2009 September: No Bull

Q: How has the current recession affected your marketing budget?

Estella Ferrera, Oggi’s Pizza & Brewing Company: I have actually left our marketing budget pretty much the same, although I was a little more conservative with my buys to account for a decrease in sales for our franchise. Our regional marketing budget is a result of a percentage of our franchisees’ revenues. So if our sales decrease, so does our marketing budget. The reason that I have kept my marketing program strong regionally is to prepare for the end of this recession. I believe that the great marketers, during recessionary times, come out much stronger than when they started. We are marketing partners with some of the largest teams in Southern California and Arizona, as well as with some athletes and television stations. We want to keep our strong brand image throughout this time. People want to go to a place that is successful!

Steve Lieber, Coal Mine Pizza: Our marketing budget has decreased in the past year. The reason being is that we yielded better results by rewarding our loyal guests and having them continue to refer the restaurant to other friends and family of theirs who have not yet discovered Coal Mine Pizza. If a guest brings in a party of four, and one couple has never been to Coal Mine Pizza, we will send a complimentary appetizer as a thank you for the guest who initiated the dinner plan. This is highly effective to “infl uencers.”

Todd Parent, Extreme Pizza: We cut our marketing budget by approximately 15- 20 percent. In an attempt to maintain our costs and profi tability, we cut expenses across the board, leaving no rock unturned. We feel that we cut out some marketing and advertising items that were not performing and are prepared to increase it back to normal levels once we fi nd other methods that work for our company.

Jeff Aufdencamp, Mama Mimi’s Take ‘n Bake Pizza: We used our POS system to track any coupons or special offers that we run. We took this information and did a detailed analysis to see what was actually bringing people in. If it wasn’t bringing in traffi c, we dropped it. If it was, then we increased the amount of money we were spending in that area. For example, we dropped our direct-mail postcards for the summer — we know our customers are in and out of town traveling, and the redemption rate on the special offers had gone down. But we increased the number of radio ads we were running, adding twice as many spots to the weekends. We know if our customers are around on the weekends they are most likely doing something outside and listening to the radio.

Brian Coli, Georgio’s Chicago Pizzeria and Pub: We’ve decreased the overall budget. We’re trying to utilize more cost-effective marketing, like e-mail as opposed to direct mail. Our goal is more marketing for less money.

John Williams, Rock Creek Pizza Co.: We have increased our advertising budget over last year to get our message out to more people and keep our current customers reminded that we are still here and hungry for their business.

Craig Mosmen, The Couch Tomato Café: Thankfully, we have not been impacted as of yet by the recession. Therefore our marketing budget formula has not changed in recent years. We determine our marketing budget by allocating roughly three percent of our gross sales, as averaged by the previous quarter.

Q: Have you offered any “value items” or “specials” to your customers this year?

Aufdencamp: We bundled a salad/breadsticks deal as an add-on for $6.99. We required all employees to offer it with every order. The fi rst weekend we sold an average of 30 per store. Then we programmed it into our POS system so that the offer pops up on the order screen as a question, and the staff member has to hit yes or no. This truly requires them to offer it. The following weekend we sold an average of 70 per store.

Mosmen: Yes, we have decided to try rotating through different monthly specials, which we began this year. Our most recent special was a gourmet slice and specialty salad for $7.49. This was a big hit with our customers. Some specials do work better than others.

Williams: We started offering a dinner buffet, as well as a couple of other offers that are working well: a large, one-topping pizza with a twoliter soda for $12.99 or two large, twotopping pizzas for $20. All other offers are bundles or our “Four or More” where you get 25 percent off an order of four or more pizzas.

Coli: We’ve offered our customers new, lower-priced options, such as half orders of pasta, for a lower price than the full order. We’ve also put together new lunch specials, like an individual pizza and a side salad for $5. Our customers seem to be pleased with the changes.

Q: What areas were easiest for you to tighten when the economy went south and you had to make cuts?

Parent: We contacted every vendor (not just food) including landlords, IT consultants, beverage, third-party software vendors, etc. and asked for a temporary 10 percent price reduction. Amazingly, almost across the board, everyone understood and helped us out.

