Plate IQ

Pizza Profits

Yesterday we posted a food cost analysis looking at the unit economics of popular dishes. We of course included Pizza, a staple of the American diet. Several folks on Twitter brought up great questions around why pizza had the largest markup: was it because labor costs were higher? Higher ingredient costs? Or, is pizza just a cash-cow?

We took at deeper look; here’s what we found…

Nymag has a good P&L breakdown of two New York pizzerias. Immediately, we noticed labor costs as a percentage of revenue for both establishments is far above the average for the restaurant industry:

New York Magazine's breakdown of average costs at two restaurants.

John Fawkes was correct in his assumption around labor costs.

It’s not clear (based on the data we found) if equipment unique to pizza restaurants plays a significant role in how much these establishments need to mark up pizza in order to make a profit. The data we looked at didn’t break down specifically how they’re accounting for equipment costs.

Annual Expenses

Annual expenses of two restaurants.
Annual Pizzeria Expenses
Pizza food cost markup.
Pizzeria Food Cost Markup

Both restaurants we looked at are achieving very health profit margins; far better than the average restaurant:

  • Motorino — 10.8%
  • Rocket Joe’s — 15.8%
How much profit a pizzeria makes.

Making pizza can be labor intensive but still very lucrative with the right secret operating sauce (and good pies!).

After seeing these profit margins, it’s no surprise to see new investment in the space. MOD Pizza, one of the more prominent new entrants in the market, raised $74 million last year (that's after raising $45 million in 2015) for more than $150 million in total capital.

In 2016, MOD Pizza added 100 locations with overall sales of $152 million (growing 134% year-over-year).

For Yaron Goldman, a MOD Pizza franchisee in North Carolina, the pizza business is a no-brainer:

“It’s the unit economics. You have a 2,200-square-foot box that can do AUVs north of $1 million. The investment is low.”

Plate IQ

Plate IQ

Plate IQ is an automated accounts payable solution that helps restaurants save time, improve the accuracy of their data, and gain insight into their expenses by automatically extracting data from uploaded invoices.