A pizzeria business plan

Executive Summary

This is a business plan for a Pizzeria based on producing a differentiated product in a premium location. The objective is to differentiate the operation from any other restaurant operation based on the concept of superior quality food based on the exclusive use of premium natural ingredients for every element of the product delivered from a conventional cheese and tomato pizza to the unique menu items. At the same time the operation is such that its environmental footprint is minimized and it operates in a manner that maximizes social responsibility in every facet of its operation.

Pricing relative to other Pizzerias will be premium, but compared to most of the restaurants in the same quality bracket very competitive. The longer-term plan will involve additional Sofian Eat restaurants on either an owned or franchised basis or a combination of the two. This initial plan is for the pilot operation, which will serve as a model for future openings of Sofian Eat.

Essentials to success

The planned operation is a restaurant. The underlying keys to successful restaurant operation are good food served in a clean and pleasant atmosphere. These are a ‘given’ in any successful restaurant, but in themselves are not sufficient to create any great success. “Positioning is an underleveraged restaurant marketing component. Positioning is the place you hold in the customers or prospects mind relative to the competition (the cheaper choice, the higher quality choice, et cetera). Effective positioning involves incorporation of your Unique Selling Proposition (U.S.P.).”[1] (Quantified Marketing Group, 2010)

In Sofian Eat success will depend on creating a unique “product” based on the publics concern for the environment and the wholesomeness of food. This will be incorporated into a unique ambiance and menu that will provide a dining experience that hopefully customers will enjoy and wish to repeat. An important element in the overall concept is that because Sofian Eats is dedicated to concepts concerning the environment and natural food, which the client is aware of and approve, they will have an underlying “good feeling” about what they are doing when they enjoy a meal at Sofian Eats. In Principles of Marketing Dr. Philip Kotler uses the fast food industry as an example of marketing being used to sell. “Shoddy, harmful or unsafe products”, and bemoans the fact that this American approach to restaurant marketing is catching on in Europe.[2] The marketing approach used in this project is unashamedly copied from another American Company, Ben & Jerry’s Ice Cream that takes a totally opposite approach.[3] While not as successful as McDonald’s, Ben & Jerry’s built a business from a single tiny location to a major company and the founders finally sold the company to Unilever in 2000.

1.0 Terms of Reference

1.1 To

1.2 From

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1.3 Business Plan (Sofian Eat)

The plan is for a pilot restaurant in what is hoped will become a chain or franchise operation in the long term. This plan is based entirely on the pilot project and does not include any discussion of possible future developments or expansion into additional locations. Decisions concerning this will be made based on the success of the pilot project and what is learned by operating what is planned as a unique style of restaurant operation.

1.4 Date handed in

The due date of the project is 18 March 2010.

2.0 findings

The research findings are based on the work of Kivela, Inbakaran and Reece[4] and Quantified Marketing Group[5], which seem to support each other closely. The consensus is that restaurant marketing is difficult, and to be successful requires very careful research and analysis. A part of the problem is that restaurateurs are just that and not professional marketers. They know how to operate a restaurant but are not ordinarily knowledgeable in modern marketing techniques. This can be considered a positive element as it potentially provides an entrepreneur that is trained in marketing a competitive advantage. The suggestion is that conventional marketing using mass media is not practical while so called neighbourhood marketing is. Invest marketing funds in persuading customers to spend more per check and return more often.

2.1 Market research

The questionnaire and research approach were based on the work of Clark and Wood.[6] (Clark & Wood, 1999) Their work implies that the quality, range and type of food are key determinants in consumer loyalty. Their work also suggested the nature of the target clientele of the operation. A summary of the finding of the limited sample of 25 street interviews in the target neighborhood is presented below. The questionnaire is included as an appendix.

What we see in the market research is a demographic pattern that is almost ideal and emphasis on the quality of the food and variety of menu offerings as criteria for restaurant selection. The emphasis on the mid price range and above is also the target market sought. There was no pattern in the response to favorite restaurant with only one being mentioned twice and the others all individual choices. The most common response to the why is it your favorite centered on the combination of good food and pleasant atmosphere. The only surprise is that five respondents indicated that a personal relationship with the proprietor was an important factor.

