Pino's Pizza: An Instructional Case*
Accepted by Cheryl McWatters. The authors wish to thank the students in the Master of Accountancy program (2021) and the students at Detroit Mercy Accounting program for their feedback on this case.
Abstract
enThis case asks students to prepare a report addressing a number of strategic and operational issues at Pino's Pizza, a small chain of pizzerias in the Niagara Region of Ontario. Pino's son, Mario, is taking over the business and has several new ideas that he wants to explore. He has asked for help in assessing various expansion opportunities, introducing new products, changing the current delivery method, and developing a better information system. Students must obtain an understanding of Pino's current vision and mission, strategic position, and financial situation before analyzing the strategic fit and quantitative and qualitative implications of the alternatives under consideration. These strategic alternatives include franchising the Pino's Pizza name, opening a new sit-down restaurant, and entering into a new partnership with a local winery. Mario is also considering offering gluten-free pizza, outsourcing pizza delivery, and designing a new computer system to ensure adequate controls. The case will enable students to integrate a number of issues faced by a small business seeking growth through evaluating strategic and operational issues and providing supported recommendations.
Résumé
frPINO'S PIZZA : ÉTUDE DE CAS PÉDAGOGIQUE
La présente étude de cas invite les étudiants à préparer un rapport portant sur certains enjeux stratégiques et opérationnels de Pino's Pizza, une petite chaîne de pizzerias de la région de Niagara, en Ontario. Mario, le fils de Pino, prend les rênes de l'entreprise et a plusieurs nouvelles idées qu'il souhaite explorer. Il a demandé de l'aide pour évaluer les diverses possibilités d'expansion, lancer de nouveaux produits, modifier la méthode de livraison actuelle et mettre sur pied un système d'information plus efficace. Les étudiants doivent comprendre la vision et la mission actuelles de Pino's Pizza, sa position stratégique et sa situation financière avant d'analyser la pertinence stratégique des possibilités envisagées ainsi que leurs conséquences quantitatives et qualitatives. Ces possibilités stratégiques comprennent le franchisage du nom Pino's Pizza, l'ouverture d'un nouveau restaurant avec service aux tables et l'établissement d'un partenariat avec une vinerie locale. Mario envisage également d'offrir des pizzas sans gluten, de sous-traiter la livraison et de concevoir un nouveau système informatique pour assurer des contrôles adéquats. L'étude de cas permettra aux étudiants d'intégrer plusieurs enjeux auxquels fait face une petite entreprise qui cherche à croître en évaluant les enjeux stratégiques et opérationnels, de même qu'en formulant des recommandations documentées.
INTRODUCTION
Pino's Pizza (Pino's) is a local chain of pizzerias in the Niagara Region of Ontario. Pino Pavetti and his wife, Gina, the shareholders of the company, started the chain back in the late 1970s when they were in their early 20s. Over the next few years, they opened six more locations in the Niagara Region, which are still in operation. The industry changed over this time. (Various information for the restaurant industry can be found in Appendix 1.)
Pino's success has been based on three major factors since its inception: limiting the number of pizza offerings, using the same key ingredients, and keeping the same comfortable look of the restaurants. As a result, the restaurants only make one size of pizza available for takeout or delivery, and there is currently no dine-in option. This has resulted in a loyal customer base that encompasses generations of families all around Niagara.
The other factor that has contributed to the success of the pizzerias is that Pino and Gina purchased the properties that the pizzerias were built on during downturns in the market, allowing them to obtain the properties at bargain prices. All the mortgages were paid off within a decade of purchase, and the properties appreciated in value. Consequently, they have been able to keep their expenses lower than many of their competitors.
Recently, Pino experienced some health issues, and the couple found it difficult to oversee operations. Therefore, Pino and Gina want to transfer ownership of the business to their only son, Mario. Mario has worked for his parents since he was a teenager, so he is familiar with the details of the business. Mario has several new ideas that he wants to introduce to Pino's.
