Opening a Pizza Shop: What Does It Take?
Americans are dining out a lot these days, with almost half of each food dollar going to restaurants, according to Consumer Reports. Americans spend an average of $2,222 per person per year eating out.
The U.S. pizza market clocks in at $4.5 billion and average sales at the top 50 chains in the country are up this year, according to PMQ Pizza Magazine. Fast-casual pizzerias MOD Pizza and Blaze Pizza are currently the fastest-growing restaurant chains, according to Nation’s Restaurant News.
It’s evident that there’s lot of opportunity in the pizza market these days. So what does it take to be successful in the pizza industry?
What it takes to run a successful pizzeria
Pizzerias vary widely, including everything from upscale sit-down restaurants to humble take-out windows. The first step in creating a successful pizzeria is to decide which type of establishment you’d like to run. Here’s a rundown of the possibilities:
- Dine-in: Pizzerias range from upscale to low-brow, so costs will vary widely. However, the considerations for a sit-down pizza restaurant are similar to those of any type of eating establishment, such as location, furniture, décor, equipment, staffing and insurance.
- Carry-out: This option cuts down costs and hassle on many fronts, from space to labor to utilities, making a take-out window a good option for new, upstart pizza-makers. These pizzerias can dish out high volume quickly and make good money with low overhead.
- Delivery: Delivery is usually an add-on to a storefront pizzeria’s services, but it’s possible to run a pizzeria that is almost exclusively delivery. Delivery comes with extra costs, such as insurance, and possible issues or concerns, such as the safety of your drivers and wasted funds on “prank” orders.
Independent or franchise?
Once you’ve decided the type of pizzeria you’d like to open, the next question is whether you want to open an independent shop or a chain store. Independent stores make up a larger portion of the industry, but chains report higher sales and close down less often.
Some pizza restaurants are doing very well as franchises, all but guaranteeing you a measure of success. Franchising requires a large upfront outlay, but the format lowers your potential risk and stress levels. Being an independent operator, on the other hand, frees you up to make and market your pizza exactly as you want to, which can be a major draw among true pizza enthusiasts. The most passionate employees may be drawn to innovative, independent pizzerias.
“The cool thing is there’s definitely a pizza culture and there are people who love working in the pizza industry,” said Dina Samson, co-owner of Los Angeles-based Sotto, a southern Italian restaurant that serves authentic Neapolitan pizza, and the new takeout establishment Superfine Pizza. “There are people with pizza tattoos; it’s really crazy. I love it.”
Equipment and technology
- Technology: Pizzerias that are thriving the most are those that have embraced technology to draw in consumers via social media, support online ordering and have hooked up with technology-enabled third-party delivery vendors. A point-of-sale (POS) system can be a big expense. Make sure you have systems in place that can handle your digital and online needs in this competitive marketplace.
- Ovens: While wood-fired masonry ovens are a draw for those looking for a real authentic pie, these types of ovens are incompatible with high-volume sales. Depending on what type of establishment you’re opening and what type of pizza you’re serving, you may want a brick, electric, gas or combination oven. Your options include convection, deck, conveyor and impinger ovens.
- Stove: If you plan on cooking your sauce or toppings ahead of baking, you’ll need a stove to prepare those elements of your pie. You’ll need to pair either an oven or a stove with a grease interceptor/trap and a hood system.
- Dough mixer: Your crust is an important element to pizza making, so you want to make sure your mixer is up to the task of maintaining high quality, while also keeping up with volume. You must have a specialized dough (or spiral) mixer to make sure the dough is stretched properly.
- Other equipment: You’ll need plenty of refrigeration and freezer space, as well as work tables, peels, pans, utensils, warming cabinets and possibly delivery bags. You’ll need hygiene equipment as required by your state’s health department, such as a three-compartment sink, a hand sink and a mop sink. And don’t forget furniture, dishes and other items any restaurant needs to operate.
Licensing and permits
Your state and local government will dictate which licenses and permits you need. Don’t ignore this aspect of the business. You’ll inevitably face a health inspection, and you’ll need to show both a business license and a food vendor’s permit. If you want to serve beer or liquor, you’ll also need special licenses for that, which can be very costly.
