important that we live up to the customer service standards of our customers. A statistic by Bain and Co. in the Harvard Management Update, states that 80% of companies surveyed that they deliver superior customer service, yet only 8% of customers agreed (Lawrence, 2012). Additionally, statistics about similar companies, such as Chipotle, have shown that knowledge about customers is highly beneficial. Chipotle uses a social CRM approach in which their employees must be knowledgeable about customer’s preferences due to the customization of the final product by each customer (Valenzuela, 2013). We strive to follow this approach in order to acquire and maintain high quality relationships with our customers.
Proof’s Customer Relationships Integrate with the Entire Business Model Our customer relationships will evidently affect every aspect of our business model. Firstly, our customer relationships are integrated with our customer channels because we maintain such relationships through our networks of communication. Also, our customers expect that we will deliver our value propositions through our relationships with them. Furthermore, customer relationships drive sales, so our revenue stream is affected by how strong our customer relationships are. Depending on how we facilitate our relationships, our cost structure and key resources will vary. In order to maintain our relationships, we will need to utilize key resources and key activities that will benefit our customers. Subsequently, our most expensive key resources and activities will be reflected in our cost structure.
Proof Pizza Business Model Page | 7
Customer Channels Proof Uses Direct Marketing Channels to Deliver Value Proposition to Customers As a single restaurant business, we will only be using direct marketing channels. Through these customer channels, we will deliver our value proposition: convenience, quality and healthy food. We will reach customers through our in house sales force and internet presence which includes a website, mobile app and social networks. Because we will operate these channels on our own, they will be more costly to operate than partner channels, yet they will produce a higher margin. Therefore, we will need to achieve the right balance of in person and online distribution for the greatest customer experience and profit maximization.
Proof’s Customer Channels Serve Five Functions More specifically, we will reach our customers through advertising, social media, wordofmouth, surveys, in store purchases, and loyalty programs. These correspond with 5 different functions: Awareness, Evaluation, Purchase, Delivery, and AfterSales Support. Initially, we will raise awareness by posting flyers before the grand opening of our restaurant. We will also set up our company website, Facebook page, Twitter account and Yelp! Page. Therefore, we can post on our social media accounts and give prospective customers information about our opening and what we will offer. Social Media proves to be an effective method of raising awareness for businesses. According to Media Bistro, 40% of small businesses feel that social media is amplifying word of mouth referrals (Bennett, 2013). Online evaluations have progressed in recent years and will help us improve our customer service. A recent survey, by the Boston Consulting Group, found that small businesses had an average increase of $8000 in annual revenue after making a Yelp account (Lu, 2013). We also hope that, as a local company, there will be awareness through wordofmouth. We will strongly encourage our employees and local farmers to spread the word about our business. As a startup company, we will not be using television advertising. We may consider using radio advertisements on a local radio station, yet this may too costly in the first couple of years. According to Gaebler.com, advertisements on Baltimore regional radio stations are estimated to be about $165.00 for a 30second slot ("Wsmj radio advertising,”). Secondly, we will allow our customers to evaluate our service through in store surveys and online through Yelp.com. Thirdly, we will allow purchases to be made in stores with cash or credit to provide convenience for our customers. Fourthly, we will be delivering our value, fresh and customized pizza, directly to customers in our restaurant. We will implement a similar ordering process as Chipotle, in
Proof Pizza Business Model Page | 8
which customers can personalize their meals at the point of purchase. We will also be giving out samples at local farmer markets to further promote our business. Lastly, we will be providing after sales support by allowing customers to return their meal and order a new one if they are not satisfied with the quality. Moreover, customers will be able to join our rewards program which will earn them points each time they make a purchase. Once they earn enough points, they will receive special discounts and promotions. This enhances the customer retention that we wish to achieve in our customer relationships.
Proof Integrates Social Media and Other Customer Channels with Daily Routines We will be integrating our customer channels with customer’s daily routines with flyers, radio ads, college targeted advertising, and most importantly social media. We will post signs and flyers around the community which will be easily seen by drivers and walkers. Additional signs and posters will be used at the university to raise awareness with college students who will appreciate our company’s quick service. Also, if we decide to pay for radio advertising, locals will hear our radio ad as they drive to work in the morning. Lastly, our website and social networking sites will generate buzz in the community once our employees and suppliers connect with them. Social media is probably the most cost efficient way to reach our customer segments because it’s free to have an account with Facebook and Twitter. It is also the best way to engage our customers as, 87% of small business owners stated that social media helped their business (Bennett, 2013). Additionally, 52% of all marketers have found a customer via Facebook in 2013 (Smith, 2014).