PINO'S PIZZA
Pino's operates seven pizzerias in the Niagara Region of Ontario. The Niagara Region has a population of about 450,000. The largest city in the region is St. Catharines, with about 130,000 people. Each of Pino's seven pizzerias produces approximately the same revenue and has the same number of employees at any given time.
When Pino and Gina opened the pizzerias, they were big believers that consistency and personal relationships were two of the biggest factors that would attract customers to Pino's. They have both made sure they spend time at each location and that each location is consistent, including menu options, ingredients, equipment, and even décor. Because of this, many customers and their families have been coming to Pino's since the pizzerias first opened, and many have developed personal relationships with Pino, Gina, and their staff.
Pino's serves just one size of pizza: a large pizza that retails for $14.99. Each pizza costs about $6 to make, depending on toppings. On average, each location sells 750 pizzas a week. In the most recent year (20X5), Pino's experienced a dip in gross profit due to higher wages (staff were given a raise to $20 per hour) and increased product costs. Pino's Pizza's 5-year income statement and comparative balance sheet are provided in Appendix 2.
SHAREHOLDERS' MEETING WITH MARIO AND CPA (APRIL 5, 20X6)
With the shift in ownership, you, CPA, have been hired to help Mario with the transition. You are a management consultant, and Mario would like to work with you in moving the company forward. You attend a management meeting to see where Mario wants to take Pino's Pizza.
Pino: As we all know, the accountants and lawyers are in the final stages of completing the share freeze, and Mario will be the sole common shareholder of Pino's Pizza starting on January 1. Gina and I know we are leaving the business in good hands, but we are sad that we will no longer be the operators of the business.
Mario: I'm excited to take over the business. I've been dreaming about this day since I was a little boy. I know it's going to be a lot of work, but I feel that I am up to the challenge, and I have a lot of good ideas that I want to implement.
Pino: I know, son. You have some really good ideas; I just hope you will maintain the aspects of the business that have made us so successful in the past. Why don't you explain some of your new ideas to CPA?
Mario: Sure thing, Dad. CPA, I am considering three different expansion options for the company and have compiled some preliminary data on them—they're my estimates, so they might not be perfect. The first one I'm considering is opening a few new locations in the area. Rather than run and manage them myself, I think the Pino's name would be attractive to other people to operate them as franchises. I don't want to stretch myself too thin in trying to run so many locations, so I think franchising is a great alternative. I'd like to know if CPA thinks this is a good idea and, if I go this route, how many franchises I'd have to open to cover any costs (Appendix 3).
CPA: Sure, I can do that. What's your second idea?
Mario: My second option for expansion is to spend about $100,000 to renovate and outfit our main location so it includes a 60-seat sit-down dining area for our customers. My girlfriend and I go out every weekend for dinner somewhere local, and we've often wondered why Pino's can't offer the same dining experience. I would only start with one location, but if all went well, I would consider adding a sit-down component to some of the other locations. I have some preliminary information on this idea as well (Appendix 4).
CPA: What's your third option?
Mario: The last idea I have is to partner with a winery to service their restaurant on site. My friend Jake owns a winery nearby (Valleyview Winery) and is looking to partner with a restaurant to serve food to his patrons (Appendix 5). The former food provider did not renew their agreement with the winery for this upcoming summer. I think it's a neat idea because it's something that many other pizzerias wouldn't try. The other interesting thing is that the three-year agreement with Valleyview would also require us to serve a variety of finger foods, something that my dad has been very hesitant to do with Pino's.
Pino: We experimented with a variety of different finger foods many times over the life of Pino's and they've never caught on. People know us for our consistently good pizza product, and they keep ordering from us because they know that no one does pizza better than us! If someone wants chicken, they're going to go get chicken somewhere else—my philosophy has always been to focus on one thing and make sure you're the best at it!
Mario: To appeal to the winery's clientele, we are planning on using wood-burning ovens. We are also going to use applewood to give the pizza a smoky apple flavor, which will pair well with Valleyview's wines. I've already talked to a supplier who said he can provide the wood I need to heat the ovens for $40 per day.