Williams: We, of course, looked closely at staffi ng levels. We also renegotiated our lease, switched to disposable wares and left our dishwasher lease.

Aufdencamp: The fi rst thing we did was shop our pricing and stop buying from one distributor. Our primary distributor was not willing to budge on the key-item pricing, so we moved to another that could offer better pricing and continued to buy from both. This keeps the pricing competitive, and we found the service has been amped up, too. We are fortunate to be in a position where we are still experiencing samestore sales increases, so we haven’t had to make any operational changes or cuts in our product line, etc.

Ferrera: It is never easy to tighten the reigns, but at the store level we defi nitely watched our food and labor like a hawk. We never used inferior products to save money. We had to hold that standard. On the contrary, we did look to our vendors to get special pricing for our franchisees from group buys. Hiring great staff has become easier since more people are out there looking for jobs. In this time where our guests are looking to get more for their dollar, it is of utmost importance to hire all the best people to give the best dining experience — and now is the time.

Lieber: The easiest area to cut was labor. We realized we were too comfortable and compartmental in our job descriptions. I decided to wash dishes for an hour a day. We had servers scrape all plates down and all servers learned to bartend, eliminating day-time bartenders. We all crosstrained and cross-helped to avoid further labor cuts and job elimination. Utilities conservation was important. We felt we could cut energy use by 10- 15 percent if we were careful. Turning A/C on later, using 2-4 degrees warmer settings, leaving lights and sound systems off until 45 minutes prior to service. We focused on making sure portion control specs were adhered to properly — one extra ounce of cheese per pie can cost thousands in lost revenue dollars. We also have strict monitoring of liquor pours and inventory, and this helps ensure proper return on investment.

Q: As a business owner, what’s your primary concern heading into 2010?

Ferrera: I actually am extremely optimistic about 2010. We have already started to see a turn-around in our same-store sales year over year and are expecting to start increasing again in the fourth quarter of 2009. My primary concern would be for the store that may not be able to make it though this long downturn and may not be able to take advantage of the turnaround in 2010. In addition, on the franchising side, it is very diffi cult to get fi nancing in the restaurant industry now. That is concerning for our growth moving forward.

Lieber: Our primary concern is us not being our very best every single shift. When we are our best every shift, we have an over 99 percent guest satisfaction rate. When we are not guest focused, not intense, not well prepared is when we fail.

Aufdencamp: As a growing company, our primary concern is fi nding qualifi ed franchisees that are confi dent that this business model we have developed will continue to thrive in a downturned economy. Because of the banking scandals, small business fi nancing is tight. We are fi ghting against media coverage that continues to tell everyone how bad things are. If they only knew how important the impact is that they have on consumer spending and confi dence, maybe they would start to report the positive. We feel this would make a huge impact on turning the economy around.

Parent: That commodity costs will creep back up to unsustainable levels.

Q: What’s the one critical thing you know now that you wish you knew when you fi rst opened your business?

Ferrera: Never compete on price; everyone will lose in the end. Figure out your niche and make sure that you do a good job marketing that to let everyone know why they should come to you instead of the competition.

Aufdencamp: That affordable POS systems are available and are an effective tool in running a profi table business. We didn’t think we could afford one when we opened our fi rst store, and we didn’t think we really needed one. But they are out there and they are critical to the success of operating a profi table business.

Mosmen: One of the biggest lessons my business partner and I have learned throughout the years is how to structure our staffi ng and our roles as owners. We now see fi rsthand the tremendous difference and higher level of effi ciency since we have phased out of being owner-employees and have learned to delegate, create a strong core of managers, introduced a respectful but strict working environment and kept all business relationships professional. Not only has it created more respect from our staff and demanded a higher work ethic, but it has developed an overall better fl ow of operations, and the ability for us to focus on growing and expanding the business. Also, follow-through with disciplinary policy is always easier said than done. However, once accomplished it makes for a whole new advanced culture in the work environment.

Q: Do you consider other local independent operations or the large corporate chains to be your primary competition?