Revenue Stream Primary Revenue Stream – Sales of Pizza, Salads, Dessert and Various Drink Options The prices of the pizza are based on our top competitor’s, Blaze Fast Fire Pizza, prices as Proof must stay competitive against it. Proof will offer a limited size menu with focus on quality rather on quantity in order to create a strong consistent menu which consists of pizzas, salads, dessert, and various drink options. Pizza Sale Price Pizza Type
Cost
Proof Pizza Business Model Page | 9
1 top
$5.85
Cheese
$5.00
Custom
$7.45
Signature
$7.45
Proof’s signature pizzas change seasonally based on which ingredients are being grown. Signature pizzas include, but are not limited to: Veggie Lover, Meat Lover, BBQ Chicken, Around the World and Artichoke Galore. Extra costs Type
Cost
Premium meats $0.50 Vegan cheese
$0.50
Gluten free crust $2.00 Salad Sale Price Salad Type
Cost
Side
$3.85
Entrée
$6.85
All salads can come in either side or entrée size. The salads include, but are not limited to: Caesar, Spring, Egg Sundae, and Artichoke Love. Desert Sale Price Desert
Type
Cost
S'mores
$2.00
Cinnamon Sticks (6 per) $2.00
Proof Pizza Business Model Page | 10
Drink Sale Price Drink (CocaCola) Type
Cost
Fountain Soda $1.85 Tea
$1.50
Bottled Water $1.85
How much does each revenue stream contribute to overall revenues Since Proof Pizza is a fast casual business, its revenue stream comes directly from food and beverages. Due to the numerous variables, it is not possible to create a subdivision and further isolate the percent make up for the offered items. Based on the competitors however, Proof can average close to “$1 million on annual sales (Farkas 2013).”Proof can also expect a return on investment “above 20% (Farkas 2013), while the startup costs can range $400,000$600,000 (Farkas 2013), based on industry averages.
Key Activities Restaurant Startup: Property, Permits, Kitchen Equipment, and Other Amenities The startup of the store includes the property, permits/licenses, and kitchen equipment. Once we acquire all of the necessary permits and zoning requirements, we may begin developing the inside of our restaurant. Gaining and maintaining permits is critical in the food industry. Failing to meet regulations could mean fines, or getting shut down by authorities (Entrepreneur, 2009). We will have our very own brick oven installed, which will be coal fired. Along with the oven, we must have the proper refrigeration and cooling systems. This will ensure our ingredients are preserved, and that they remain fresh for as long as possible. Since our sauces and dough are all made in house, we must install a stove top along the proper mixing equipment to prepare our ingredients. Not only will we need our kitchen equipment, but also we will need to have tables and chairs for our customers. Along with these amenities, we will need soda taps to serve our customers beverages. Our soda fountains will be located on the dining floor, allowing our customers to selfserve soft drinks as they please. These startup cost are the root of
Proof Pizza Business Model Page | 11
our quality product. Once the foundation of our restaurant is in place, we need to build relationships with farmers to bring in our fresh ingredients.
Acquiring Food From Local Farmers Acquisition of the ingredients from local farmers is the next key activity to provide the freshest ingredients to our customers. At proof, our goal is to support the local community. Buying from local farmers boosts our community relationships, and it promotes a better economy. Relationships with local farmers will be established, and we will urge other industries to support the local community. The ingredients are what make the food highly appealing. The average distance food travels to a restaurant or grocery store is 1500 miles (Do Something, 2014). When food travels vast distances, especially produce, it loses its nutritional benefits (Do Something, 2014). According to a survey, 84% percent of consumers place a great emphasis on fresh toppings (Pizza Market Place, 2014). This will also cut out the middleman, and allow our local farmers to receive the full retail price of their produce (Do Something, 2014). The benefits of buying our ingredients locally are great, both for our product and for the people in the surrounding community. Once in house, our ingredients need to be carefully prepared for use.