CPA: Interesting—I'd like to try that!
Mario: So those are my ideas for expansion. What do you think would be the best option for me?
CPA: I will weigh the options for you and get back to you.
Mario: Recently, I had some of my friends over and brought home a couple of pizzas from work. My friend Emily couldn't eat any of the pizzas as she recently learned that she had developed a gluten allergy. I didn't know that such thing existed!
CPA: It's a pretty common allergy that people can develop.
Mario: From the research I've done, more and more restaurants appear to be offering their customers gluten-free options, not only to service people with these allergies but also because it's a healthy alternative that people are choosing now as well. As far as I know, no restaurants in the region are offering such an alternative just yet, so I would like to be the first (Appendix 6). How many gluten-free pizzas would I have to sell to make my money back? How quickly do you think I could do this? I have no idea how many gluten-free pizzas Pino's would serve each week—maybe 5%–10% of our regular volume?
CPA: That's definitely something I can help you with.
Mario: I'm also contemplating putting Pino's on FoodNow (Appendix 7). FoodNow is a food delivery service where customers can place an order to your restaurant online or on their phone and then have it delivered directly to their door. The drivers of FoodNow are people who have met specific vehicle and background requirements and work as they please. My friends use it all the time, so I don't see why Pino's wouldn't work on it as well. Unfortunately, we would no longer need to employ our own drivers.
Pino: I would hate to be the one who lets these drivers go. A lot of them have been employed with Pino's for at least 10 years!
Mario: I don't really want to do it either, Dad, but I think this is a huge opportunity for Pino's. It would really help to bring Pino's into the 21st century. CPA, do you think it's a good decision for me to go through with it?
CPA: I have never used that app. I am going to check it out. Anything else you plan on implementing?
Mario: With all these changes, I feel that now is a good time to upgrade our current paper-based system to a digital system. I know we could buy into a system, but I have a friend who built a database for their company to keep track of customer orders, sales reporting, and inventory. I think it'll help streamline and simplify our business processes, which I think need to be examined as well. I'm not sure what my options are or what it might look like. But I'd like to see an example of a system that would benefit the company now and keep in mind the potential expansions and how it would need to change (Appendix 8). We have had some issues with our current procedures for processing orders and ordering inventory. Could you look at them as well to see what improvements we might be able to make?
CPA: Will do. It is a good idea to review the system and controls at the same time. I will get back to you with answers as soon as I can.
About an hour after the meeting, Pino calls you directly.
Pino: I trust my son, and I will support him in everything he plans on doing. I love the ambition and excitement that he is bringing into this. But I've tried to caution him to take things slowly, and he just won't listen to me. I'm scared that he is going to try to do too much at once and it may have a bad impact on Pino's. The most important things to me are what I have valued most throughout the years: consistency and a loyal customer base. That is what I think will bring him success.
To assist with your work, you take a look at Google reviews that customers have left for Pino's Pizza over the past few months (Appendix 9).
APPENDIX 1: INDUSTRY INFORMATION
The restaurant industry brought in over $92 billion in sales in 2023 throughout Canada. This was an increase of over 13% from 2022. A portion of the increased sales relates to recovery from significant lows during the COVID-19 pandemic. Other factors include growth in the Canadian economy, along with low unemployment rates, while higher menu prices of approximately 5.6% contributed to the increased sales (Statistics Canada, 2024). While total spending is on track to top $110 billion dollars in 2024, costs are up even more, resulting in challenges for many restaurants. Increased labor costs, increased property costs (rents), and increased food costs all serve to push many restaurants to the brink of insolvency (Evans, 2023).
Consumer habits have also changed since the pandemic. The lunch rush for restaurants in downtown locations has all but disappeared. Takeout and delivery trends are forecast to continue (Munkholt, 2024). However, 93% of Canadians still eat out at a restaurant at least once a month, while 54% of Canadians eat out at a restaurant at least once a week or more. Fifty-two percent of Canadians say they eat out to socialize or to celebrate an occasion, while another 40% say they eat out for convenience. This does not include delivery sales.
