Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How This Pizza Chain Scaled to 50 Million by Fixing Delivery Radius
Transcript
- Lucas: There's a regional pizza chain in the Midwest — I'm not going to name them because the founders aren't public-facing — that hit fifty million in revenue last year by doing something that sounds completely backwards on paper. Luna: Okay, I'll bite. What did they do? Lucas: They shrank their delivery radius from five miles to two and a half. Overnight. Cut off about forty percent of the addresses they were delivering to. Luna: Wait — didn't they lose customers? Lucas: They did. About thirty percent of delivery orders disappeared in the first month. But here's what happened next. Average delivery time dropped from thirty-eight minutes to nineteen. Driver turnover — which had been running at a hundred and fifty percent annually — fell below sixty percent. And the big one: same-store profits went up twenty-two percent within six months. Luna: So the math was that the customers they kept were more profitable than the ones they lost. Lucas: Exactly. The five-mile radius was a legacy decision from the early 2000s when the founders wanted to cover as much territory as possible. But by 2022, the cost structure had shifted. Minimum wage for drivers, insurance, fuel — all up. And every delivery beyond about fifteen minutes round-trip was losing money when you factored in driver wages and the opportunity cost of that driver not being back in the store to take another order. Luna: What was their threshold? How did they decide two and a half miles was the right number? Lucas: They ran a three-month pilot at two stores. Tracked every delivery by drive time. What they found was that any address with a projected delivery time over twenty minutes — from order ready to driver return — was generating a negative contribution margin. That twenty-minute mark became their cutoff. Two and a half miles was just the average radius that matched that time limit in their market. Luna: So it wasn't about distance per se. It was about time. Lucas: Right. Distance is a proxy. Time is what matters. In a dense urban area, you might cover two miles in twelve minutes. In a suburban spread, one mile might take fifteen. They let the time data define the radius, not a map. Luna: What about the customers they cut off? Did they just lose them forever? Lucas: Some did. But a surprising number started ordering for pickup. And the ones who lived just outside the new radius — maybe two point eight miles — they actually got faster delivery anyway because the drivers weren't bogged down with long runs. Average ticket size for delivery went up eighteen percent because the customers who remained were ordering more, and the drivers could handle more orders per shift. Luna: So the driver utilization improved too. Lucas: Massively. Before, a driver might do three deliveries in an hour. After, they could do five. And because the orders were closer together, the food was hotter, which led to higher tips. Drivers made more money per hour, so they stayed. The turnover drop alone saved the company about two hundred thousand dollars a year in recruiting and training costs. Luna: That's real money for a regional chain. What was their revenue before the change? Lucas: They were stuck around thirty-two million for three years. The radius change, combined with a menu simplification they did at the same time, pushed them to fifty million in about eighteen months. Not all of that came from delivery — they also saw a pickup sales bump because the in-store experience got better when the drivers weren't rushing in and out. Luna: It's a good reminder that more coverage isn't always better. Most small business owners think 'I want to serve as many people as possible.' But the economics often don't support it. Lucas: Yeah, and that's a hard lesson because it feels like you're turning away revenue. But the data from this chain shows that the revenue they were getting from those far-out deliveries was actually costing them money. It was subsidized by the profitable closer orders. They just didn't know because they weren't tracking per-delivery margin. Luna: How did they track that? Most small restaurants don't have sophisticated analytics. Lucas: They used a combination of their POS data and Google Maps API. Took a graduate student intern from the local university to build a spreadsheet that matched delivery time to order value. Cost them about three thousand dollars for the internship. That spreadsheet became the basis for the whole strategy. Luna: Three thousand dollars to unlock twenty-two percent profit improvement. That's a ridiculous ROI. Lucas: It's the kind of project that a lot of owners never think to do because they're too busy running the business. But it's exactly the kind of thing we talk about on this show — a small, focused operational change that compounds. Luna: And speaking of small things that compound — I want to mention something briefly. We keep these episodes ad-free by design. No sponsors, no commercial breaks. If the show has been useful to you, there's a simple way to support that choice: buy me a coffee dot com slash fexingo. It's a low-key way to keep this independent. Lucas: Yeah, totally. We hear from listeners who say these episodes have changed how they think about their own business. That's the goal. And listener support is what makes it possible to keep the focus entirely on the content. Luna: Alright, back to pizza. So what did they do with all that extra margin? Lucas: Some of it went to higher wages for the drivers who stayed. That further reduced turnover. Some went into a quality improvement program — they started using fresher ingredients, which actually reduced food waste because the higher turnover meant ingredients didn't sit as long. And they invested in a better online ordering system that integrated with the new radius data. Luna: So the radius change was almost a forcing function for other improvements. Lucas: Exactly. Once they weren't bleeding money on long deliveries, they had cash to fix other parts of the operation. And the new ordering system automatically prevented customers outside the radius from placing a delivery order — but it offered them a pickup option with a discount. That conversion rate was about twenty percent. Luna: That's smart. You're not saying 'no' to the customer, you're offering them an alternative that works for both sides. Lucas: Right. And the funny thing is, some of those converted pickup customers ended up ordering more frequently than they did with delivery. Because they'd come in, see the store, maybe grab a drink or a dessert they wouldn't have ordered online. The average pickup ticket was actually higher than the delivery ticket. Luna: That's the kind of counterintuitive outcome that makes this case so interesting. You'd think shrinking your delivery area would shrink your business. But for them, it was the unlock. Lucas: There's a broader lesson here for any business that does last-mile delivery — not just pizza. Lawn care, cleaning services, even food delivery aggregators. The default assumption is that you want to cover as much territory as possible. But the most profitable operators are often the ones who are disciplined about where they say yes. Luna: What about the risk of competitors moving into that abandoned territory? Lucas: They thought about that. But what they found was that the competitors who were willing to deliver five miles out were also the ones with worse service and longer wait times. So when customers in the outer ring tried those competitors, many of them came back and opted for pickup instead. The brand loyalty was stronger than they expected. Luna: So they actually strengthened their brand by being more selective. Lucas: Yeah. It's the same dynamic you see in premium products: scarcity and reliability create perceived value. By delivering faster and hotter, they became the best option within their radius. And that reputation spread. Luna: I love this example because it's so concrete. A two and a half mile radius. A twenty-minute time threshold. Three thousand dollars for a spreadsheet. That's the kind of detail you can actually use. Lucas: Exactly. Next time you're running a business with a delivery component, ask yourself: are you actually making money on every delivery? Or are some of them just busy work that's eating your margin? Luna: That's the question. And if you don't know the answer, you might have your own intern project waiting. Lucas: And if you figure it out, let us know. We'd love to share your story on a future episode.