Preparation Process of Our Food Must be Consistent and Up To Par Once our ingredients are all in the restaurant, they must be prepared consistently, and up to our high quality standards. Before opening the restaurant daily, the coal oven must be fired up at least a half hour before we start serving customers. The oven needs to reach a temperature of 900 degrees fahrenheit. One of the biggest challenges businesses face in all industries is the lack of qualified labor (Entrepreneur, 2009). Therefore, we will hire a handful of employees who will be trained to prepare our dough and sauces precisely to the recipe. Since we prepare our dough and sauce in house, this activity will have to be performed daily to keep up with the demand of customers. Since we do not buy anything pre made, we will benefit the customers because the ingredients are prepared as fresh as possible. Sauce can be made the day of use. However, the dough must be made a day in advance in order to allot time for it to rise. Once the dough has risen, we will divide it up and measure it by weight to guarantee the size of each pizza is consistent with each customer. Once all the ingredients are prepped and ready, we are able to welcome our customers for service.
Proof Pizza Business Model Page | 12
Customization Ordering Process As a customer comes into our restaurant, they will be able to choose between the many ingredients to customize their personal sized pizza. First, the customer can choose between a whole wheat crust or a standard white crust. The pizza preparer then forms the proper crust. Next, the customer will choose the type of sauce or tomato they prefer on their pie. We will have marinara, pesto, and sliced tomato to choose from. Then the customer will be asked if they want cheese (Mozzarella) or no cheese. Next, the customer will be asked if they prefer basil or other spices (oregano, thyme, or sage) on their pie. Then the customer will be asked if they want any premium toppings such as veggies (peppers, onions, mushrooms, olives, and spinach) and meat (sausage, pepperoni, sliced chicken, and prosciutto). According to a survey, 74% of customers value a wide range of toppings to choose from (Pizza Market Place, 2014). This is why we offer a wide range of options for our customers. Now the pizza is ready to be cooked. The pizza preparer slides the pie into the oven, and is timed to cook for approximately 90 seconds. The customer will then be asked if the pizza is to stay or to go, and if they would prefer a drink with their pie. The customer then pays as the pizza is still in the oven. After the 90 seconds, the pizza is either placed in a box or on a tray. This depends if the customer is dining in or taking out. This is the end of the process to make our quality product. This final phase of our key activities (the ordering process) is projected to take the customer two minutes and thirty seconds, including the cooking time.
Key Partners Supply chain - Ingredients Proof’s main ingredients are locally grown and fresh which include produces, cheeses, and meats. To acquire the items, Proof will work with local farmers to supply the necessary ingredients. For produce and cheese, Proof will be able to receive its supplies from farms like Albright Farms, which grows a large variety of vegetables including: tomatoes, asparagus, peppers, eggplants, and many others that can be used as pizza toppings or sauce (Our Produce 2013). To acquire Proof’s protein, it will utilize local shops like Southern Maryland Meats, which, similar to Proof’s philosophy, strives to maintain the highest quality care for its products local (Southern Maryland Meats, 2012). For the pizza dough, white flour, wheat flour and glutenfree will be purchased from US foods, since the product only requires basic ingredients. In addition, we will also acquire paper products and cutlery materials from US Foods in order to standardize all the service items.
Beverages - Coca-Cola Products Proof Pizza will utilize CocaCola products in the store. Proof has a preference of using CocaCola over PepsiCo because of taste and a new machine CocaCola unveiled. The new freestyle machine is costly to have in the store, but it brings a whole new beverage experience unmatched by most restaurants with over 100+ choices of beverages. (CocaCola, 2014) The lease runs $300/month plus costs of soda concentrates, but sales have proved to increase in other establishments up to 9% because
Proof Pizza Business Model Page | 13
of this new machine, showing it’s worth the extra cost per month. (CocaCola, 2012) Moe’s Southwest Grill owner Mike Walsh said, “It’s definitely a good business driver.” (CocaCola, 2012) A recent statement from Joe Pawlak, vice president of Technomic, a Chicagobased food research consultant said, "It's also driving up food sales by luring in customers who are there just to use the machines." (ajc, 2012) Marketing - Social Media Proof’s marketing as stated before will be done for free or very cheap using social media. The tops social media destinations for restaurants are Facebook, Twitter, Instagram, and Yelp! Twitter is a great way for Proof to talk about our daily specials, and other quick blurbs for the day since you only get 140 characters per post. (the social media marketing book, 2009) Proof takes pride in our pizza’s appearance, so Instagram can showcase how our food looks everyday, and many people can use it to show their friends what they’re eating from Proof. (the social media marketing book, 2009) Startup Funding - Bank/Venture Capitalist Proof will need to get other capital besides the startup money funded by our partners. The two options Proof will have are getting a small business loan or find a venture capitalist looking to invest in a revolutionary pizza company. A small business bank loan is a great choice for extra startup money needed besides our own capital we put in because Proof will receive the money and not bring on an extra person. Bank of America has a great track record for small business loans and is willing to work with you on the amount of money needed from $25,000 to $2,000,000. (Bank of America, 2014) Being able to get a wide variety of money will be crucial for our business since our costs could change based on our storefront location we choose. If we go the route of trying to find a venture capitalist it may be more difficult, but if we have success it will cut out paying a bank back with high interest and solely be focused on paying back the person funding the operation. The NVCA, or National Venture Capital Association, will help connect us to a venture capitalist that has interest in our field. (NVCA, 2014) The one problem Proof could have with a venture capitalist is he/she may try to put too much input into our business that already has 5 partners. The best route for Proof would probably be to get the bank loan and focus on paying it off in a timely manner so we do not accumulate too much interest.