Based on 2024 statistics, the restaurants with the largest number of locations are Tim Hortons (3,593 locations), Subway (2,874), McDonald's (1,462), and Starbucks (1,454). The pizza chain with the highest number of locations is Pizza Pizza, with 730 locations, which is the eighth highest number among restaurant chains in Canada. Domino's has 585 locations. Pizzerias represent approximately 8.3% of all restaurants.
From a sales standpoint, based on 2018 data, the restaurants with the highest sales (in millions of dollars) were Tim Hortons ($8,484), McDonald's ($4,500), Subway ($1,720), Starbucks ($1,661), and A&W ($1,163). The highest-grossing pizza chain was Boston Pizza, with $1,080 million in sales (AnnualReports.com, 2023; Statistics Canada, 2019).
Pizza Pizza, which is considered a limited-service pizza restaurant, averaged about $700,000 in sales per location in 2016. Boston Pizza, which is considered a full-service pizza restaurant, averaged about $2,810,000 in sales per location in 2016.
By far the biggest cost of making a pizza is the cost of cheese. The price of cheese has risen from $12.95 to $14.45 per kg over the past 4 years in Ontario (AnnualReports.com, 2023). While pizzerias try to pass some of this cost on to the consumers, it is not always feasible to increase the price of a pizza every time the cost of cheese increases.
One trend that seems to be affecting restaurants, including pizzerias, in the past decade has been consumers choosing gluten-free options. Consumers seeking gluten-free options is a market that has significant growth potential in the coming years. Approximately 1% of Canadians suffer from celiac disease, which prevents them from consuming gluten. Additionally, others choose to avoid gluten in an effort to make healthier eating choices. From 2008 to 2012, Canada's gluten-free market had a compound annual growth of more than 26%. In recent years the demand for gluten-free alternatives has still been growing, but at a slower rate. Gluten-free eating appears to be a trend that will remain an alternative for decades to come (Health Canada, 2012).
On this note, Canadians also seem to always be looking for the newest “healthy eating” trend, which could impact the number of purchases Canadians make from restaurants each year, especially those that do not offer healthy alternatives.
Online ordering of food is also a new trend that many Canadians have embraced over the past few years. Canadians ordered approximately $4.3 billion worth of food for delivery in 2018, with about $1 billion of that ordered online using meal delivery apps such as Uber Eats and SkipTheDishes. That number is expected to increase by 10.2% per year (Deliverables Agency, 2022). Younger generations use online ordering services more frequently. Generation Z, those born in the mid-1990s and later, are expected to use these services even more as they get older, as they have not known a world without cell phones or the Internet. Many restaurants using online ordering services notice a cannibalization of their on-premises sales but still find offering the service to be profitable. Additionally, many feel it is a necessary adaptation to keep up with consumer trends (Sokic, 2019).
Table 1 provides a breakdown of industry percentages of revenue, COGS, and expenses.
| Revenue | 100.0% |
| COGS | |
| Wages and benefits | 30.6% |
| Purchases | 36.6% |
| 67.2% | |
| Gross profit | 32.8% |
| Expenses | |
| Advertising | 2.2% |
| Amortization | 2.8% |
| Bank charges and interest | 0.6% |
| Insurance | 0.6% |
| Other | 7.7% |
| Professional fees | 1.3% |
| Rent | 8.9% |
| Repairs and maintenance | 2.0% |
| Telephone and utilities | 2.9% |
| 29.0% | |
| Income before taxes | 3.8% |
- Source: Innovation, Science and Economic Development Canada (n.d.; accessed August 23, 2024).
