case Rizzuto’s Pizzeria, marketing homework help

Read the case Rizzuto’s Pizzeria (pp. 623-625 in textbook or see PDF file under Readings in Week 5 folder) and the alternative strategic and marketing responses the firm is considering. Use the three alternatives and the four questions as a starting point for thinking about the case and the proper approach. You may decide that one of the alternatives presented in the case is the best but do not feel boxed in; if you have an alternative not presented, feel free to explore it but be sure you can support it.

The basic format for the case should be an introduction and summary of the facts, an analysis of possible solutions, and a conclusion. Think of your role as a consultant hired to sort all this out and present a clear strategy to management who is paying your bill.

Your paper should be approximately five (5) pages of written work plus whatever appendices and supporting documentation you feel is necessary and useful. The case presents quite a few numbers; use them to analyze your options and support your conclusion. A paper without some numerical work is incomplete.

35. Rizzuto’s Pizzeria

Cassidy Newman, manager of the Rizzuto’s Pizzeria store in Flint, Michigan, is trying to develop a plan for the “sick” store she just took over.

Rizzuto’s Pizzeria is an owner-managed pizza take-out and delivery business with three stores located in Ann Arbor, Southfield, and Flint, Michigan. Rizzuto’s business comes from telephone, fax, or walk-in orders. Each Rizzuto’s store prepares its own pizzas. In addition to pizzas, Rizzuto’s also sells and delivers a limited selection of soft drinks.

Rizzuto’s Ann Arbor store has been very successful. Much of the store’s success may be due to being close to the University of Michigan campus. Most of these students live within 5 miles of Rizzuto’s Ann Arbor store.

The Southfield store has been moderately successful. It serves mostly residential customers in the Southfield area, a largely residential suburb of Detroit. Recently, the store advertised—using direct-mail flyers—to several office buildings within 3 miles of the store. The flyers described Rizzuto’s willingness and ability to cater large orders for office parties, business luncheons, and so on. The promotion was quite successful. With this new program and Rizzuto’s solid residential base of customers in Southfield, improved profitability at the Southfield location seems assured.

Rizzuto’s Flint location has had mixed results during the last three years. The Flint store has been obtaining only about half of its orders from residential delivery requests. Cassidy, the Flint store’s new manager, believes the problem with residential pizza delivery in Flint is due to the location of residential neighborhoods in the area. Flint has several large industrial plants (mostly auto industry related) located throughout the city. Small, mostly factory-worker neighborhoods are distributed in between the various plant sites. As a result, Rizzuto’s store location can serve only two or three of these neighborhoods on one delivery run. Competition is also relevant. Rizzuto’s has several aggressive competitors who advertise heavily, distribute cents-off coupons, and offer 2-for-1 deals. This aggressive competition is probably why Rizzuto’s residential sales leveled off in the last year or so. And this competitive pressure seems likely to continue as some of this competition comes from aggressive national chains that are fighting for market share and squeezing little firms like Rizzuto’s. For now,

anyway, Cassidy feels she knows how to meet this competition and hold on to the present residential sales level.

Most of the Flint store’s upside potential seems to be in serving the large industrial plants. Many of these plants work two or three shifts, five days a week. During each work shift, workers are allowed one half-hour lunch break—which usually occurs at 11 A.M., 8 P.M., or 2:30 A.M., depending on the shift.

Customers can order by phone, fax, e-mail, or at the Rizzuto’s website. About 30 minutes before a scheduled lunch break Rizzuto’s can expect an order for several (5 to 10) pizzas for a work group. Rizzuto’s may receive many orders of this size from the same plant (i.e., from different groups of workers). The plant business is very profitable for several reasons. First, a large number of pizzas can be delivered at the same time to the same location, saving transportation costs.

Second, plant orders usually involve many different toppings (double cheese, pepperoni, mushrooms, hamburger) on each pizza. This results in $11 to $14 revenue per pizza. The delivery drivers also like delivering plant orders because the tips are usually $1 to $2 per pizza.

Despite the profitability of the plant orders, several factors make it difficult to serve the plant market. Rizzuto’s store is located 5 to 8 minutes from most of the plant sites, so Rizzuto’s staff must prepare the orders within 20 to 25 minutes after it receives the telephone order. Often, inadequate staff and/or oven capacity means it is impossible to get all the orders heated at the same time.

Page 624

Generally, plant workers will wait as long as 10 minutes past the start of their lunch break before ordering from various vending trucks that arrive at the plant sites during lunch breaks. (Currently, no other pizza delivery stores are in good positions to serve the plant locations and have chosen not to compete.) But there have been a few instances when workers refused to pay for pizzas that were only five minutes late! Worse yet, if the same work group gets a couple of late orders, they are lost as future customers. Cassidy believes that the inconsistent profitability of the Flint store is partly the result of such lost customers.

In an effort to rebuild the plant delivery business, Cassidy is considering various methods to ensure prompt customer delivery. She thinks that potential demand

during lunch breaks is significantly above Rizzuto’s present capacity. Cassidy also knows that if she tries to satisfy all phone or fax orders on some peak days, she won’t be able to provide prompt service and may lose more plant customers.

Cassidy has outlined three alternatives that may win back some of the plant business for the Flint store. She has developed these alternatives to discuss with Rizzuto’s owner. Each alternative is briefly described below:

Alternative 1: Determine practical capacities during peak volume periods using existing equipment and personnel. Accept orders only up to that capacity and politely decline orders beyond. This approach will ensure prompt customer service and high product quality. It will also minimize losses resulting from customers’ rejection of late deliveries. Financial analysis of this alternative—shown in Table 1—indicates that a potential daily contribution to profit of $1,230 could result if this alternative is implemented successfully. This would be profit before promotion costs, overhead, and net profit (or loss). Note: Any alternative will require several thousand dollars to reinform potential plant customers that Rizzuto’s has improved its service and “wants your business.”

Table 1 Practical Capacities and Sales Potential of Current Equipment and Personnel 11 A.M.Break

8 P.M.Break

2:30 A.M.Break

Daily Totals

Current capacity (pizzas)

48

48

48

144

Average selling price per unit

$ 12.50

$ 12.50

$ 12.50

$ 12.50

Sales potential

$600

$600

$600

$1,800

Variable cost (approximately 40 percent of selling price)*

240

240

240

720

Contribution margin of pizzas

360

360

360

1,080

Beverage sales (2 medium-sized beverages per pizza ordered at 75¢ a piece)†

72

72

72

216

 
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