Proof Pizza Business Model Page | 14
Key Resources Physical – Store Front and Oven Our main physical resources would be the Proof storefront and the specialty pizza oven. Finding the proper storefront that can hold our customer capacity and has a state of the art kitchen will be the ideal location. A strip mall would work very well with the high volume of consumer traffic; a freestanding store would look better, but only at the right price since it would cost more than a strip mall option. Since we need an oven that reaches temperatures in excess of 1000 degrees, we will have to buy that separately from the restaurant because it is a bigticket item and would not come in the kitchen already in our store. (New York Magazine, 2009) Intellectual – Database (MICROS) We will need to use a computerized system like MICROS to keep track of everything from farmers, to inventory, to sales. Using technology available today we can create a database of our local farmers to always keep track of produce and proteins; these databases are essential to always having products in stock. A system like MICROS will help in all aspects of Proof’s business. MICROS applications include point of sale, property management, central systems, business intelligence, ecommerce, loyalty, CRM, and loss prevention. (MICROS, 2014) It will keep track of all orders throughout the day for easy recall at the end of the night. Human – Employees Our human resources will be our hourly employees, and our 5 Proof partners. Our hourly employees will be getting paid minimum wage because their job is typically simple tasks as long as they can interact with customers well. Our 5 partners will be doing multiple tasks from daily management to weekly accounting to help cut fulltime employee costs, making more money to split between the partners. All of us have business backgrounds and some specializing in accounting, so other management employees will not be needed because the Proof founders can run the show. Utilizing all of the skills we possess will keep all labor cost low, having most sales go towards our revenue.
Financial- Cash, Credit, Gift Cards In store finances include cash, credit/debit card options, and gift cards. Most sales will most likely be done through credit cards; cash is dying as credit card payments are predicted to grow in volume. (Huffington Post Money, 2012) Setting up a contract with a card reader company will be necessary, since credit card volume will be too high for an iPhone card reader. Gift Cards are another alternative way to pay, for a fast cashless transaction. Many people look to purchase gift cards so carrying them instore should increase revenue around holiday months. In 2007, $60 billion in gift cards were
Proof Pizza Business Model Page | 15
purchased, amounting to 12% of gift sales during the holidays, according the retail industry. (Rescue Marketing, 2008)
Cost Structure Primary Fixed Costs: Startup, Rent, and Salaries The startup costs of our pizzeria can be as high as $300,000, which includes industrial cooking and ventilation equipment, refrigerators, freezers, tables, bar stools, shelving, counters with stations for cutting, heating systems, and cooling systems (Farrell, 2007). It is recommended that we overestimate our budgeted startup cost to avoid underfunding, some companies overestimate by as much as 25% (Food Service Warehouse, 2014). These will be the primary fixed costs. Along with salaries, which will eat up about about 20% of revenues, and rent taking up approximately 8% of revenue (Farrell, 2007). Another cost, which is fixed will be acquiring the proper licenses and permits necessary to operate the restaurant. These costs vary depending on the precise county and state the restaurant decides to root itself. To run efficiently, when charging customers, it is important to have a point of sale system to accept credit cards. For this to work, we need to give a percent of commission (up to 2.5%) to a processing middleman (Farrell, 2007). These are the primary fixed costs that are easier to calculate, unlike the volatile variable costs.
