Pizza shipments benefit more than the bottom line

 
Nov. 29, 2011 | by Alicia Kelso

Lou Malnati's has been a Chicago treasure since 1971. But 25 years ago, the pizzeria began shipping its deep dish signatures out of an upstairs office to locations far beyond the Windy City. It was a small part of the business at the time, and it was done only during the holiday season.

Now, the company ships 250,000-plus pizzas a year and its shipping component has grown into a separate business, functioning under Lou Malnati's Pizzeria's Taste of Chicago Division.

Not every pizza joint has the same history and brand power as Lou Malnati's, but more are willing to make a few extra dollars by shipping their across state lines.

Figuring out logistics

Adding a nationwide delivery component requires some logistical restructuring, such as finding the right packaging and shipping methods.

Bryan Garcia, executive chef at Chicago's Pizza, sends pies that are 50-percent baked and frozen to "seal in the grease." They are individually wrapped and then bagged in foiled bubble wrap material before being packed in ThermaFreeze, a refrigerant gel.

Detroit's Cloverleaf Pizza co-owner Shawn Randazzo said his company uses the Techni Ice system, an ice replacement system that lasts for a couple of days.

Lou Malnati's, however, uses more of an old-school approach, packing its pies in dry ice.

"It's hard to ship pizza because of their makeup. Dry ice keeps them cool to the touch, even if you're shipping them to Texas in the summer. It will keep them in the best condition for the longest amount of time," said Mindy Kaplan, director of marketing for the Malnati Organization.

Finding the right packaging and delivery service is critical in operating this component successfully, said Dean Small, of Synergy Consultants, a restaurant consulting firm. A pizza shouldn't take longer than 48 hours (72 hours at the most) to get to its destination. Ideally, it should arrive the next day or else the company risks reputational damage.

"This is a perishable product, so delivering something that's not fresh out of the oven is always tricky. If it arrives and it is in bad condition or some damage has been done, you risk not meeting customers' expectations," he said. "You have to nail down the right business model so that this product speaks to your brand."

Benefitting more than the bottom line

Spreading brand awareness is a big part of the reason some companies take the risk of implementing a nationwide delivery system. Generating a bigger buzz trumps the small return-on-investment, Kaplan said.

"We don't make very high margins on this, but we don't lose money on it either. We're not out to make high profit margins, we just want to get our pizza to our fans across the country and get the word out there. Those intangibles are important," she said.

The component also meets a small demand. Cloverleaf launched its program in early November because residents and visitors have been asking for it for years, Randazzo said.

"It rekindles memories. Some grew up here and moved away, others celebrated special moments at Cloverleaf," he added. "That so many loyal customers inspired our mail order system is a testament to Cloverleaf."

Garcia said many people across the country have also been asking for his deep dish-style pizza, so the company started doing research to see if it could be done without losing money. The big expenses came from setting up an ecommerce account and a UPS account, and from purchasing shipping supplies. Chicago's Pizza broke even within a month of offering the service.

"The investment is minimal since we were already making the pizzas in our restaurants," Garcia said. "It works well because you can't get this anywhere else than here and people who have moved or who have visited Chicago want it occasionally."

High cost for consumers

Small added the "occasionally" mindset is why the component will continue to be a niche business.

"Shipping costs are too high for the average consumer to indulge too frequently," he said.

Shipping quotes are typically between $50 and $60, Garcia said. For two Chicago's Pizza pies, it would cost just under $80.

Even if it stays "niche" and doesn't add much to the bottom line, the service is still growing. Small said a greater presence online and the marketing benefits have contributed to the trend.

"Companies do this for the buzz more than the ROI. You do it because your customers love the brand and you're an apostle of the brand," he said.

After 25 years, Lou Malnati's is even planning to focus more attention on the delivery side of business.

"Online ordering is getting so big, and we are trying to optimize that as much as we can. Shipping food in general is growing because it's different; it's unique," Kaplan said.

Expecting a holiday bump

The specialty food gift market already accounts for nearly $20 billion annually. According to Packaged Facts, a division of MarketResearch.com, the trend is expected to grow and is being driven by many factors including the desire of consumers to simplify gift decisions, and giving gifts that are personal, indulgent, convenient and fun to share.

For pizza shipments, the holidays provide the biggest boost, followed by Valentine's Day.

Kaplan said Lou Malnati's increases staff during the holiday season – from Black Friday through Christmas – to fit the "huge" increase in demand. During the summer, the company ships about 1,200 packages a week, she said. During the holidays, that goes up to about 12,000 packages a day.

Read more about operations management.


Topics: Business Strategy and Profitability , Customer Service / Experience , Equipment & Supplies , Food & Beverage , Marketing / Branding / Promotion , Online Ordering , Operations Management


Alicia Kelso / Alicia Kelso has been a professional journalist for 15 years. Her work with QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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