MasterPo says: This blog is about topics and issues that are of importance to me. I am not one of the countless blogging lemmings that are tripping over each other scurrying down the hill and off the cliff of blogging oblivion trying to write the greatest blog on the latest topic de'jour. Your comments are welcome.

June 27, 2010

Pizza Economics

Pizza is MasterPo’s #1 food group!

Although MasterPo is not Italian there may be some long lost ancestry to account for it.

Nevertheless, pizza is definitely a staple of MasterPo’s diet.

Pizza also helps illustrate very well the fundamental rules of economics and the reality of business.

In MasterPo’s neighborhood there are 3 pizzerias. MasterPo and Mrs. MasterPo usually order pizza from pizzeria #1. That establishment makes the best pizza in the neighborhood. Sometimes instead of pizza the order will be for hot heros, and occasionally for a full take-out dinner entrée.

Unfortunately pizzeria #1 closes early so if life’s events are running late MasterPo and Mrs. MasterPo will order pizza for pizzeria #2 that remains open a bit later. Their pizza is pretty good too. Haven’t tried their hot hero’s or dinners, probably won’t, but is likely decent.

Pizzeria #3 MasterPo doesn’t like. Early when MasterPo’s family moved into the neighborhood MasterPo went into the pizzeria, tried the pizza, and it was not at all to MasterPo’s liking.

Maybe it was just a bad day?
Maybe under new ownership the pizza has improved?

Nevertheless, once bitten makes for twice shy so MasterPo will not order pizza from pizzeria #3.

So to summarize:

- 90% of MasterPo’s pizza business and 100% of hot hero’s and take-out dinner business goes to pizzeria #1.
- 10% of the pizza business and none of the heros/dinners business goes to pizzeria #2.
- None of either business goes to pizzeria #3.

But nothing remains forever…

A few months ago a new pizzeria opened in the area.

Very risky business move in MasterPo’s opinion. While it does have very good location on a busy main road, being in such close proximity to three other established pizzerias is gutsy to say the least.

In the fullness of time on day MasterPo and Mrs. MasterPo decided to order a pizza for dinner and chose to try the new place. The pie came and it was good. At least as good as pizza from pizzeria #1, certainly better than from pizzeria #2 and infinitely better than MasterPo’s sampling of pizza from pizzeria #3!

Some time later MasterPo and Mrs. MasterPo decided to try their dinners as well. Wow! The portions were noticeably larger than from pizzeria #1 and the food came with side salad and fresh garlic knots. Truly a hearty meal! And yes, the food tested great too.

So now the rankings stand as follows:

- The new pizzeria is tied with pizzeria #1 for the MasterPo’s pizza business (50/50 which is ordered from) but becomes pizzeria #1 by receiving 100% of MasterPo’s take-out dinner business (unless there is some reason not to order from them or they aren’t available).
- Old pizzeria #1 slips to pizzeria #2 for dinners.
- Old pizzeria #2 drops to pizzeria #3 for pizza.
- Old pizzeria #3 falls off the radar altogether!

And judging from the amount of traffic in/out of the new pizzeria MasterPo has observed MasterPo’s family aren’t the only ones who like this new place!

From an economic point of view consider what this means.

The new pizzeria has taken away a significant amount of business from at least two other local establishments. This includes formerly repeat customers such as MasterPo’s family. he new pizzeria has also “raised the bar” in terms of expectations for portion size and the completeness of a meal.

And, not to be overlooked, the price (cost to the consumer) is also very much on par with market rates for similar food in the area (i.e. the price is very competitive!).

Who knows – some day one of those other pizzerias may close up, unable to compete. If that happens there are likely other factors involved but MasterPo is sure the competition from this new pizzeria didn’t help matters much.

But from a consumer’s point of view it’s a win-win scenario: MasterPo has more choices (variety) to select from, very competitive pricing, and greater value for the cost spent.

This pizza analogy holds true in all cases. Someone (i.e. business) comes along that can offer more items and better prices – that appeals to the consumer. It may in the end cause other businesses in the area to scale back or even close but it’s the consumer that benefits.

The news these days rants about this business closing because it can’t compete against that business over there. MasterPo isn’t so cold hearted as not to realize the loss of jobs and income when a business closes. And regular readers of MasterPo know how MasterPo feels about protecting a failing enterprise just because (i.e. no too-big-to-fail).

Nevertheless, this is reality. When someone comes along that can provide better products or services at the same or lesser price that is an advancement in the state of the art for the economy. It is a necessary and healthy growth of economics and society. Any attempt at artificially restricting such changes or artificially supporting the less competitive enterprises at best is doomed to failure, at worse hurts and retards the economy.

Otherwise we’d still have stage coaches running today.

And they wouldn’t be serving pizza!


Morrison said...

You still order pizza out? How much is a pie? Somewhere between $10 and $20?
I've been making my own pies for 15 years now. They're better, healthier and way cheaper than anything you can order in.

In the time it takes you to pick up the phone, place the order, wait for the order to be delivered or picked up, I can have a home baked, hot pie ready.

I buy the pizza dough already made (whole wheat) from a local baker through Wal Mart=.96 (makes 2 10" pies) I buy 1, 9oz can of petite tomatoes at a cost of .52 (or use fresh during peak season) and 1 lb of part skim mozarella at $2.73 per pound (or pre-shredded). I press out the dough, thin, in either a round pan or rectangle, spread out the tomatoes, lay out the cheese, a bit of spices like salt, pepper, red pepper, oregano and Italian seasonings, a splash of olive oil and pop into a pre-heated 425 oven (this is VERY important). It bakes for less than 10 minutes and better than any crap I can buy at any Italian pizzaria AND I am an Italian!

I understand your business angle. But there have been plenty of businesses that move in, lower their prices, put others out of business and once they are gone, raise their prices, cut their portions and where are you then? If you like an independent pizzaria, I would suggest you stay with them. Otherwise, you may suffer dire consequences once they are gone and out of business.

PS: do you know how much money I have saved making my own pizza? Every Friday night, hubby and I have 'pizza wars' to see who can make the best pie. Delish! Plus the kids love to make their own pies, have pizza parties and on and on.

That's my 'pizza economics'.

MasterPo said...

Sheesh! You make it sound like it's pizza nightly! (not that MasterPo would mind so much)

MasterPo and Mrs. MasterPo do like making pizza at home too much the same way. Also with Boboli's (MasterPo can get them very cheap and they freeze well!)

As for the business angle, if the new place does that then they loose MasterPo's business. As simple as that.

You seem to have missed the point about opportunity and competition.

Nicole said...

We had a pizza place like that when I was growing up. Turns out they weren't paying their taxes. They went out of business once the IRS got to them.

Hopefully they'll drive out #3 and not #2, just in case the higher quality/lower cost is only a temporary phenom.

MasterPo said...

Hope not too. The food is so good! :-]