New Pizzeria owner looking for menu pricing help.

[Legend's Pizza]

As first time restaurant owners, we opened our first pizza place about two months ago in an area that we had just moved to 2 months prior to that. Not knowing the area well and what prices were as its a small town (pop 1800) and not much to compare to, we relied on family and friends to help with pricing our pizzas and pastas. Just recently I have been doing some research (something that I should have done before opening) in the surrounding areas as well as the local gas station that sells pizza and have found that we are approx 4.00-6.00 lower on most of our comparable items. I want to raise our prices to at lease be at the same as the competition but not sure how to go about it. Do I raise them gradually or just raise them to where they need to be? How do I deal with the patrons that will be upset by the increase? Being a small town, I don't want to lose to much business over the increase.

Thanks in advance for any advice.

[Brian Altenhofel]

Having grown up in a small town of ~2800 (live in the country now outside a town of 180.. a city of just under 10K was way too big for me), I'd say don't sweat it too much. Any increase would have to be gradual, but you likely have loyalty and small town pride on your side. Most people in small towns understand the Main Street struggle and are willing to pay a little more in their town than the next town. $4-$6 would be a huge jump and would offend even the most loyal customers, but $1-$2 would get you closer without making people feel alienated.

Of course, every small town is different. With small town politics and you being the new resident, some people might interpret it as "they're just waltzing in to take our money".

The first question you need to ask is if your business is healthy currently. If it is, there's no point in raising prices just for a bigger margin. If you're needing a bigger margin, go up a dollar and see where that puts you. Or you might leave pastas and small pizzas the same with medium pizzas up $1 and larges up $2 (in other words, spread it around where it makes sense, hopefully with higher volume products getting the biggest increase).

For what it's worth, I have zero experience operating a restaurant. All I can offer is experience with small town politics and gossip.

[Patrysha]

Since you're working on pricing anyway, I would go the whole menu engineering route through restaurantowner.com - excellent resource for figuring out the layout, structure and pricing of your menu- it helps you breakdown recipes for better inventory and waste management as well. It will take time to get everything entered initially but the pay off should be worth it. You'll find that if you do have to increase prices that they'll be more likely to sell at the prices you need them to in order for it all to work out.

[CCAdamson]

$4-6 seams like a lot of money to me. Are you saying, for example, that the gas station charges $10 for a large pepperoni and you only charge $6?

My Dad owned a pizzeria for years but in an area where pricing was easier to determine because of competitive analysis. I will say that most menu items ranged between $4-25 depending on what it was. Additionally we were able to increase prices slightly over time as did our suppliers.

Pizza isn't rocket science, the price of a large pizza, in general, is similar from town to town. Look at the closest areas to you and see what they are charging.

On the other hand if you find that your business is making money and you're producing a quality product that you're proud of and your customers enjoy then I would only make increases as needed, i.e. vendor increases price of cheese.

[Legend's Pizza]

Thank you for all the advice!

Yes, we sell our large (14") specialty pizza for 12.00 the local gas station sells theirs for 17.95. They were the only place in this town to get pizza. However its a major gas station chain and they have hundreds of locations throughout the Midwest and they sell it for the same price at all of them. We are losing money at our pricing and struggle to make ends meet.

[Freelancier]

I'd raise prices ABOVE the gas station (who really wants to buy no-name pizza from a gas station?? there's real money in being up-scale instead of down-scale), then have a coupon with an expiration date for $3/off a large pizza with up to 2 extra toppings. In the first month, hand out the coupons like tap water to anyone who asks (and honor them on the spot). After that, keep the pricing the same, but make the coupons part of marketing campaigns only.

Your first responsibility is to keep your operation making money, not in bringing in customers who cause you to lose money on every transaction.

[CCAdamson]

My next question would be what are your volumes like? If you are in a town of 3000 people with an average income of $35k then an $18 pizza seems pricy to me. I would bet the gas station probably isn't selling too many either but they aren't hurting because as you said it is a large chain.

If you can manage to offer a superior product for a reasonable price then customers will come to you. We had our pizza shop in a relatively low income area but prices were reasonable and product was superior to others. We made plenty of money. We weren't John Schnatter but we did alright.

What do they always say? Location, location, location. Well while I don't believe in that totally for every business, in the food industry it is huge.

I would do like Freelancier said and raise the prices, I wouldn't go above the gas station because you don't know their pizza sales. I would go higher though and I would offer some pretty sweet promotions to get people in the door. Regardless of the size of town you need to market and if you aren't doing well hopefully it is because of slow word of mouth and not poor word of mouth. Do not, I repeat do not, slip on quality of ingredients or product to save money. You will get poor word of mouth.

[Davidl]

The thing I would do in this situation is develop a strategy based on the customers in your area and to the psychology of the buyers. raise prices without the customers seeing your pizza as overpriced. Whether that is bundling more items for a family combo (25+ dollars) while raising your prices of regular pizzas (12 dollars to 14 dollars and offering a limited time coupon that they can do an option survey). Selling slices of pizza to people walking by the area or to teenagers that typically are strapped for cash, contacting local schools to offer them a special deal to incorporate pizza day into a weekly thing, sending door to door flyers.

If I owned the only pizza store in town I would incorporate things to make it more of the spot that has the best food and atmosphere. Like for instance just to get some eyes looking your way have on the menu a 30 inch party pizza. Have a pizza that has the hottest peppers, hottest sauce on a 14 inch pizza and have a contest to whoever can finish the pizza in X amount of minutes gets it free and gets there picture on the wall. Pizza of the week? every month you invent a new pizza available for that month(with customer voting)with interesting toppings like pulled pork pizza, steak pizza.

At worst the ideas don't stick and you pull the idea away but you and the customer have some fun creating new items, at best you will get people interested in coming back in your shop to see whats new. It cost nearly nothing to try ideas that are low risk and I can't see any thing bad about trying a new idea every few months until one of them is successful.

At the end of the day pricing of the regular items is the most important and strategy to incorporate other things are secondary like keeping interest and creating an atmosphere thats fun while still earning a healthy margin.

[calthomson]

Have you thought about raising them well and above your competitors? There's no reason why you cant advertise as premium pizza. There's a lot of psychology behind pricing structures and if your pizza's are even slightly above average you can charge more and customers will relate to your pizza's as being the solely on how they are priced. The theory is call Charm Pricing and it is widely used and many business take full advantage of it. Think about the last time you bought a kettle you didn't buy the cheapest one in the store did you? No not the Tesco value beige kettle, you bought the more expensive one because the price made it seem better; when the fact is they are the exact same product.

[The Shoe Triangle]

I wouldn't raise the price until after a year. Even then it must be gradual. Any sooner than that shows the customer that either you're unsure of your self as a owner or you're watching someone else's profits. Even though you are in a small town, 2 months isn't long enough to establish customer loyalty and a word of mouth is very powerful. It can destroy your business if the customer believes you're doing this based on the fact that your in a small town and their options are limited. Whenever you gradually raise the price, the customer expects gradual improvements. Unless you're taking a loss, I wouldn't do it. Sometimes less is more and the customers will respect you more (knowing that you're cutting yourself short compared to the competition) and will always support you. They'll look at it as you giving them a home town discount.