Case Study

694

Case 4

Father and Son Pizzeria Should the Owner of a Pizzeria Remodel and Expand, Move to a New Location, or Focus on Selling the Restaurant’s Popular Red Sauce Through Retail Outlets?

When Carlos Vega was in high school, he worked part-time at a small pizza shop, Father and Son Pizzeria, in Guttenberg,

New Jersey, where he learned the value of hard work. As a

young man, Vega demonstrated entrepreneurial tendencies,

operating a disc jockey business on weekends, launching an

Internet dating service (that he sold), and flipping houses.

After graduating from Montclair State University with a de-

gree in business administration, Vega went to work in his

family’s printing business for several years before taking jobs

with KPMG and Thomson Financial, where he managed the

company’s printing operations.

Many years later, Vega stopped by Father and Son Pizzeria

to buy a pizza and began talking with his former boss, who still

operated the business but wanted to retire. The founder’s son

had no interest in taking over the business, and the founder

confided to Vega that he did not want to sell the business to

just anyone. Before he knew it, Vega bought the tiny pizzeria,

which was housed in just 900 square feet of space and had

room for only eight tables. Vega immediately expanded the

menu to include a broad range of Italian dishes and a line of

desserts, began accepting Internet orders, added credit card

sales, and introduced “take-and-bake” pizzas that customers

could pick up and bake at home. He also tweaked the recipe for

the pizzeria’s red sauce, known by the locals as “gravy,” that he

had learned to make as a teenager working there.

One problem facing Vega was that Father and Son

Pizzeria had no liquor license. Acquiring one would cost

$250,000, and Vega doubted that, with just eight tables, sell-

ing alcohol would generate enough revenue to offset the cost

of the license. Nearby competitors not only had liquor li-

censes but also operated from larger buildings and had their

own parking lots, which allowed them to generate more

sales. However, the biggest problem the small pizzeria faced

was more difficult to solve: no parking lot and a location in

a densely populated six-block central business district where

parking spaces were scarce. It was as if the little business

were caught in a small three-square-mile trap. Vega was

making the best of the location, however, and the small res-

taurant was generating a profit, albeit a meager one.

Vega spotted another business opportunity as grow-

ing numbers of customers asked to purchase the classic red

sauce that he used on his pizzas. He began making 40 quarts

a week that sold out quickly. Then he began making 120 or

more quarts a week to satisfy customer demand. Profit mar-

gins on the quarts of sauce, which he sold at $8.99 per jar,

were higher than those on the items on the pizzeria’s menu.

Vega faced an important decision in the life of his busi-

ness. He could expand his pizzeria by adding a second story

at the current location, move to a larger building down the

block that had room for more tables, or turn his focus to

selling jars of his red pizza sauce, which he was market-

ing on the side as Jersey Italian Gravy. If he chose to focus

on selling his sauce, he knew that he would have to learn a

new set of skills concerning food manufacturing, packaging,

and shipping. He also knew that the pizza sauce market is

crowded, highly price-sensitive, and dominated by several

large brands. His local market tests showed that customers

would buy his Italian gravy, but would that translate into

profitable sales across a larger geographic area where the

tiny business had no name recognition? In addition, would

he be able to get the product onto the shelves of enough

stores to make a difference?

Questions

1. Analyze the advantages and the disadvantages of each

of the three options that Carlos Vega has identified.

2. Based on your analysis in question 1, write a short

memo to Vega explaining which of the three options

he should pursue and why.

3. Suppose that Vega chooses to relocate his business.

Should he expand his analysis of potential sites beyond

the central business district of Guttenberg? What crite-

ria should he establish for screening potential sites?

4. Suppose that Vega chooses to focus on selling his red

sauce. Work with a team of your classmates to brain-

storm ideas for a unique selling proposition (USP)

that Vega could use to market the sauce effectively.

5. If Vega focuses on marketing his red sauce, what steps

should he take to protect the Jersey Italian Gravy brand

name he has been using?

Sources: Based on John Grossman, “A Business Owner Seeks an Alternative to Seven-Day Weeks,” New York Times, January 1, 2014, http://www.nytimes.com/2014/01/02/business/smallbusiness/a-business- owner-seeks-an-alternative-to-working-seven-day-weeks.html; John Grossman, “For a Former Pizzeria Owner, It’s All Gravy,” New York Times, January 7, 2014, http://boss.blogs.nytimes.com/2014/01/07/ for-a-former-pizzeria-owner-its-all-gravy/.