APPENDIX 2: FINANCIAL STATEMENTS
| Pino's Pizza | |||||
|---|---|---|---|---|---|
| 5-Year Income Statement | |||||
| Years ended June 30 | |||||
| 20X5 | 20X4 | 20X3 | 20X2 | 20X1 | |
| Revenue | $4,092,270 | $4,100,000 | $4,250,000 | $4,400,000 | $4,300,000 |
| COGS | |||||
| Wages and benefits | 1,432,295 | 1,312,000 | 1,487,500 | 1,540,000 | 1,505,000 |
| Purchases | 1,717,170 | 1,681,000 | 1,615,000 | 1,672,000 | 1,634,000 |
| 3,149,465 | 2,993,000 | 3,102,500 | 3,212,000 | 3,139,000 | |
| Gross profit | 942,806 | 1,107,000 | 1,147,500 | 1,188,000 | 1,161,000 |
| 23% | 27% | 27% | 27% | 27% | |
| Expenses | |||||
| Advertising | 85,000 | 90,000 | 87,000 | 92,000 | 93,000 |
| Amortization | 150,000 | 155,000 | 165,000 | 175,000 | 190,000 |
| Bank charges and interest | 25,000 | 22,000 | 21,000 | 19,000 | 17,000 |
| Insurance | 30,000 | 29,000 | 28,000 | 28,000 | 27,000 |
| Other | 90,000 | 95,000 | 91,000 | 87,000 | 89,000 |
| Professional fees | 15,000 | 15,000 | 14,000 | 14,000 | 17,000 |
| Property taxes | 250,000 | 248,000 | 242,000 | 240,000 | 240,000 |
| Repairs and maintenance | 170,000 | 165,000 | 145,000 | 160,000 | 170,000 |
| Telephone | 50,000 | 49,000 | 48,000 | 49,000 | 48,000 |
| Utilities | 75,000 | 73,000 | 68,000 | 73,000 | 70,000 |
| 940,000 | 941,000 | 909,000 | 937,000 | 961,000 | |
| Income from operations | 2,806 | 166,000 | 238,500 | 251,000 | 200,000 |
| Rental income | 36,000 | 36,000 | 36,000 | 36,000 | 36,000 |
| Income before taxes | 38,806 | 202,000 | 274,500 | 287,000 | 236,000 |
| Income taxes (recovery) | 4,851 | 25,250 | 34,313 | 35,875 | 29,500 |
| Net income | 33,955 | 176,750 | 240,188 | 251,125 | 206,500 |
| Beginning retained earnings | 871,188 | 794,438 | 654,250 | 553,125 | 496,625 |
| Dividends | (150,000) | (100,000) | (100,000) | (150,000) | (150,000) |
| Ending retained earnings | $755,142 | $871,188 | $794,438 | $654,250 | $553,125 |
| Pino's Pizza | ||
|---|---|---|
| Comparative Balance Sheet | ||
| As at June 30 | ||
| 20X5 | 20X4 | |
| Current assets | ||
| Cash | $— | $56,000 |
| Inventory | 320,000 | 280,000 |
| Prepaid expenses | 36,000 | 12,000 |
| 356,000 | 348,000 | |
| Property and equipmenta | 450,000 | 600,000 |
| 806,000 | 948,000 | |
| Current liabilities | ||
| Bank indebtedness | 10,000 | 20,000 |
| Accounts payable | 28,000 | 24,000 |
| Due to shareholders | 11,858 | 31,812 |
| 49,858 | 75,812 | |
| Common shares | 1,000 | 1,000 |
| Retained earnings | 755,142 | 871,188 |
| $806,000 | $948,000 | |
- Notes: aProperty and equipment is net of amortization.
APPENDIX 3: FRANCHISING
Mario wants to charge an initial franchise fee of $10,000 for a new Pino's location. As part of the franchising contract, Mario also thinks he would be able to charge 3% in royalties for annual gross sales revenue for use of the Pino's Pizza name.
