Canadian Pizza Magazine

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Pepi’s keeps costs in check


Pepi’s Pizza has been serving up slices since 1962. Founded by the Firmi
family, the original restaurant is still located at 87 Water St. N. in
Kitchener, Ont.

Pepi’s Pizza has been serving up slices since 1962. Founded by the Firmi family, the original restaurant is still located at 87 Water St. N. in Kitchener, Ont. Two other locations in the city opened in 1965 – one on Courtland Ave. E. and the other on King St. E., which moved a few blocks down the street to a larger space about four years back. In the early days, a Friday special offered hungry customers all the pizza they could eat for just one dollar.

pipi2 
Rhonda Firmi, daughter of Pepi's original founders, and her husband, John Guy, took over the restaurants about 10 years ago.


 

Times have certainly changed. Statistics Canada reports the Consumer Price Index for food increased 3.2 per cent between September 2010 and September 2011, the most recent data set available. In that time, vegetables and vegetable preparations have posted a 9.6 per cent price jump, while meat prices have climbed 5.2 per cent, fats and oils have jumped 5.5 per cent, and condiments, spices and vinegars have gone up five per cent.

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Rhonda Firmi, daughter of Pepi’s original founders, and her husband, John Guy, took over the restaurants about 10 years ago. Despite facing higher costs for key ingredients, they have continued the Pepi’s tradition of working with scratch dough and smothering each pie with sauce made from the original Firmi family recipe. Serving up “the best dressed pizza in town” has helped the Pepi’s brand nab numerous awards, including the 2010 Waterloo Region Record Readers’ Select Award for favourite pizza. Pepi’s was also named to local arts and entertainment tabloid Echo Weekly’s Best of Food 2010 list, taking gold in the independent pizza and sub categories, and silver in the “best after bar eats” category. There’s a delicate balance to delivering the quality people have come to expect and a price point that turns a profit without turning customers off. 

Canadian Pizza sat down with Guy to learn how this second-generation family business is coping with rising food costs.

What impact have food prices had on business this year?
We have definitely seen higher food costs this year and in turn we are running our business a lot tighter where possible. We’ve tried to partner up with a few suppliers rather than a bunch of little ones to get some volume discounts. In other cases we have had to go to two suppliers so that we can purchase more from the one who is offering the better price. We don’t want to change our major items – cheese, smoked bacon or our sauce components – but we do have to continually make sure we are getting the best price. We buy our bacon from local suppliers and have seen costs rise as much as 40 per cent over the last couple years. Since we use 1,000 pounds of bacon each week, it has a big impact overall. Cheese costs generally rise a few percentage points each and every year. It’s tough to absorb. We’ve tried to trim costs in other places, such as our marketing budget. We have had to minimize our spending in phone directories and tried to switch to less expensive Internet advertising.

Have you had to increase your prices?
We have been able to negotiate some savings on some lower volume SKUs, which has helped. Our higher volumes have allowed us to spread the fixed costs and utilize our employees more effectively for savings.

Do you have a formula that you use to calculate when it’s time to raise prices?
We look at our financial statements monthly. Our food costs are always high – that’s just the way that we make our pizza. We make all of our crusts from scratch. We buy the best cheese, the best bacon, the best sauces. We know our food costs are going to be high, but we still have to keep an eye on it. We don’t want to cut back how much we put on the pizza either. Our sales have been going up, so that helps. We aim for about a five to 10 per cent slow increase every year and we’ve been hitting that.

Raw material food costs are somewhere over 40 per cent for our business, which is high for the industry. We watch that and we try to keep it under that. Some of that is just constantly working on our different suppliers. If one thing goes up, hopefully we’re working on something else to get it down. Once that percentage of food costs goes up too high, it does force us to make a change. We’re getting close to that figure.

Our main special is two large three-topping pizzas for $28.99. You just don’t want to hit that $30 barrier. We had to break it a few years ago with tax. That was a big decision when we had to break that price point, and for our customers too. Now they’re used to it, but once they get used to it, you don’t want to change it every year because then they think that all you do is raise your prices up all the time.

Thinking back over the past couple of years, what has been the most effective strategy to keep your food costs down?
I think being fair with our suppliers and trying to keep regular volumes. We try to drive our volumes higher to get the discounts. We try to pay fast so there’s never an issue where they’re worried about getting their money. Try to be fair with them. If it’s cheaper for them to do deliveries once a week rather than twice, then we try to do that. We built new walk-in coolers to accommodate the shipments from our suppliers. Hopefully they’re not pressured to raise our prices because we’re trying to be fair with them.

Do you get everything dropped off at one restaurant and then distribute it yourself?
Sometimes we don’t have a big enough order for one store, so we allow the company just to drop it off here. Hopefully that helps with our pricing from the suppliers.

We’re also using some of the wholesalers – Costco or Loblaws – and buying from there where it makes sense. We’re going to those wholesalers twice a week to keep our costs down.

Has the change in food prices had any impact on your sales?
I think our customers realize why. They put up some pressure right after we raise prices, but then they go to the grocery store. They realize that the prices of most things are higher now. Once they see it when they go shopping and then come here, they get it.

Do you offer discounts or specials after a price increase to keep people coming in?
We do some couponing to help with that. We put some coupons on the web, we’re in some of the books, and there are coupons in our Yellow Pages. That helps. We do volume discounts for some of the larger companies, but some of them are feeling the pinch as well.

If you could give one piece of advice to other pizzerias that are trying to manage their costs, what would it be?
I think it’s to be fair with your suppliers and to work with them to keep their costs down so that they don’t have to pass on big increases to you. I think that’s what’s helped us. If we can give a supplier more items, it helps them with their total costs – it helps them with their freight costs and the number of times they go out with their trucks.

Editor’s note: This interview was edited and condensed.