Coli: We’ve always been in competition with the local independents, but since being in a recession we’ve started to experience competition from the lower-priced chains, corporate chains, as well as the grocery stores.

Parent: We consider every food establishment to be a competitor as we are all competing for everyone’s disposable income.

Q: How often do you calculate your food and labor costs and evaluate your profi t and loss statement, etc. to gauge the health of your business?

Lieber: We monitor food and labor costs daily.

Mosmen: We calculate our labor and material costs monthly. We also utilize quarterly bonus plans for our core managers, based on either the material costs vs. gross sales or total labor cost vs. gross sales. Bonuses are paid on profi t improvement from the previous year. This seems to work well and serve as an inspiration for our managers to voluntarily work toward cutting staff during slow periods, focus on avoiding over-portioning and limiting waste and being aware of more reasonable prices for products from different vendors.

Aufdencamp: We run our food and labor percentages weekly. We pay our store managers a bi-weekly bonus if they make their food and labor budget. Empty coolers on Monday are always a good sign. These two areas are the most easily controlled, but they are also the areas that, if not kept under a tight budget, can cost you the most and put you in the hole the quickest. Food distributors and employees will not wait months to get paid. That is the nature of our business, so we monitor it weekly.

Coli: We evaluate our food and labor costs every Monday and our complete P&L every four weeks.

Ferrera: We are watching our food and labor on a daily basis. At the store level, we meet with our management team on a weekly basis and go over these numbers very carefully to ensure that they are in line and make changes if necessary. Communication within your management team is key in order to change with the sales trends, etc.

Parent: We calculate our COGS twice per month. This includes updating our P&L statements. I review our P&L statements no fewer than two to three times each month.

Q: What has been your most effective form of marketing?

Coli: E-mail and our frequent guest program.

Lieber: Word-of-mouth referrals. Having offi ce workers and apartment dwellers bring menus back to their home or offi ce is huge. Buzz cards placed on tables give your current guests information to tell their friends about. Examples include special events, wine tastings, new menu items, chef and owner biographical information, company expansion plans. Guests love this kind of inside information.

Mosmen: We are huge believers in advertising. When we fi rst opened, the idea was to try everything to see what truly worked. We tried TV commercials, newspaper and magazine ads, radio advertisements, direct mail and online advertising. We quickly found that TV, radio, magazine and newspaper ads seemed to have the smallest impact on our sales — and they were the most expensive. We believe that direct mail and online advertising have proved to succeed. However, we still maintain a diverse advertising campaign and still enjoy trying new things.

Ferrera: Team sponsorship. We are the offi cial pizza of the San Diego Chargers, San Diego Padres, The Del Mar Thoroughbred Club, the Anaheim Ducks and the Phoenix Coyotes. One team in each of our markets.

Q: Has employee theft been a problem for you? How did you address it?

Williams: We have not had a large problem with this other than employees giving free drinks or their discount to friends. Our POS and cameras help us to locate those issues. We also have a “stool pigeon” reward of $50 for notifying us of any breach in company policy or theft.

Parent: Thankfully, not as of late. We recently installed automated safes with money counters. It forces our team members to drop cash frequently. And, of course, everything is tracked electronically.

Q: How often do you raise prices in your pizzeria?

Parent: Not very often. On average about once every two years. We have been frugal in controlling our costs to try to keep our product and menu pricing as low as possible for our customers.

Williams: It depends on the market, but we have raised prices three or four times in the last fi ve years. We never raise prices across the board. We select items or coupons and raise in dollar amounts or percentages.

Coli: Usually about once every six to eight months, but lately we kept our pricing pretty fl at. Instead of raising prices we’ve worked more on giving our customers more affordable options.

Lieber: We raise prices as little as possible. We had two price increases in the last two years. We are a family business and are sensitive to families living on tight budgets.

Mosmen: We typically raise our prices roughly 50 cents per year. This past year, we rose prices and shrank our large pizza size from 20 inches to 18 inches, and our customers did not react. If we believe a menu item is under-priced, or if a certain topping cost dramatically rises, we may raise that corresponding pizza a little extra.

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