To allow for aggressive advertising and ensure the success of the new locations, Mario wants to charge each franchisee 2% of their annual gross sales as an advertising fee. Currently, Pino's only advertises on social media and with coupons in the mail. Mario is going to expand advertising to local TV and radio stations and try to use new methods of online advertising to help get the Pino's name out there. He thinks that this will cost $20,000 each year plus $10,000 a year for each new franchise to ensure advertising coverage in the franchisee's local area.
To maintain consistency and product quality, Mario's plans require that the franchisees purchase all of their inventory directly from him. He will charge them an additional 3% on what he paid as an administrative fee. In the agreement, Mario also plans to specify that the franchisee must use similar décor and paint colors as the other Pino's locations. Mario will also have a clause in the agreement that says each new location must not be located within a 5 km radius of any existing location.
Finally, Mario will also hire an assistant manager to help on the administrative side of the business. He believes that he will have to pay a salary of $50,000 per year plus $15,000 in benefits to ensure he can find and retain someone with the skills to help him.
The profitability of franchises has fallen in recent years, but it seems to be back on an upward trend (Robertson, 2023). Franchising is the 13th largest industry in Canada and brings many benefits to the partnership (Canadian Franchise Association, n.d.-a). Franchising allows for rapid expansion and allows franchisers to leverage local connections to grow their business (Canadian Franchise Association, n.d.-b). However, franchising requires some financing from the franchiser and effective training materials for new franchisees and their staff (Canadian Franchise Association, n.d.-c).
Mario wants to know if franchising is a good option to consider for expansion and, if so, how many franchises he will have to sell to earn a profit annually.
APPENDIX 4: SIT-DOWN ADDITION
The local gym that rents space next to the original Pino's Pizza location has indicated to Pino that it does not wish to renew its lease when it expires in a few months. This will give Pino's the opportunity to consider other uses for the space. This gym is the only tenant currently renting space from Pino's.
Mario is considering a sit-down restaurant. To keep up with the additional demand and have the right equipment available for this endeavor, Mario expects to incur the following costs:
| Item | Cost |
|---|---|
| Building renovations | $45,000 |
| Bar coolers | 6,000 |
| Tables and chairs | 8,000 |
| Beer keg equipment | 6,000 |
| Second oven | 20,000 |
| Serving equipment | 5,000 |
| Small kitchenware | 10,000 |
Mario has decided that the sit-down portion of the restaurant will only be open from 4:00 pm until 11:00 pm, Wednesdays to Sundays. He thinks it is realistic to average about 200 customers each night. Mario plans to still only offer the large size pizza but at a price of $15.99. The large size pizza generally feeds two people, so he believes that he will sell, on average, 100 pizzas each night. Of those 200 customers, he expects 150 will be adults, averaging 1.5 alcoholic drinks and 0.5 nonalcoholic drinks per sitting. The remaining 50 patrons will be children, who average 1.75 nonalcoholic drinks per sitting. Mario expects to be able to sell alcoholic drinks for $5 per drink (at a cost of $1.75 per drink) and nonalcoholic drinks for $2.00 (at a cost of $1.10 per drink). Mario obtained these estimates from a friend who has a pizza restaurant in Toronto. He is not sure if the sit-down restaurant will have any impact on current sales.
To keep up with the demand from the sit-down area, Mario estimates he will need to staff each shift with the following:
| Number of employees | Type of employee |
|---|---|
| 5 | Servers/hostesses |
| 1 | Bartender |
| 1 | Additional cook |
| 2 | Dishwasher |
| 1 | Floor manager |
Each employee will be paid $20 per hour, except for the floor manager, who will earn $25 per hour. Because of alcohol being served at the restaurant, Mario will require that all servers, bartenders, and floor managers have their Smart Serve certification before being hired.
Finally, Mario expects an increase in monthly advertising costs of $1,000 and an increase in annual utilities, repairs, and insurance of $10,000, $8,000, and $5,000, respectively. Mario would like to know if the restaurant provides a return of 12% over 5 years.
APPENDIX 5: WINERY PARTNERSHIP
Details of the draft partnership agreement with Valleyview Winery are as follows.