2.2 Location

142 Cowan Street, Kensington, London SW1. (This is obviously a fictitious street location)

2.3 Competition

The competition broadly defined is any and every restaurant or eating establishment in London, and eventually anywhere a Sofian Eat is opened. What is planned is the creation of a unique “niche” where the competition will be limited or non-existent.

2.4 Objectives mission statement

The Mission of Sofian Eat is threefold:

1. The social mission is to operate the company in a manner that recognizes the role played by businesses in society. It will facilitate this goal by developing original and innovative approaches to improve the quality of life in the areas in which it operates
2. The product mission is to produce the finest quality all natural pizza and innovative new culinary creations. The commitment of the business is to incorporate only wholesome natural ingredients and promote business and culinary practices that respect the earth and the environment.
3. The Economic Mission is to operate the business on a sustainable financial basis of profitable growth and expansion. This will increase the values for stakeholders while it expands opportunities for the development and career growth of the company’s employees.[7]

2.5 Business name

The business name will be Sofian Eat

2.6 Legal Structure

The initial public structure will be a corporate structure created with the longer-term objective of selling shares in a public offering at some point down the road.

2.7 Marketing Plan

The marketing plan will be based entirely on product differentiation. Any attempt to create a marketing plan based on price competition in conventional pizza or Italian food is doomed to be at best a “me too” operation. There is no shortage of pizzerias or ethnic restaurants in London or almost anywhere else. The underlying marketing plan is based almost entirely on differentiating the product and the restaurants in which it is served from the competition in terms of the restaurant’s décor and ambiance and the menu. The long term objective is to create a “brand” that will be difficult to duplicate and will present an immediate “picture” in the mind of the consumer when they think Sofian Eat.

The fact that this operation will have a formal marketing plan is in itself a competitive advantage. A marketing consulting company, Quantified Marketing Group, has an extensive and professional discussion of restaurant marketing tactics. While there is little relevant academic research on restaurant marketing this source is a good substitute. They discuss exactly the topics underlying this project such as branding, positioning, differentiation and segmentation.[8]

2.7.1 Marketing – USP’s

The marketing Unique Selling Propositions will include the concept that everything provided on the menu is created from wholesome natural products and produced and served in a way that is at least environmentally neutral and hopefully environmentally positive. For example, the take out pizza boxes will be made of recycled paper and biodegradable. The layout and ambiance of the restaurant will contribute further to the concept of a USP.

A further USP will be menu items that are unusual and unique. For example, Sushi Pizza will be sushi served on a crisp pizza dough “platter” with individual items arranged artistically on small segments as finger food. Kebab pizza will be thin sliced roasted lamb with fresh vegetable bits and yogurt sauce. While these may not be huge volume items they will help differentiate Sofian Eat from the competition. They also emphasize the wholesome ingredients aspect of the menu.

A further differentiation will be the offer of two dining rooms, one for adult dining and one for family dining with children. The ambiance will be different, and the family dining area will offer a special menu for families featuring offering that will particularly appeal to children in addition to the menu offered in the adult section. In his book Marketing Management Philip Kotler emphasizes that a USP can vary from segment to segment, but the key is that it amounts to formulating a benefit, motivation, identification or reason why the audience should think about or investigate the product.[9]

2.7.2 Marketing segmentation

Obviously, any restaurant wants to appeal to the widest possible array of potential clients. Sofian Eat is aimed primarily at a relatively young and affluent audience with some refinement of taste. This would encompass singles, families with children from toddler to teens, and some older and middle-aged clients that enjoy dining out. As a pizzeria, pricing would be at the upper end of the scale of pizza restaurants, but not premium priced. If pricing were compared on comparable items, for example a 30-cm. pizza with onion, garlic, mushroom, cheese and tomato sauce the premium would be a pound or two. Conversely, the sushi pizza would be a relatively expensive item compared to most pizza products, and the kebab pizza would be several pounds more than a pizza bolognaise in the typical pizzeria.

In an attempt to widen the potential market Sofian Eat would offer a variety of additional menu choices outside of the typical Italian offerings of spaghetti and Lasagna. The wine list would also have an extensive variety of quality offerings appropriately priced.

