Growing Share, Managing Margins – Pizza Quick Service Restaurants

Pizza QSR brands have a continuous menu innovation strategy to maintain interest with current brand users and to re-attract lapsed users.   And the key area where innovation is most common is in toppings “Toppings are where people can have fun and interact with the concept,” says Anthony Carron, chef and creator of Los Angeles–based 800 Degrees Neapolitan Pizzeria. “Toppings are beautiful, they’re colorful, and the ‘wow’ point for guests.”

But as the menu expands in complexity (with new ingredients to stock manage), there are challenges with managing wastage; low volume toppings do eat into margins if not utilised effectively.

Our client, a major Australian Pizza QSR franchise operation, was faced with this and several other business challenges.

  1. With toppings, their menu had blown out in scale and complexity over time and there was a need to rein it back in to reduce wastage, storage and operational complexities, in order to grow overall margins
  2. The business was also looking to grow volumes as well as margins. They planned to:
    1. Reduce the price of their most popular mainstream lines to grow the volumes of these sold
    2. Increase the price of their medium mainstream and gourmet lines to grow margin
    3. Remove the home delivery fee to grow overall volumes sold

Modelling for business direction

a&b, with significant research experience in the QSR category and experts in econometric modelling, was commissioned to explore and validate the impact of these strategies on the business.

Using sophisticated Choice Modelling techniques, we designed a market model that simulated and explored the business case with consumers. We then validated the implications of the findings against our client’s cost accounts. This yielded a complete business insight that examined both the supply side costs and demand side dynamics.

We modelled the business effects (market share, volumes, price, margins) on over 16,000 permutations of menu and service offering. Sophisticated “what if” analytical routines revealed a clear way forward for our client.

The way forward – recommended revised strategies

In stark simplicity, the bottom line was:

  1. Reducing prices on popular menu items would not achieve the goal. However increasing their prices (by a defined amount) would
  2. Increasing prices on medium mainstream and gourmet lines would not work, but reducing their prices would
  3. Removing the delivery fee would have catastrophic consequences for the bottom line and we strongly recommended not to alter the current arrangement
  4. Focus on clusters of research-identified ‘hero’ ingredients – retain the driving ingredients and drop or replace the more expensive, less critical toppings. This, we argued, is the starting point of a re-imagination of the menu concepts, to reduce wastage and grow margins

These recommendations were shared with senior franchisor staff and representatives of key franchisee groups.

We then worked closely with and advised the franchisor on how to integrate these recommendations and activate revised strategies to deliver effectively against business goals.

Our client (and their franchisees) soon saw their business achieve a much healthier balance sheet.

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To learn how a&b can add value to your organisation’s marketing and business strategy, contact us:

info@arnoldbolingbroke.com.au
+61 (2) 8227-5400