You’ll also need to register your business with the IRS and get a federal employer identification number (EIN) in order to pay taxes for your employees, plus file with your state for unemployment insurance and sales tax. Contact your Small Business Administration district office for help figuring out the paperwork you need to open a restaurant in your desired location.
How much does it cost to start a pizza shop?
The costs of starting a pizzeria vary widely depending on which type of shop you’re opening and what type of pizza you plan to serve. It also makes a difference whether you’re opening an independent store or a chain shop, and whether you are taking over an existing restaurant space or creating your own from scratch.
Samson estimates it can cost anywhere from $200,000 to $1,000,000 to open a small, independent pizzeria. The cost to open takeout shop Superfine Pizza was $180,000 because Samson and her co-owner took over an existing space that needed little upgrade.
Taking over an existing restaurant space can be a good strategy, though you must think carefully about the state of the equipment and any existing lease. “Key money” is a payment that allows a new owner to take over a restaurant’s lease and permits for the remainder of their validity. This can let you open a functioning restaurant quickly, but Samson warns it can mean taking on space that isn’t exactly what you want or equipment that is off warranty.
Other costs to consider include branding and marketing, which can cost anywhere from $10,000 to $100,000, depending on your strategies and goals.
The costs of opening a franchise pizza restaurant also vary widely. According to Franchise Direct, the cost of opening up a Pizza Hut location ranges from $327,000 to $2,253,500, Domino’s falls in the $99,950 to $561,000 range and Little Caesar’s clocks in at $355,000 to $1,427,500.
How to fund your pizza shop
Restaurant entrepreneurs may have a challenge finding funding. Private investors are often the best option, especially friends and family. You won’t necessarily be able to depend on traditional bank loans, especially if you’re new to the industry.
“Banks don’t really like to invest in restaurants,” Samson said. “If you’re going to get money from a bank, you really have to have some experience in running a restaurant and you have to have a good business plan with a model and projections.”
However, if you have a good credit history and/or if your business is minority– or woman-owned, you may have luck securing loans from alternative lenders, including those with backing from the SBA. Another option is to get a home equity line on your house, but this means risking your personal assets to fund a new business venture.
Need business funding? Learn more about small business loans here.
Secrets to success in the pizza industry
Not every pizza business is created equal — you’ll make many decisions that will affect how you establish and run your restaurant. Here are some tips to help you on your way.
Keep costs low. Look to rent and search for low-cost equipment. Limit your budget for outfitting your kitchen. “We always try to do deals where we don’t spend as much as other restaurant people do,” Samson said. “We always look for favorable rents; that’s a huge part of our business model.”
Find existing restaurant spaces. Look for spaces that were already restaurants, since permitting will already be in place. These spaces probably already have hoods and grease interceptors, which can get expensive. However, it’s best to look for spaces where the lease has run out, according to Samson. Additionally, only pay key money if the situation is exactly right.
Do research and development on your dough. Toppings can be a great differentiator, but the crust is going to be the make-or-break factor for your pizza. “Really, that’s what people are looking for,” Samson said. “They want an amazing pizza crust.”
Harness social media. Pizza is a highly searched and hashtagged food. It’s the food item most often posted on Instagram. If people like your pie, you’ll easily gain a following on social media. Encouraging customers to share content related to your pizzeria can engage your fan base.
Hire good people. You’ll need your staff to care enough to do things just right if your pizza is going to be a winner. “There are so many ways to mess up pizza because dough is so temperamental,” Samson said. “One little thing missing and it’s a totally different dough.”
Price your pizza right. The pizza space is very crowded, so make sure you’re competitive in your local market. Do plenty of research on pricing at nearby and similar pizzerias. Price yourself in a range that will give you a foothold among your peers.
If you follow this advice and approach your new pizza venture with a can-do attitude, you should be able to find success in this dynamic field. With a great crust on a tasty pie, the sky’s the limit for an ambitious pizzeria entrepreneur.