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running-a-pizzeria

The Economics of Running a Pizzeria

Who doesn’t love a good slice of pizza? Apparently, not many because 93 percent of Americans purchase pizza at least once a month. To put that percentage into perspective, that’s about 350 slices Americans are gorging on per second. Or 100 acres of pizza eaten in a day. Or 23 pounds of pizza the average American eats every year. Or 252 million pounds of pepperoni—likely on pizza—that Americans are consuming each year. If people can’t eat pizza, they love looking at it; there are currently more than 40,000 subscribers to Pizza Today, the nation’s leading pizza industry magazine.

Why do Americans love pizza so much? According to Rob Veltri, owner of Pizza in the Square in Yonkers, loving pizza is a simple concept: “It’s one of the healthier bad foods you can have,” he says matter-of-factly. Today, approximately 17 percent of the nation’s restaurants are pizzerias and the highest-grossing, single-unit independent pizzeria in America is Moose’s Tooth Pub and Pizzeria in Anchorage, Alaska, which brings in about $6 million in sales annually.

Still need proof that Americans are obsessed with pizza? Ever heard of pizzanomics? It’s basically the link between the price of pizza and everything else in the world from the price you pay for a subway card to the neighborhood you live in. In other words, pizza is connected to everything important to Americans.

Below are some tips on how to make it in the $40 billion industry:

1. Be experimental

Pizza in the Square has been around for 27 years and Veltri was there from Day One. As a result, he remembers a time when people were afraid to try a pizza that veered slightly from the traditional. This isn’t the case anymore.

“Right now, you can put anything on a pizza,” he says. “You really can. I think that’s one of the things that makes us successful. We’re always willing to change and make things different.”

Perhaps the Italian immigrants who introduced pizza to Americans in the late 19th century wouldn’t approve of Veltri’s Nutella pie or spaghetti and meatballs pizza, but modern, more experimental consumers are loving them. Just take a look at the pizzeria’s reviews for proof, says Veltri.

2. Offer variety

With customers being more adventurous with their taste buds, you’ll definitely come across people who aren’t (gasp!) obsessed with pizza. Nonetheless, these people will still frequent a pizzeria because they have friends who can’t get enough slices piled high with toppings. For those specific customers, offer more than just pizza.

Think about it this way: the restaurant business is already volatile enough with 60 percent closing within its first anniversary. Increase your chances for survival by expanding your menu beyond pizza. Consider traditional calzones, pasta, or other Italian favorites. Or, go crazy like Pizza in the Square and offer the pizza burger. Japan is a huge fan of variety; squid and Mayo Jaga (mayonnaise, potato, and bacon) are popular pizza toppings.

3. Freshness is a must

Since every ingredient and topping is so easily detected on a pizza, freshness is key to making a good pie. However, in recent years, freshness has become a top priority as there’s been a steady rise in health-conscious consumers

“What I’ve seen in the last few years is that people have turned back to quality,” says Veltri. “If it’s a little more expensive, they understand. With the news, social media and everything, [consumers] have learned how things like the costs of goods have increased. They’ll accept the good quality if they have to pay more for it.”

He adds: “We grind our tomatoes by hand every day. That’s how we make our sauces. Everything is done from scratch. Every sauce is made from scratch. Sometimes it takes a little longer, but everything is done fresh. And that’s what we’ve focused on since Day One.”

Francine Stephens, half of the creative team behind Franny’s in Brooklyn, calls the trend toward healthy eating “the new wave of pizzeria.”

When Stephens opened Franny’s with her husband, Andrew Feinberg, 12 years ago, there were a lot of “old school pizzerias” with long histories, like Lombardi’s and Totonno’s.

Since then, “everything has changed … nothing has stayed the same,” she says.

As a result of Stephens’ prior work in sustainable agriculture and small-scale farming, Franny’s became the forefront of the new wave, using local ingredients on all of its pizzas.

The delicious freshness may be why Franny’s has been accoladed several times by pizza-lovers. Its clam pie is named one of the best pizzas in New York this year by Time Out magazine.

“We do not skip on the quality,” says Stephens. We never stopped trying to be better.”

4. Listen to your customers

One thing that has surprised Veltri the most about the pizza business is the involvement your customers will have on the way you run things. Unlike a lot of establishments, pizzerias usually have a family-run, casual, cozy environment vibe to it. Consequently, customers feel inclined to share their thoughts with you. When this happens, Veltri advises to be open to it.

“Your customers are your survival and you really have to listen to what they have to say,” he explains.

“They give a nice input into the business and you have to be open-minded to listen to it,” he continues. “You can’t take it the wrong way. You have to really listen to what they say. This is very, very important.”

After all, word-of-mouth is everything right now. Ninety-two percent of consumers say they believe recommendations from friends, family, and even the online community more than they do any kind of advertising or marketing.

5. Be realistic about costs

According to Veltri, it can cost anywhere between $75,000 to $100,000 for a pizza counter and maybe a few booths. If you want to open a sit-down pizzeria, that can run you at least half a million. Whatever your dream pizzeria looks like, be realistic and overestimate your startup costs—adding on an additional 15 to 25 percent to your budget—so that you don’t run into issues getting your operation off the ground.

Veltri’s reasoning for high costs? “Equipment is not cheap.”

“I have two ovens in the front,” he explains. “The basic, old-fashioned oven with the stone and everything, then I also have a conveyer oven underneath that.”

While having fancy equipment, like a wood-burning oven, might have higher costs, as this New York magazine report finds, the oh-so-satisfying taste it produces might be worth it. For instance, think about Bushwick’s famous Roberta’s pizza joint which has gained massive popularity and following for its wood-fired pies and home-grown ingredients.

At Franny’s, a wood-fired oven is also used, but Stephens says the pizzeria economy is about to change big time because of labor costs. Currently, labor costs make up 45-55 percent of Franny’s business, but this percentage will likely rise by the end of the year with the increased minimum wage, increased minimum tipped wage, and the expansion of the Affordable Care Act.

As a result of these changes which affect small businesses most, Stephens wants to warn customers that the pizza business won’t be what it once was.   

“People have this notion that pizza is cheap,” she says. “I need our community to understand they’re not just paying for the food on the plate.” In short, they’re also paying for everything that is needed for that pizza to be made with local, good ingredients and talented chefs.

Lastly, don’t forget to factor in the rising costs of ingredients. A recent post on pizza.com found that one of the top costs of doing business is the price of cheese. A February 2014 Businessweek article found that the price of mozzarella has increased by 16 percent since December 2013 and now costs over $3 per pound.

From coast to coast, America might seem expansive and diverse at times, but one thing is still clear: our love affair with the pie is stronger than ever. In fact, there are 70,000 pizzerias in the country and 9,000 of them exist in New York alone. While popular toppings may come and go, pizza-obsessed Americans don’t seem to be slowing down on their cravings for hot, soft chewy dough anytime soon. Or ever.

Vivian Giang

Contributor at Fundera
Vivian Giang is a freelance journalist who covers strategy, leadership, organizational psychology and gender issues for Fast Company, Marie Claire, Fortune, Slate, among others. Previously, she was the lead entrepreneurship editor at Mic.com. Prior to that, Vivian launched the Careers vertical at Business Insider, which focused on the evolving office, emerging industries, and the most current employment trends. You can find her on Twitter at @vivian_giang.