Variable Costs Include Utilities and Cost of Ingredients The primary variable costs, which will be incurred, are utilities and cost of ingredients. Once again, like the cost of permits the cost of utilities will fluctuate depending on the exact location. Utilities will also fluctuate depending on the amount of activity. As far as the ingredients go it gets to be tricky. Cheese and flour, which are primary ingredients, may change as frequently as on a daily basis, affecting our profit margin (Food Service Warehouse, 2014). A strategy to help control this volatility in our ingredients may be to enter into a contract with farmers. This will hold prices hostage to the whims of the markets (Food Service Warehouse, 2014). After it is all said and done, the cost of food will take up about 35% of our revenue. Income Statement
Proof Pizza will have a negative net income during its first year of operation, but will then begin to make a profit. The values created in Figure 1, were derived from the national averages of costs for small business (McQuerrey, 2014) while the revenue was estimated based on the yearly revenue generated by Blaze Fast Fired Pizza (Farrar, 2012). The numbers indicate that there is a strong possibility that the restaurant will be profitable due to the average numbers for similar companies. Income Statement
2014
2015
Proof Pizza Business Model Page | 16
Revenue
$1,000,000.0 0
$1,250,000.0 0
COGS 35%
$350,000.00
$437,500.00
Salary Variable
$250,560.00
$375,840.00
Rent
$80,000.00
$100,000.00
Supplies (3%)
$30,000.00
$37,500.00
Bank (2%)
$20,000.00
$25,000.00
Insurance (2%)
$20,000.00
$25,000.00
Medical (1%)
$10,000.00
$12,500.00
Professional Fees (1%)
$10,000.00
$10,000.00
Utilities (1%)
$50,000.00
$62,500.00
Start Up
$375,000.00
$0.00
EBIT
($195,560.00 )
$164,160.00
Tax 15% to 35%
($29,334.00)
$57,456.00
NI
($166,226.00 )
$106,704.00
Figure 1 – Income Statement
References
Proof Pizza Business Model Page | 17
Bennett, S. (2013, October 28). 12 incredible social media marketing statistics. Retrieved from https://www.mediabistro.com/alltwitter/socialmediamodernmarketing_b50969 Burnett, S. (2014, February 14). Customer Loyalty Programs: Stats, Facts and Tips for 2014 . Customer Insight Group Loyalty Blog. Retrieved , from http://www.customerinsightgroup.com/loyaltyblog/customerloyaltyprogramsstatsfactsandti psfor2014 Crm vendor pricing: A comparative analysis. (2009). Retrieved from http://www.1crm.info/images/whitepapers/CRM Vendor Pricing A Comparative Analysis.PDF Interesting Collection Of CRM Market Statistics. (n.d.). SmallBiz CRM. Retrieved April 15, 2014, from http://www.smallbizcrm.com/crmmarketstatistics.html Lawrence, A. (2012, November 01). Five customer retention tips for entrepreneurs. Retrieved from http://www.forbes.com/sites/alexlawrence/2012/11/01/fivecustomerretentiontipsforentrepr eneurs/ Lu, D. (2013, September 02). 90% of yelp users say positive reviews affect their purchases. Retrieved from http://mashable.com/2013/09/02/yelpreviewsinfographic/ Smith, B. (2014, January 7). 20 marketing statistics that will influence decisions in 2014. Retrieved from http://socialmediatoday.com/brianna5mith/2039861/20marketingstatisticswillinfluencedecisi ons2014 Valenzuela, E. (2013, March 20). Chipotle and its social crm strategy. Retrieved from http://boomerangn4.blogspot.com/2013/03/chipotleoneoffastestgrowing.html
Proof Pizza Business Model Page | 18
