Case Father and Son PizzeriaShould 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 degree 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, selling alcohol would generate enough revenue to offset the cost of the license. Nearby competitors not only had liquor licenses 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 restaurant was generating a profit, albeit a meager one. Vega spotted another business opportunity as growing 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 margins 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 business. 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 marketing 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? NO AI RESPONSE Explain why a business model is essential. Use the 7 components of a business model (definition of target customers and how the company will reach them, customer value proposition the company offers to customers, point of differentiation, pricing, selling process, distribution system, and customer support) to develop a business model for Carlos Red Sauce. Relevant examples and links to the case must be included to support the discussion. Please incorporate scholarly peer-review journal literature and list them
Case
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 degree 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, selling alcohol would generate enough revenue to offset the cost of the license. Nearby competitors not only had liquor licenses 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 restaurant was generating a profit, albeit a meager one. Vega spotted another business opportunity as growing 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 margins 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 business. 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 marketing 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?
NO
Explain why a business model is essential. Use the 7 components of a business model (definition of target customers and how the company will reach them, customer value proposition the company offers to customers, point of differentiation, pricing, selling process, distribution system, and customer support) to develop a business model for Carlos Red Sauce. Relevant examples and links to the case must be included to support the discussion. Please incorporate scholarly peer-review journal literature and list them
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