In Manhattan Pizza War, Price of Slice Keeps Dropping
nytimes.com
nytimes.com
1. He hates two bros and wants to go low enough to make them leave the area.
2. He didn't make money from pizza even when it was priced at one dollar. The pizza barely pays for the cost of the labor to make it. So why do it at all? Because it acts as lead gen for his Indian food which has a much higher margin. He has essentially a freemium model that works to beat his competitor!
the whole article just sorta reminded me of old school business practices that arent well thought out, are based on emotion and not metrics and dont seem to work out in the end except in rare cases of luck.
Same with inkjet printers nowadays.They almost cost nothing ($35), but when you run out of ink, you realize where they get their money from.
* Better pizza
* Better customer service
* Better facilities
* More variety in ingredients
* Fresher ingredients
Just like people pay more for Apples computers for equal reasons in the computer-world, even though the competition is cheaper, I wouldn't mind paying a (much) higher price than the one mentioned in the article if the points mentioned above stood out against the other restaurants.
The pizzas at pizza shops like 2 bros pizza are fresh during high volume times. Usually only 0-5 minutes fresh out of the oven until the next pizza is put out and sold..
I may not consider it a nice place for a date, but it's a quick and cheap lunch option once in a while.
For me price is something easily measurable, where everything you described - hard to measure.
For me model of discounts/groupons/etc work pretty well. If I see I can try something new without paying over what I would pay in other place - I would do it. And if it is really good - I would stick to them even with higher price.
Quality isn't hard to measure. Where I live, in terms of pizza, there's the chains Dominoes and Pizza Pizza. I haven't bought from Pizza Pizza in over two years, because in their peak times they just crank their ovens and burn their pizzas.
I'm sorry, but when I'm dropping $50 on an order burning/=cooking. When the bottom is so black and charred and the cheese barely melted, you haven't cooked it.
Of the smaller stores, it's mostly a matter of they can't deliver in a reasonable time. One that does I refuse to order from because their delivery guys try to rip you off when you're drunk (order came to ~$75, I had two fiftys and a twenty and wanted to give him eighty. After about 5 minutes of juggling money and change between him an me I realised he had both fifty's and I just said 'I've got it', took the money back off him, gave him 70 and told him to fuck off and slammed the door - I think at one point he was getting a tip of $15 because I grabbed a 20 from a friend. The next time we ordered from there they tried it again by 'not having change').
Every time, I end up back at dominoes because their stuff is fresher, properly cooked and not overly greasy.
Customers don't have access to the kitchen, the ingredient supply chain or background checks on the employees. Looking at a coupon flyer doesn't tell you that the staff is rude, the pizzas are bland and the employees don't wash their hands. Some companies work by pumping out a poor, low cost product and wait for the suckers to bite or the previous suckers to forget or think it was a one-off. There are also a lot of people who will put up with crap so long as they think they're getting a deal.
This thought is sickening.
1) He was in favor of some government action, most notably monetary policy.[0]
2) His arguments were consequentialist and had little to do with morality. For instance, he once described Ayn Rand as "an utterly intolerant and dogmatic person who did a great deal of good.".[1]
[0] http://en.wikipedia.org/wiki/Monetary_policy
[1] http://en.wikipedia.org/wiki/Libertarianism_and_Objectivism
Not really, he actually was in favor of privately issued competing currencies, but he was a realist and realized this was not politically possible, so he advocated monetary policies that did the least harm given the current system.
But always stressed he didn't believe all government actions were evil, he thought national defense and law enforcement for example were best accomplished by government.
On the other hand his son David Friedman is a well known anarcho-capitalist that considered the privatization of all government functions.
There are numerous instances of him thinking government action is a good idea. For instance, back in the 90s he argued that the ideal health care policy would be one "with a requirement that every U.S. family unit have a major medical insurance policy," instituted by the federal government (in place of Medicare).
Some States have minimum selling prices for some restricted products (cigarettes for example). Pizza isn't on any list that I know of.
It's because a larger and/or diversified business can mercilessly destroy all competition in a market by selling under cost and offsetting their losses with price hikes in areas where they face no competition until the competition in the new area gets wiped out from having to sell at or below cost. Once the new area is secure, the predatory company can then charge monopoly prices in that area as well and move on to sweeping a new area. Historically this was a common business tactic and was used to create some fairly large monopolies before it was outlawed.
You may be right that this is flawed, but I don't think you can dismiss it without a little more reasoning.
The argument against this is that certain tactics (such as predatory pricing) for achieving this are designed to produce a monopoly, and a monopoly results in higher prices and lower utility than a competitive market.
You're not a better business when you purposefully place yourself next door to an existing store and use corporate weight to temporarily price your product lower than your competition can sustain before you jack it up. Noted by the "We have enough power to wait them out." comment from the Two Bros guy.
The better business here is the Joey Pepperoni's whose owner refused to drop his price below his profit margin, but his business is likely relying more on long-term customers than it should have to because two business owners are being stupid, and one is being predatory.