Vanegas, C. (2011, September 7). Does your business need customer relationship management?. Retrieved from http://smallbusiness.foxbusiness.com/marketingsales/2011/09/07/doesyourbusinessneedcus tomerrelationshipmanagement/ Wsmj radio advertising costs. (n.d.). Retrieved from http://www.gaebler.com/WSMJFMMDRadioAdvertisingCosts 24103 Barrett, L. (2012, December). Pizza Power 2013 State of the Industry Report. Retrieved April 9, 2014, from PMQ: http://www.pmq.com/December2012/PizzaPower2013StateoftheIndustryReport/ Do something. 2014. “Why Buy Locally Grown?”. Accessed April 7. https://www.dosomething.org/tipsandtools/whybuylocallygrown# Farrell, Maureen. 2007. “How To Run A Restaurant: Sartup Costs”. Forbes, April 7. http://www.forbes.com/2007/02/02/visaamericanexpressentmanagecx_mf_0202fundament alscosts.html Food Service Warehouse. 2014. “10 Tips For Starting A Successful Pizzeria”. Accessed April 7. http://www.foodservicewarehouse.com/education/top10tipsforstartingasuccessfulpizzeria /c27403.aspx Pizza Market Place. 2014. “Report: Consumers want more pizza topping options”. PizzaMarketPlace.com, April 3. http://www.pizzamarketplace.com/article/230477/ReportConsumerswantmorepizzatopping options?rc_id=281 CocaCola Freestyle. (2014.) CocaCola. Retrieved from http://www.cokesolutions.com/cocacolafreestyle/Pages/Overview.aspx Everything you need to know about cocacola freestyle. (October 2012.) CocaCola. Retrieved from http://www.cocacolacompany.com/stories/everythingyouneedtoknowaboutcocacolafre estyle
Proof Pizza Business Model Page | 19
Oches Sam. Pizza’s Arms Race (September 2013). Retrived from http://www.qsrmagazine.com/competition/pizzasarmsrace Butler Cherryl. Fast Casual Execs Predic 2014 Menu Trends (December 2013). Retrieved from http://www.fastcasual.com/article/225405/Fastcasualexecspredict2014menutrends New Catherine. Blaze Pizza Franchises its 100Calorie Slice (March 2013). Retrieved from http://www.huffingtonpost.com/2013/03/01/blazepizza100calorieslice_n_2791556.html Jennings Lisa. The Year in Fast Casual Pizza (December 2013). Retrieved from http://nrn.com/fastcasual/yearfastcasualpizza Bhasin Kim (April, 2012). How Chipotle’s Assembly ine Makes Your Buttito So Riducuously Fast. Retrieved from http://www.businessinsider.com/howchipotlesservicelineissofast20124 Weisul Kimberly (Febuary, 2010). Consumers buy into “Buy Local.” Retrieved from http://www.businessweek.com/magazine/content/10_09/b4168057813351.htm Wooden Dick. Customers want Consistency. Each and Every Time. Retrieved from http://www.successwithcrm.com/blog/bid/94610/CustomersWantConsistencyEachandEve ryTime Schawrtz Judith (June, 2009). Buying Local: How It Boosts the Economy. Retrieved from http://content.time.com/time/business/article/0,8599,1903632,00.html Zarrella, Dan. (2009, November.) The Social Media Marketing Book. Retrieved from http://books.google.com/books?id=chd3yfExXMEC&printsec=frontcover&dq=the+social+me dia+marketing+book Albright Farms. (2013.) Our Produce. Retrieved from http://www.albrightfarms.net/index.php/ourproduce Bank of America. (2013). Our Produce. Retrived from
Proof Pizza Business Model Page | 20
https://www.bankofamerica.com/smallbusiness/businessfinancing/workingcapital/businessloan s.go Huffington Post Money. (2012) Cash Dying as Credit Card Payments Predicted To Grow In Volume. Retrieved from http://www.huffingtonpost.com/2012/06/07/creditcardpaymentsgrowth_n_1575417.html National Venture Capital Association. (2014.) Mission and Core Values. Retrieved from http://www.nvca.org/index.php?option=com_content&view=article&id=339&Itemid=653 New York Magazine. (2009.) A Guide to Pizza Ovens. Retrieved from http://nymag.com/restaurants/cheapeats/2009/57873/ Southern Maryland Meats. (2012.) Our Products. Retrieved from http://www.southernmarylandmeats.com/ourprods.html The CocaCola Company. (2014.) About CocaCola. Retrieved from http://www.cokesolutions.com/CokeAdvantage/Pages/Site%20Pages/Overview.aspx Lyon Julia. (2014). “Buy Local” Campaigns can Actually Supercharge Sales. Retrieved from http://money.cnn.com/2014/03/28/smallbusiness/buylocal/ Coalfire Pizza. (2014). Reviews. Retrieved from http://www.yelp.com/biz/coalfirepizzachicago Anthony’s Coal Fired Pizza (2014). Reviews. Retrieved from https://foursquare.com/v/anthonyscoalfiredpizza/4c9e7d6a031337042e9569d5 Mcquerrey Lisa (2014). Start Up Costs for Running a Retail Business. Retrieved from http://smallbusiness.chron.com/startupcostsrunningretailbusiness14547.html
