15 May Case Study #3 A Business Owner Seeks an Alternative to Seven-Day Workweeks

Case Study #3

A Business Owner Seeks an

Alternative to Seven-Day Workweeks

The New York Times

By John Grossman

Carlos Vega and his wife, Constance, with bottles of Jersey Italian Gravy, his red sauce.

FATHER AND SON PIZZERIA is a 900-square-foot, eight-table restaurant in Guttenberg, N.J., across the Hudson River from Manhattan. Opened in 1971, it was bought in 2007 by Carlos Vega, now 45, from its aging founder. Mr. Vega soon doubled sales by expanding the menu, improving service and selling the restaurant’s “gravy,” or red sauce, over the counter in 12-ounce Mason jars.

THE CHALLENGE: Mr. Vega left a corporate job producing print publications for the financial industry to take over the pizzeria. He felt constrained by his business’s size and location: a small restaurant without a parking lot on the six-block main street of a blue-collar town. Even with his improvements, the business was bringing in only about $10,000 a week. It was profitable, but only because he was working long hours, typically seven days a week, to hold down labor costs. Mr. Vega knew he couldn’t continue like this.

THE BACKGROUND: His father was from Spain and his mother from Cuba, but Mr. Vega, who grew up with Italian friends in New Jersey, not only hung out in pizzerias but worked in one, starting during his sophomore year in high school. After getting a business degree from Montclair State University, he worked in his family’s printing business before moving on to KPMG and then Thomson Financial, where he oversaw printing operations.

Along the way, Mr. Vega usually had some kind of business on the side. In his 20s and 30s, he worked weekends as a disc jockey, started and sold an Internet dating service and bought and flipped houses. So it was not entirely out of character when, stopping in for a slice at Father and Son Pizzeria one night — years after he had last worked there — he ended up buying more than a slice.

“Why don’t you sell the place?” Mr. Vega asked, when his former boss confided that he was tired of the grind.

“I don’t want to sell to just anybody,” said the owner, whose son had long since lost interest.

Mr. Vega bought the business, but not the building, for $75,000. He wasted little time expanding the menu beyond pizza, subs, chicken Parmesan sandwiches and spaghetti and meatballs. “I made it more of a full-blown Italian kitchen and added a dessert menu,” he said.

With room for only eight tables, Mr. Vega upgraded the takeout business, introducing Internet orders, adding credit card sales, offering “take and bake pizzas” that customers could heat at home. Without a parking lot, and with on-street spots scarce, he started curbside pickup. He nudged the price of a pie up to $11.50 from $11 but held the line at $11 for his chicken francese. He doubted he could charge the going rate of $16 or so at nearby Italian restaurants that had tablecloths, servers, parking lots and liquor licenses.

The former owner had gotten by with a skeleton staff: his wife, himself and a dishwasher. Mr. Vega brought on a cook and a pizza maker, driving up expenses. But he made the sauce himself, tweaking the recipe he had learned years earlier as an employee. So many customers asked for extra sauce — and for him to bottle the slow-simmered red sauce — that Mr. Vega decided to comply. Soon, instead of making 40 quarts a week, he was making 40 quarts every two days. The jars, he said, “were flying off the counter.” And the margins were higher for the red sauce than for his menu items.

THE OPTIONS: With restaurant profits still meager come the summer of 2009, Mr. Vega and his wife contemplated two very different ways to turn up the heat. They could expand, adding tables, raising prices and becoming less of a takeout place. Or they could sell the restaurant and focus solely on becoming a manufacturer and wholesaler of tomato sauce.

Exploring Plan A, Mr. Vega talked to a contractor about building a second floor atop the one-story building to add a dining room. He also discussed moving the business down the block, to a storefront with room for more tables. Either way, there would still be a parking problem. And without a liquor license, which could cost $250,000, Mr. Vega felt he would still be poorly positioned to charge $16 for chicken francese.

Plan B would keep Mr. Vega in the food business, which he enjoyed, and presumably give him more time at home with his wife and two young children. Sample jars of his red sauce that he got into the hands of buyers at Whole Foods, Trader Joe’s and other specialty food stores had brought encouraging reviews. He envisioned a line of sauces under the brand Jersey Italian Gravy that would retail for $8.99, and he thought he could market his sauce to the food industry in No. 10 cans. “Professional chefs, some from prominent New York restaurants, who came to the restaurant told me they wanted to take it home with them,” he said. Knowing nothing about food manufacturing, he would have to outsource production to what is known as a co-packer. There would be a steep learning curve, as well as tough competition squeezing onto retail store shelves.

QUESTIONS:

Would you execute, Plan A, Plan B, or a different plan? Explain.

How would you approach innovating this entrepreneurial venture?

Do you have any suggestions for how to grow an entrepreneurial venture while balancing both home life, and the expenses that come with hiring employees?