Let’s admit it: we chickened out. Two years ago, our team came up with a business model for Dodo Pizza that awed us. We aimed to offer a much better product for delivery, but for the same price people usually pay. Just before the launch, we pulled the plug and raised our prices. Now, with opening a new pizzeria in Southaven, we’re giving our old spunky idea a second chance.
For the record: I don’t think our team made the wrong call when we decided to ask for a dollar or two more for a much better pizza with high-grade ingredients a year ago. Implementing our better-product-same-price concept from day one was too much of a risk.
Business is all about risks. If you have money and skills, risks become manageable. But our budget for the launch in the States was limited to $350,000. That’s not much. And while Dodo Pizza was managing dozens of pizzerias in Eastern Europe, we had zero experience in the US market at the beginning of 2016. Launching an American pizza delivery and figuring out all the complications was quite a challenge by itself.
It helps when you sell your product for what it’s worth; Dodo Pizza Oxford saw profit right after the launch. Since May 2016, we’ve had only two months in the red. In November, we set a record profit—21.25% (EBITDA). Last month, long after the end of the games, the team showed 20% profit again.
There is one huge “but.” Our sales don’t grow like they are supposed to grow. On an average day, Dodo Pizza Oxford now makes around $1,000—like it did three, six, even nine months ago. We cash in on days with games or big city events like Double Decker. Selling pizzas on campus or at the Winchester plant helps to support the company too. But for a stable business, our delivery should show growth on its own. And it doesn’t. If you cut out our factory and campus sales, you’ll see that May 2017 was even worse than May 2016 for delivery and carryout—$28,995 versus $36,663.
We constantly gather feedback from our customers. So we know that many people love our pizza and our quick service. It seems that all the people who can and want to pay for quality have already become our customers—and that’s about it in such a small college town as Oxford.
The problem isn’t our product itself. It’s our price tag. Pizza isn’t sushi or steak—many people aren’t ready to pay more, even for a much better product, especially when ordering for delivery. Our brand was never intended to be premium, which also doesn’t help to compete at the highest level of the market. It looks like cutting the price is the only way to scale.
When we started building our second place in the States in Southaven, MS and pondered how to open many more shops, it became even more evident we should do something about our price. If you open even a small dine-in, as we’re doing in Southaven, you’re almost doomed to be dragged into the competition for lunch money. And this is a price-sensitive area.
We realized that having just a nice pizza place, even if it manages to be profitable, isn’t enough for scaling. Our competitors, other pizza chains, and local restaurants have been there for ages. In the US market, the task of winning customers, partners, and employees isn’t easy-peasy. To be a success, your joint must be far out—it must be killer. There must be some magic about it.
“Pay more to get a better product” isn’t magic. It’s normal. Magic happens when, for instance, you pay the usual price and get a product that blows your mind.
From the beginning, we had a theory that this can be done in the pizza business with the help of a limited menu (which allows you to buy fewer products in larger batches—and pay less) and our smart IT solutions (they make operations more efficient and reduce labor cost). A year has passed; we’ve built a team and learned the ropes. Now it’s time to put our groundbreaking theory into practice.
We can’t risk everything, so it has to be a step-by-step process. Our very first action will be introducing a few enticing lunch offers at Dodo Pizza Southaven this fall. We’ll study how the market responds to these offers and how they impact our economy. Then we’ll probably expand promo prices to other areas beyond our lunch menu and maybe even make cuts across the board. If it all works well in Southaven, we’ll bring these practices to our first store in Oxford next year. So, dear Oxonians, please, don’t expect us to cut our prices tomorrow—if you don’t want us to go belly up the day after. This journey will take some time.
The truth has to be told. We don’t know in every detail how to do what we’ve planned. But now we want to put ourselves in a position where we will be forced to figure out a new, more competitive business model for the American market. Southaven will be our «do or die» kind of thing. A new adventure begins.