The point here is that Walmart opening next door to your current grocery store, and pricing everything at a loss for 12 months to run the incumbent out of business and then price hiking everything over what the incumbent used to charge, doesn't make them the better business. It means they're the worse business because they're bad for the economy, bad for the community and bad for future business. Why? Because no store could open and survive next to a walmart if they were allowed to predatory price.
Bombay Pizza made the first move to lower price.
(25c, not .25c)
Hell, I'd pay 25 cents more just to have the privilege of not being handed back a quarter. Lugging around change is crap.
I don't see what's so amusing to you about saving money, even if $50 is a trifling sum for a programmer...
Keeping this in mind, it lends this whole situation a bit more humor...
Personally, I believe 2 Bros is likely the better $1 pizza as they have enough stores to buy more quantity, thus they can probably use better ingredients. I find their slices to be comparable, of not better than your average run of the mill pizza place that charge $2,25 to $2.50 a piece. They make money on quantity, thus can sacrifice a bit on the price.
I'll check out Zante's this weekend. Serrano's (21st & valencia) is cheap; Pizzeria (17th & mission, looks like a front) is delicious. The one across from Zeitgeist at 14th and Valencia delivers past 2am, but tastes uncannily like Domino's.
http://www.nypost.com/p/entertainment/food/the_best_slice_in...
I think the most interesting point is that all pizzerias in New York City will soon be either the <$1 places or the higher end places like Artichoke, with not a lot in between. A $1 slice place moved into my neighborhood, and then there were 2, and it's clear that some of the other pizza places are getting hammered - one sent their daughter out on the street handing out leaflets. Of course, that place isn't very good, either, so it's hard to cry them a river.
"While the pizza parlors insult one another, the eating public couldn’t be happier."
...and that's what it's all about, Charlie Brown. After all: "It is the customer who pays the wages.” - Henry Ford
"In 2005,[8] and again in 2007,[9] Haberman noted the price of a slice was again rising, and, citing the Pizza Connection, worried that the subway fare might soon rise again. The fare did indeed rise to $2.25 in June 2009, and again in 2011 to $2.50.[10]"
So, the subway prize increase that "matched" a 2005 pizza slice price increase was in June 2009?
I bet you can find similar correlations between many pairs of products. If you pick a simple model that states the price of an item is "x liters of oil and y hours of unskilled labour", products with the same y/x ratio will correlate highly in price. Pizza slices and subways fares might be such a pair, with four years of inflation correcting for the difference in absolute values.
http://en.wikipedia.org/wiki/Prisoners_dilemma#Strategy_for_...
Apparently successful strategies should be "forgiving", meaning they can retreat from this price war, and "non-envious", meaning they can live with the next-door shop earning more.
Maybe they can get some publicity and get that area known as the pizza part of town, so they can both raise their prices and win.
Always a great way to do business...
That said, I agree with your point (considering that I'm from Russia and you're from Italy, my positions in a pizza argument would be fairly weak anyway =)), my objections mostly apply to grandparent post.
Invariably there are exceptions to the rule when competitors want to differentiate themselves. Walmart is cheap quality cheap, Target is better quality cheap.
Acer was trying to get out the cheap computer business and the CEO got fired for it. No one ever gets fired for squeezing a few more cents out of the system.
This sounds like typical business and economics in action. One company is selling a comparable product for less than their competitor. What's the story here?
My immediate thought was 'Hotelling's Law'[1], but apparently price is a special case and called the 'Bertrand Paradox'[2]
[1] https://en.wikipedia.org/wiki/Hotelling%27s_law
[2] https://en.wikipedia.org/wiki/Bertrand_paradox_%28economics%...
What I don't understand is why this doesn't work in the gas industry.
It only costs them $3 per barrel (unless it's from deep sea drilling( but yet every corporate owned station next to each other has nearly the same price and never "race to the bottom" like the pizza wars.
i.e. there is an intersection by me that has 3 gas stations on it. They used to have identical pricing. Then one station started charging the same amount for credit card transactions as it did for cash(other stations had cc transactions cost 10 cents more per gallon)
result? that station is always packed...there is a line to actually get gas...while the other stations barely have any business.
So it costs them 10 cents out of $3.70 a gallon or 2.7%(you know the actual cost of cc transactions..that every business in the world pays without a second thought) to get market penetration.
And since now the cost of gas is pretty high, they are getting a ton of money, since every fill up gets them $40-80
How much of that do they keep?
I am talking about the profits for the wholesale suppliers, the major players in the oil industry which are the most profitable business in the history of humankind (yet still get huge tax breaks and even taxpayer funding for their research and development, recently renewed in Congress).
A worthy slice is $4 here!
I think it's a real lesson for startups - don't let your pride and pig-headedness rule your head, or else that will be the end of your company!
