Buy it used, but not abused

June 12, 2002

The ability to open a pizzeria with used/reconditioned equipment is both a blessing and a curse.

"Experienced" equipment is always cheaper than new, and since pizza equipment is built to last, most used machines still have some life in them after they're resold.

How much life, however, is the question neither buyer nor seller can answer with much confidence, making used purchases a bit risky.

Jeff Livingston, president of Pizza Equipment International in Bristol, Pa., said 80 percent of "mom and pop" operations buy second-hand gear because it fits their limited budgets. "It's also common if someone wants to expand," he added.

Pizza consultant "Big Dave" Ostrander, agreed, saying used equipment purchases are made with capital reserves in mind.

"Most start-ups have very limited resources," said Ostrander, who ran his own pizza company for 25 years.

But as Ostrander cautions, operators should "buy it reconditioned, not just used."

The difference between the two forms several distinctions, all of which the buyer should consider:

1. Clarify what the seller means by reconditioned. Does that mean the equipment had merely been cleaned well, or has it been given an inside-out tune up and a thorough working inspection?

2. Ask whether the equipment comes with a warranty or is sold "as is."

"Pay special attention to the warranty," Ostrander stressed, adding that it should be written and last at least 90 days. "Without a written warranty, you have a verbal agreement and they don't hold up very well."

Additionally, if the terms of the warranty seem questionable, steer clear.

3. Make sure that the final cost of the equipment includes delivery and installation.

4. Get references about used equipment sellers. If sellers refuse to provide them, refuse to give them your money. If they do provide references, ask those operators about the company's reputation for fair deals and good service.

"Selling pizza equipment is a niche market, and word of mouth is the most powerful branding there is," Ostrander said. "If they can't or won't give references, they're telling you something."

Good people usually give buyers good deals, said Jeff Nease of One-World Enterprises, owner of seven Pizza Mambo outlets in Indiana. "If you're dealing with the right people, there are some great values in the used market."

What's your tolerance level?

If you're not afraid to try repairing a broken oven calm enough to hang loose if the used mixer you're buying gives up, then buying used equipment is a tolerable risk for you.

But if you're the type that wants the equipment to function flawlessly, perhaps a sparkling showroom model's more your speed.

"Many banks won't give money for small equipment, so leasing is a great alternative."

Susan Nearon
Accord Financial Group

"If you're not inclined to make decisions by chance, buy new," said Dennis Tice, owner of Pizza House Restaurants, a three-store Michigan-based chain. The 20-year veteran has purchased used and new equipment.

If saving money is the most important thing, then the used market is an operator's best bet. Steve Stacey, president of Northern Pizza Equipment, Inc., in Dexter, Mich., said reconditioned equipment typically is half the cost of new.

"We'll sell an $80,000 reconditioned package for $40,000 to $45,000, and provide an

excellent written warranty -- six months on parts and 90 days on labor," said Stacey. "These kinds of deals are ideal for small chains and independents, especially if they're looking to expand."

For that money Stacey said a buyer gets "the full package," including an oven, mixers, walk in units, refrigerated and stainless steel tables, a hood system and sink, "the basic package they'll need to get going."

Stacey candidly admitted that used equipment purchases are risky, but that finding a good firm as Ostrander advised, helps to minimize those risks.

"Don't buy from just anyone," Livingston added. "Too many places know nothing about the equipment they're selling and they give the rest of us a bad reputation."

As for auctions, they're really a buyer-beware situation, said Nease.

"Stay away from them," he said. "There is generally no warranty and you don't even know if it will work. I've seen people pay more at auction than they would have had they bought new."

New could be for you

It's no surprise that Chris Baron, general manager of Hobart Food Machines in Troy, Ohio, believes buying new is best. Avoiding breakdowns and having long-term warranties, he believes, allows operators to focus on pizzas instead of repairing equipment.

"New equipment performs better and that results in a more consistent pizza," he said.

"You can also avoid unforeseen and often major repair bills and you're getting the newest available features."

Baron noted new equipment warranties offer at least a year's protection on parts and labor, and service is often widely available. If an item can't be fixed immediately, or on-site, the service provider usually is close enough to provide a replacement unit. Also, parts for used equipment could be hard to come by if the unit is older than 10 years -- the maximum amount of time that a manufacturer legally has to carry replacement parts.

John Evans, Hobart's business unit manager, said a new mixer will cost 35 percent to 40 percent more than a used one. But he said the savings will return to the buyer of a new machine because he's less likely to face repair costs or downtime.

When it comes to ovens, the cost difference between new and used is wide.

Jay Livingston, also from Pizza Equipment International, sells reconditioned conveyor ovens for about half the cost of new, depending on the brand and options. He said that where operators may pay $50,000 or more for some wide-belt, double-stack set-ups, the same configuration on the used/reconditioned market will fetch about $25,000.

Lease options

The number of pizzeria owners leasing their equipment has grown over the past five years, says Susan Nearon, senior lease consultant with the Accord Financial Group, in Covington, Ohio. While she couldn't offer specific figures, she believes about 25 percent of all pizzeria operators now lease everything from ovens "to oven mitts and tongs," she said.

Nearon said since every lease deal is unique, she couldn't provide an average payment. The customer's credit record, she added, also will affect the amount paid.

"The better their credit, the lower their payments," she said. "And the longer they've been in business, the better the payments."

"If you're not inclined to make decisions by chance, buy new."

Dennis Tice
Pizza House Restaurants

The advantages to leasing are simple. Ninety percent of what is available is new and comes with good warranties. Lease prices generally include delivery and installation, and terms vary from 24 to 60 months.

Nearon pointed out some financial advantages to leasing: equipment isn't carried as a liability on a balance sheet; and operators can write off payments on their taxes as well.

"Once a leased item has been paid for, it becomes an asset on the balance sheet," said Nearon, adding that most of her clients are independent operators. "Many banks won't give money for small equipment, so leasing is a great alternative."

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