2.7.3 Product

The product is the key to the potential of Sofian Eat. The insistence on pure wholesome ingredients without any chemical contaminants or preservatives is the first requirement for a differentiated product. Cooking over natural wood fires and in wood burning brick ovens is another element. Using these natural products to create innovative menu offerings such as the sushi pizza is another product innovation. Product is the ultimate key to branding and product positioning. It is the objective to convince the customer that food made of wholesome natural ingredients and prepared in an environmentally friendly or at least neutral manner is both better tasting and healthier than the alternatives offered by the competition. “Positioning is the place you hold in the customers or prospects mind relative to the competition”[10] It is also the key to branding. “Brand-building is closing the gap between what you promise and what you deliver. A strong brand is one that has alignment between the promise and execution.”[11] The product and product quality is the foundation of a successful restaurant brand.

2.7.4 Pricing

In spite of the insistence on ingredient quality, the menu model would try to keep food costs to less than 30% of menu item price. It is envisioned that menu prices will be above pizzeria averages, but still modest compared to up-scale restaurants. They would be in keeping with the income of the target market of middle to upper income clientele.

2.7.5 Promotion

Restaurant promotion is a complex subject. Initially, it has to be aimed at getting diners through the door and to a table for the first time. This is however the most expensive and least effective forms of promotion. Research has shown that new customer acquisition is 7-10 times as expensive as building sales through increasing frequency, party size and check average. Because Sofian Eat is initially at least a neighborhood restaurant, flyers, local billboards and similar media are more appropriate and hopefully more effective. A sidewalk food sample give away is a tool that has been carefully considered and is deemed worthy of an experimental effort.

2.7.6 Place

The initial restaurant will be located in Kensington, London. While Kensington is a high cost and highly competitive area it also has the affluent clientele that Sofian Eat is targeting. It also has relatively high foot traffic and high rent is offset by high visibility. This is closely associated with promotion as discussed above.

2.8 Finance

2.8.1 Sources

Initial investment will come from the resources of the founders and a few selected outside investors. As the operation envisioned will be fairly extensive, involve a high rent location, and will probably be cash flow negative for some months at least, substantial initial funds are required. Based on the expected success of the pilot operation in a high visibility neighborhood expansion of additional restaurants emulating the first one is considered as part of the plan. This would require substantial external financing and a public offering to finance this is anticipated.

2.8.2 Cash Flow

The company’s cash position is based on an equity contribution of £1,000,000 and borrowings of £2,000,000 repayable over 10 years starting in year 3. The company is expected to pass the break even point late in its second year of operation and obviously the cash position will deteriorate continuously to this point. It would drop to somewhere in the vicinity of £100,000 or a bit more prior to the projected passing of the break-even point in the second half of year 2. It should improve to the point where the first payment of £200,000 on the debt could be handled without problem in year 3.

2.8.3 Profit and Loss accounts

The company is projected to loose money in its first two years with the break-even point reach in the second half of year 2. Food cost is projected to drop progressively as volume increases as a result of volume purchasing and lower waste as volume grows. In the model revenues from food and beverage sales are combined, as are their costs. Rent is based on a restaurant of 700 sq. meters with rent of £1,200 per meter per year or £70,000 per month, £840,000 per year. The projected lease is for 10 years with no provision for rent increases in that period. Depreciation is based on the investment of £1,200,000 in fixtures, décor and equipment with the depreciation based on the 10-year initial lease with a zero residual value. Selling, general and administrative and other expenses are estimated with more detailed budgeting at a later point. The tax rate is arbitrarily set at 36% over the entire period of the projection. This should prove to be conservative. In fact, in the three years included in the projection no tax will be due in the first two years on operating losses and in year 3 any tax due would be more than offset by loss carry forwards. The Personnel cost is based on the Personnel Model included in the financial statements show as appendices.