Valleyview will be responsible for providing the location of the kitchen and all serving staff of the restaurant, as well as paying for all costs of wine served in the restaurant and for all expenses for which Pino's is not responsible to pay, as noted below. The agreement will last 3 years with an option to renew.
Pino's will be responsible for all kitchen staff, all food and consumable costs to cook the food, all advertising costs, and kitchen equipment. The cost of any renovations for the kitchen will be split 50/50 between the two parties.
Pino's is to provide Valleyview a royalty of 30% of all food revenue. Valleyview is to provide Pino's with a royalty of 5% of all wine sales inside the restaurant only.
Mario believes that he will be able to sell the pizzas for $16 each as his cost of sales per pizza is expected to be 10% higher than normal. The new finger foods that he will have to offer will average $8 per order, with a cost of about 40% of that. Mario also thinks that they will have to replace the oil in the fryers for the finger foods, at a cost of $80 per day. Wine is expected to sell for $9 per glass.
Valleyview is open from May 1 to October 31. The restaurant is expected to be open from 12:00 pm to 8:00 pm daily. The previous restaurant only averaged about 45 customers per day, but both Mario and Jake are expecting double the number of customers daily, at a minimum. It is expected that each customer will order a pizza, while about half of the customers will also order a side of finger food. Given his previous history, Jake expects that 50% of customers will order two glasses of wine, 30% will order one glass of wine, and 10% will order three glasses of wine.
Renovation costs are expected to be about $50,000 to retrofit the kitchen for Pino's. Mario expects to spend $21,000 to buy new equipment for the kitchen. He also plans to staff the kitchen with two employees at all times.
To get the restaurant off the ground, Mario plans to spend $15,000 in advertising in the first year, $10,000 the next, and $5,000 in the third year.
APPENDIX 6: GLUTEN-FREE PIZZA
Mario does not believe that the gluten-free option will require any special equipment. However, in order to ensure the integrity of the pizza, he will have to use a separate oven. Mario has provided the following estimates to install a new set of ovens that will only cook gluten-free pizzas:
| Oven | $10,000 |
| Preparation table | $3,000 |
| New range hood | $10,000 |
He also believes it will cost $10,000 to install this equipment. Because he does not think that gluten-free pizzas will need an oven that is continuously running, the new oven will come equipped with new technology: a quick-on function so it can cook pizzas shortly after being switched on but will not waste energy when not in use. (All costs are per location.)
Mario wants to establish a good reputation for his gluten-free option, so he will set up a special station to prepare the pizzas and require his employees to wear a pair of disposable gloves every time they make a gluten-free pizza. A 100-pack of disposable gloves sell for $22.50 at the local supply store. He will also provide the staff with a new set of pizza cutters, pans, and paddles, which would cost about $1,000.
Currently, Mario's estimates that the following costs go into each pizza:
| Item | Cost per pizza |
|---|---|
| Dough ball | $1.00 |
| Cheese | $3.00 |
| Sauce | $0.30 |
| Toppings | $1.50 |
| Box | $0.49 |
To produce a gluten-free dough ball, he believes it will cost an extra $2.75 per dough ball. As a result, he plans to charge $16.99 for each gluten-free pizza to absorb some of the extra cost.
APPENDIX 7: OUTSOURCING DELIVERY
On average, each location makes about 250 deliveries each week. To staff for the demand, each location has two drivers, who work 8-hour shifts each day. Like many other employees at Pino's, the drivers are paid $20 per hour. Each delivery, no matter where it is going, is subject to a $5 delivery charge.
Mario believes that 50% of a location's customers live between 2 and 5 km away, while 25% of the customers live closer than that, and 25% live further than that.
FoodNow has two different revenue streams. First of all, the customer is charged a delivery fee based on the location of the customer from the restaurant:
| Distance from restaurant | Fee charged |
|---|---|
| 0–2 km | $3.50 |
| 2–5 km | $4.50 |
| 5+ km | $5.00 |
The second revenue stream is the charge to the restaurant for which the delivery is being made. FoodNow charges 20% of the order as a delivery fee to the restaurant. To make up most of this fee, Mario plans to increase the price of all delivery orders by 12%.
