His comparatively skimpy resources, Goldman asserts, may give him the biggest advantage of all. "The other companies are selling something else at the same time," he says. "For me, it's not like, 'Let's test this and drop it if it doesn't work.' We'll test it, massage it, cajole it, and figure out its strong points. We'll make this work."
* * *
Research assistance was provided by Leslie Brokaw.
EXECUTIVE SUMMARY
THE COMPANY:
Pizza Now! Inc., Phoenix
Concept: Resimplify fast food, offering consumers speed and value with a franchise chain of drive-through pizza restaurants promising fresh pizza in three minutes or less
Projections: Nine company-owned and 50 franchised units operating by end of 1991; estimated income per franchise unit before taxes and depreciation: $75,400 on sales of $520,000
Hurdles: Beating competition from established chains including McDonald's, which may roll out pizza later this year; attracting experienced franchisees to a low-yield-per-unit concept
THE FOUNDER
Philip M. Goldman, President and CEO
Age: 46
Family: Single, three sons
Source of idea: Friend in the restaurant business
Personal funds invested: $1.7 million
Equity held: 97%
Salary: Zero
Workweek: 70 to 80 hours
Education: Left Clemson College after three years
Outside directors: No
Other businesses started: Kabuki Japanese Steak House, sold in 1975; Marco Pollo International, liquidated in 1986
What I'd do if I weren't doing this: Run a bed-and-breakfast in Santa Fe
FINANCIALS
Pizza Now! Franchisee Pro Forma Operating Statement (Freestanding Restaurant)*
SALES $520,000
Cost of goods sold
Food purchases (27%) 140,400
Other 36,400
GROSS PROFIT 343,200
Percent gross profit 66%
OPERATING EXPENSES
Labor and benefits 145,600
Royalty fee (4%) 20,800
Advertising (5%) 26,000
Ground rent 25,000
Utilities 15,000
Delivery expenses 6,500
Miscellaneous 28,900
TOTAL OPERATING EXPENSES 267,800
*The above analysis is based on INC. estimates.
NET PROFIT BEFORE DEPRECIATION & TAX 75,400
Percent net profit before depreciation & tax 15%
Depreciation 43,642
NET PROFIT BEFORE TAX 31,758
Percent net profit before tax 6%
WHAT THE EXPERTS SAY
OBSERVER
JOHN CORRELL
Restaurant consultant specializing in pizza; founder of Pizzuti's, a two-unit restaurant chain in the Detroit area offering one-minute drive-through pizza, which he sold in 1984
Goldman seems to have done some good research on the drive-through industry. But I'm dubious that he can avoid the low-quality stigma that one-minute pizza has.
Attempting to position the product a notch above the competition is a very good marketing idea. But can he pull it off? Ultimately, pizza quality is not a matter of ingredients but of perception. When you take a product and push it through a drive-through window, the quality perception goes down. Goldman doesn't want to go deeper into delivery because of the competition, and that's smart. But how long before drive-through is full of intense competitors? Twenty-four to 36 months, maybe. It won't take Pizza Hut and Domino's long. And McDonald's is not too shabby, either.
So the only way he's going to survive is by outmarketing them on a neighborhood basis. He'll have to do a slightly better job than the rest at being customer responsive. And he needs to understand the importance of creating management and training systems. Rally's isn't successful because it has a better-looking box or burger. It all comes down to execution. When the competition gets fierce, that will be key. If he can pull this off, he's a pizza marketing genius.
COMPETITOR
LEO KELLEHER
Chief financial officer, RioStar Corp., which owns a controlling interest in Bambolino's Italian Kitchen, a 15-unit chain of drive-through pizza and pasta restaurants in Houston and Lafayette, La.
We've gone down the exact path he is going down, and we would not do it again. Franchising, for example, can be a major distraction. Selling 50 franchises in the next year -- that is absolutely undoable. When you have a start-up concept, you are out there competing for franchisees. He thinks he'll somehow find the people who have the money; we didn't.
Even if he does, franchisees are looking for more upside than he can offer. Remember, there's nothing in the numbers for debt service. If the franchisee is getting $75,000 in cash flow, you've got to service his debt out of that for the first four to five years. After the debt service, he could easily be left with $35,000 on a $325,000 investment. Is that worth it? I don't think so. You could go get a $35,000 job at McDonald's. OK, so then you say, 'But it's not just $35,000, because you'll open a bunch of restaurants.' Then you are getting into multiunit management, and for that you need people who are very experienced. And all of this is assuming $520,000 in sales, which is overly optimistic.
