Profits in the face of food cost

 
March 30, 2006

Pat Gianmarco likes a limited menu. It's simple to execute, helps control food cost and keeps inventory streamlined. That rationale has worked well a long time for the founder of Marco's Pizza, a growing 147-unit chain based in Toledo, Ohio.

So when Jack Butorac approached Gianmarco about adding chicken wings to the menu, the founder wasn't sold easily.

"He was against wings, but I really believed we were losing orders to other pizza companies because we didn't offer them," said Butorac, president of Marco's franchising arm. Gianmarco did, however, approve a limited wings test. "When I presented to him how it went operationally and what the results were, he bought into it and liked it. It also didn't hurt that the response was significantly higher than we anticipated."

Butorac said his push to get wings on Marco's menu was as much about eliminating the veto vote as

Despite their higher-than-average food cost, sales of side items like wings drive incremental profits.

driving incremental sales. And as a former executive with Kentucky Fried Chicken, he'd know a thing or two about the benefits of add-ons.

And despite the high food cost of Marco's wings—between 45 percent and 50 percent based on market-specific prices of $5.99 and $6.99—each sale drops dollars to the bottom line that weren't there before.

"Our check averages have gone up about 50 cents since we added wings," he said. "Not only that, it's a product that requires almost no labor, so our labor costs went down."

Food cost is terribly important, said "Big Dave" Ostrander, an industry consultant known for preaching the benefits of tight controls. But too often operators miss out on incremental sales opportunities because they're hung up on selling low-food-cost items.

"I know what they're thinking because I did it, too," Ostrander said. "But gross margin is what it's about. If you're getting more dollars in your pizzeria because you sell some items you weren't selling before, that's more money in the bank."

One of the finest examples of driving profits through incremental sales is Domino's Pizza's famous (or infamous, depending on who you are) 5-5-5 special. Customers who usually buy two large pies for $18 see three medium pizzas for $15 as a bargain. Others who usually buy two mediums for $13 also see a deal in one more for just $2 extra. In both cases, the math works in Domino's favor. When the actual size of the pizzas is calculated, three mediums are barely bigger than two larges.

And in the second example, if Domino's gets the regular medium buyer to spend $2 more than he did last time, that's new money that wasn't there before.

"Any time you can add on sales—regardless of the cost percentages—it means you're going to get more gross profit per check," said Joe Erickson, vice president of RestaurantOwner.com, a Web-based business resource center for independent restaurant operators. "Regardless of what the percentage is, you're going to put more money in the bank to be used to pay your fixed costs."

Sell the benefits

While upselling does boost check averages, Erickson believes the practice is most successful when a customer perceives a value in the offer. Simply asking "Extra cheese?" or "Would you like a 2-liter Coke with that?" does draw yeses, but such responses spring more from a knee-jerk, "Why not?" thought rather than "Hey, this is a good deal" reasoning.

"If I sell a Caesar salad for a regular price of $6.95, but I tell you that since you've ordered an entree you get it for $3.50, the customer sees the value based on what he's already spending," he said. "He understands that if he orders that salad by itself, he doesn't get the deal. People gravitate toward a value, and they're willing to go $2 or $3 more to get something better."

Pizza order takers often neglect the upsell, however, during the stress of the rush, when the pitch to buy more only takes a few seconds. Part of the trick to doing it well is not sounding too hurried

start quoteAny time you can add on sales—regardless of the cost percentages—it means you're going to get more gross profit per check. Regardless of what the percentage is, you're going to put more money in the bank to be used to pay your fixed costs.end quote

Joe Erickson
vice president,
RestaurantOwner.com

on the phone, Erickson said.

"It doesn't take much time to say, 'Sir, you ordered a large pizza today, would you like an order of wings with that? It's only $3.99 with the pizza as opposed to $5.99 by itself," he said. "I think that works better than saying, 'It's just $3.99 more.' It allows them to see the value."

Add only when ready

Butorac's 30-plus years in the restaurant business taught him not to rush the new wings to market until they were thoroughly tested.

"In the past I've made the mistake of trying to hurry up and get a product out there only to find out it's not right," he said. "To make it right is tough, and this one took us six to seven months to fully accomplish the program. But we had to get it right, because that's the Marco's way."

Butorac also said he wrongly assumed producing presauced, oven-baked wings would be easy. In tests, not only was the quality below par, the process was awkward.

His team leaned heavily on suppliers for samples and advice and continued to tweak the product until they were satisfied. Once confident they could execute the item operationally, they widened the test to three units, then to 15 and eventually to the entire 38-store Cleveland market.

"I believe it's fair to make sure these things work at the (corporate store) level instead of pushing it out on the franchisees and then letting them find it doesn't," he said.

Promotional efforts increased gradually: initially via order takers on the phones, then through boxtoppers and Advo, followed by direct marketing focused solely on the new wings.

"We did not want to get into a position where we had more orders than we could handle," Butorac said.

The success with wings has encouraged Marco's to test additional side items.

"They have earned their place on the menu," he said. "We've got some other things coming up, but I can't tell you about them now. But if they work as well as the wings have, I'll be very happy."


Topics: Marketing , Operations Management


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