From your review of the FoodNow app, you see that there are approximately 35 other restaurants in the area already available using FoodNow, including three other pizzerias.
APPENDIX 8: REVENUE AND INVENTORY SYSTEMS
Most customers order for delivery or takeout over the phone rather than walking in and ordering. The employees at the phones take the customer orders and write out the customer's order on a single small piece of paper with their telephone number, along with the details of the delivery or their name for pickup.
The kitchen staff then prepares and cooks the order based on the sheet of paper provided to them. Once the order is complete, it is put on top of the oven and waits either for the customer to pick up the order or for the driver to make the delivery.
If the customer comes in to pick up the order, the staff process the order through the cash register, collect the cash from the customer or process the payment through the credit card/debit machine, and send the customer off. The cash register receipt is attached to the order paper and put on a peg with the others for the day.
For delivery orders, the driver processes the order through the register in a similar fashion and collects the cash or processes the payment using a debit machine at the door. The driver pays the location back for all of the deliveries at the end of the shift.
At the end of the night, the staff are instructed to turn off the lights, lock the front doors, and go out the back door, which can only be opened from the inside. Some of the managers come in at the end of the night and take the money out of the register and bring it home.
In the morning, the manager of the location reconciles the cash and debit machine receipts to the printed cash register total for the day, noting any discrepancies. The manager then resets the cash register for the upcoming day and throws out the pegged orders from the previous days. The manager then goes to the bank and deposits any cash received from the previous day.
On the days that the managers do not work, Pino is supposed to go in and make the deposit for each location. However, he is often too busy and unable to get to all locations, so when the managers return from their days off, the locations often have up to 3 days' worth of receipts and cash to process.
The cash register tape totals are put into an envelope near the cash register and accumulated until Pino comes and picks them up. It can sometimes be a few weeks before Pino is able to grab these from the location. They are then given to the bookkeeper, who uses them to record the sales and attempts to tie the totals from each location to the cash and credit card deposits each day. Any differences are posted to bank charges and interest in the general ledger.
All inventory is supplied by one major supplier and is processed through the main location by Pino each week. Most weeks, Pino just tells the supplier to bring what he brought to each of the locations the previous week as he does not have a chance to check inventory needs at each location. Inventory is generally ordered on Sundays and delivered on Mondays to each location.
APPENDIX 9: GOOGLE REVIEWS
Two of the last five times I've ordered, I received the wrong toppings on my pizza. I was able to call back, and the staff got a new pizza sent to me right away and gave me a $5 discount on my next order. While I appreciate the staff being so courteous, it was really annoying to have to wait for the right pizza!
The last three Fridays, I've tried to order mushrooms on my pizza from the Niagara Falls location, but they have told me that they we're out. How does a place run out of such a popular topping all the time?
My grandparents ordered pizza from here since my dad was a kid, and now my parents order it all the time as well for us—my dad says it tastes exactly same as when he was kid!
Mike, a driver for the Fort Erie location, is like family—he's been delivering pizzas to me for 10 years! I have gotten to know him really well over that time. Awesome pizza, awesome drivers!
I think the Welland location was robbed a few weeks ago. It was in the news. Apparently, someone smashed the front windows and made off with $300 from the register. It wasn't discovered until morning as there were no alarms. And they have been unable to catch the thief as there are no cameras—poor Pino!
Last time I ordered, the driver told me the order would only be $10 if I paid in cash. That was like $10 less than what it cost if I used debit like the last time I ordered—what a deal!
I've been a customer of Pino's for the past 25 years. I absolutely love their pizza because the product and the experience has never changed! I hate that restaurants are always trying to change their menu and décor all the time. Can't they just stick to their original design? I know Pino's will never change, so that's why I will keep going there!
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