Where I live petrol stations make relatively little profit on fuel sales, the bulk of their profit comes from "also bought" items - milk, newspapers, ... , they're essentially high markup mini malls.
The two advantages to cheap cheap pizza are firstly in can get the crowds in and secure the sales of "also bought" items with better profit margins, further it leeches the crowd away from the competitor.
I was witness to a price war in geophysical surveying, over a decade in which fuel and manpower costs rose and inflation occurred the per line/km cost of flying aircraft with state of the instrumentation onboard dropped from $17 to $7 and effectively eliminating any profit in taking on million+ dollar survey jobs with risks.
Why the hell would the companies do that?
I would hazard a guess that the owners, being part of a much larger business that profited from resource extraction, weighed the benefits of having lead information on deposits potentially worth billions over the drawbacks of having losses of several tens of thousands.
What we effectively have is an arms race in not just pizza, but one can argue that it's happening in all of NYC value to 3 star restaurants and spas and other commodity services via various promotions created to get traffic through the door. The jury is still out there to see if traffic can be converted into loyal customers (which I argue NO for NYC) whether that's groupon vendors or 99c pizza.
What's the difference between a restaurant that charges 99c cheese pizza but 2.00 for pepperoni pizza v. a spa that gives 70% off of a $100 spa service through lifebooker or groupon deal sites? (btw, if you look at the way these coupon site's business model works, $100 70% off that you buy for $30 doesn't mean vendor gave only 70% off. Groupon take ~30% of that $30 so vendor really only get $21 in return for value of $100. Furthermore, groupon squeezes net working capital by giving that cash to the spa after 15-20-45 days from when Groupon received the money).
Both type of businesses should be near break-even profitability at best UNLESS THEY HAVE THE ABILITY TO UPSELL their services/products or they do it to drive in traffic in hopes of converting them into return customers (marketing cost of doing business). However, in NYC where there are 10,000+ restaurants and hundreds of groupon-esque deals daily and in every corner there's a 99c pizzeria, this traffic is worthless traffic and it's permanently creating a lower RONA (return on net assets) for the entire industry. These pricing schemes get played out in the convenience stores as well in the boonies (w/r/t cigarette and beer pricing).
Maybe these local vendors are smarter than I think and have figured out a way to upsell people into purchasing 100% premium pizza for 1 additional topping or restaurants make up the discount and stay profitable through selling higher margins products in conjunction with the coupon (alcohol for instance is 100% margin product) -- so then at spas, I would hypothesize that the upsell potential to be much lower than restaurants so they're just f'd. But to say that we can last longer than the other vendor is completely moronic and naive view of their customer base - why don't they ask abercrombie and fitch and every other u.s. retailer what happens when they turned promotional in 2008 and now they've tried to curb heavy promoting. Price Stickiness is very hard to get rid of for the consumer especially on the value end of the spectrum.
Regardless of all these pricing wars, one can't imply that all pizzeria's margins are toast or all restaurants are toast. Jean George has no problems filling his seats at his michelin star rated restaurants offering no groupon just like Artichoke Basil, a late night pizzeria, in NY doesn't have any problems selling great artisan pizza at an overpriced price to clubbers coming out of the Avenue and 1-oak (2 super-exclusive bottle service only high-end nightclub in NYC) at 2am. That's just smart business and superior product -> turning a commodity business into a sought after premium charged product. If you're spending $500 for 1 bottle of grey goose to get into a club, you're completely fine coming out drunk and spending $10-$12 for a small pan pizza as long as it looks like high-end.
Edit: Holy christ, this is my most hated comment ever. I am personally an offensive human being, but I'd love to know why this comment was so hated.
But really, don't you think you're getting awfully emotional about pizza? Every other storefront in Manhattan sells pizza; the good stuff is not going anywhere. This is like someone who flies paid first class getting upset that Ryanair charges $1 for flights. It's just publicity. Things will be back to normal eventually.
Would it be okay if in Maine a bunch kiosks opened up selling $1 lobster rolls that were just fake seafood? Of course not.
Edit: I do think you are right about 2 Bros. Their $1 slice is respectable.
It's piss easy for anyone who even pretends to be a foodie to look up the good, authentic burrito joints in town. The ones that don't bother aren't interested, and that's perfectly a-ok.
I think the same thing applies to NYC. Anyone who wants to have an authentic slice can very, very, very easily find their way to one.
Grimaldi's isn't the absolute best pizza in the city, but it's a very good example of a thin-crust coal-fired New York pie.
But to each their own. I still have a soft spot in my heart for doughy-crust over-cheesed death-on-a-plate small-town Canada pizza since that's what I grew up with.
It's that attitude, which pervades your post. I'm doubt you will be able to comprehend (if you could you wouldn't write that way) and I won't convey it well. But, something like pig-pigheadedness, ridiculous amount of belief in something so obviously untrue (using that to insult and dictate the "worth" of others), misplaced pride (in NY and it's Pizza, hint no one really gives a shit).