2.8.4 Balance Sheet

The projected balance sheet presented is simplistic. The only current asset is actually cash and some small quantity of inventory. The Liabilities would be accruals of the SGA and operating expense and payroll costs. In the balance sheet model they are show as exactly offsetting current assets other than cash for the sake of simplicity. Effectively, working capital would be the cash position. In practice, the loan might well be taken down in tranches as required. Equity is shown as negative by the end of year 1 and remains negative throughout the three years projected. It would turn positive at some point in year 4 based on the projected income of over £250,000 in year three and still growing.

2.9 Organization

2.9.1 Structure

The organization of a restaurant is fixed in that there is the “front of the house”, the tables and bar where patrons are served and the “back of the house” or the kitchen. The Maitre de Hotel or headwaiter that supervises the wait staff and seats patrons runs the “front of the house”. The kitchen is obviously run by the Chef who in addition to being responsible for the recipes supervises all the actions of the kitchen staff and is responsible for purchasing the ingredients. There is a manager and assistants who are responsible for the overall operation and supervision of the till. The general manager would also be responsible for keeping records and payment of accruals and salaries.[12]

2.9.2 Motivation

Virtually every text on restaurant and hotel management stresses the importance of training for the staff. Motivation is a key element in this training process. In a restaurant operation one of the obvious keys is the quality of the chef. He might be compensated on a profit sharing basis that also reflects the relationship of food cost to food revenues. In practice, the service staff is compensated in large part by tips that reflect the quality of their service and their attitudes. Motivation is not usually a problem in this area. For the other members of the staff training, fair treatment and recognition of good performance should provide the level of motivation necessary.[13]

3.0 Conclusion

3.1 Strengths

The key elements that are expected to contribute to success are the differentiation of product based on the exclusive use of natural and wholesome ingredients. This combined with a prime location, attractive décor and the use of separate facilities for patrons with and without children are the elements that make Sofian Eat a unique and attractive dining experience. The underlying approach is to build a marketing plan based on product differentiation. Restaurants all serve food, and basically food is food. It does vary in quality and presentation. Sofian Eat is certainly not the only restaurant to serve premium quality food, but it is hoped that the presentation and menu combined with good value will build a solid business.

3.2 Weaknesses

The most serious weaknesses as this plan is being prepared are the world economic situation, the number of strong competitors in the selected location, and the very high cost of the desirable location. The economic situation, which has produced high unemployment in the UK, has impacted the traffic of the restaurant industry as potential patrons close their pocketbooks. This is at odds with the continued premium rents commanded for prime locations. The timing of the opening is possibly the most serious weakness of the plan.

4.0 Evaluation

4.1 Internal

The internal elements that are of greatest importance are the ability of the operation to differentiate itself from the many other restaurants in London based on the menu, the quality and presentation of the product, and the ambiance of the operation. It is essential that dining at Sofian Eat is a very special experience. This will result from the ability of the management to produce an operation that is superior in all respects from the opening day. The standard of every facet of the operation must be “perfection”. While this is obviously unattainable, the deviations from this standard must be few and far between. This will be the element that makes the operation a success in spite of economic difficult or strong competition.

4.2 External

The primary external question is the economic situation and the recovery of the United Kingdom economy. There are no other particular external factors that will influence Sofian Eat any differently than they do any other restaurant operation. The economic situation makes the situation difficult for almost any business and starting a new business will be particularly difficult base on it.

References

Ben & Jerry’s. (2010). Ben & Jerry’s Mission. Retrieved March 15, 2010, from http://www.benjerry.com/activism/mission-statement/

Clark, M., & Wood, R. (1999). Consumer loyalty in the restaurant industry: A preliminary exploration of the issues. British Food Journal, 101(4), 317-327.

Kivela, J., Inbakaran, R., & Reece, J. (2000). Consumer research in the restaurant environment. Part 3: analysis, findings and conclusions. International Journal of Contemporary Hospitality Management, 12(1), 13-30.

Kotler, P. (1991). Marketing Management (7th ed.). Englewood Cliffs, NJ: Prentice Hall.

Kotler, P., Armstrong, G., Wong, V., & Saunders, J. (2008). Principles of Marketing. Essex, UK: Pearson Education Ltd.

Quantified Marketing Group. (2010). Restaurant Marketing Tactics. Retrieved March 16, 2010, from http://www.quantifiedmarketing.com/learning_center/restaurant-marketing.php