We told you so - Crowdcube success Pizza Rossa crashes out having taken £600k off punters

Pizza Rossa was hailed by Crowdcube as a great start up. It won the Crowdcube 2014 Start Up of the Year. The Kiss of Death. 

The company was founded and run by an Italian of extraordinary arrogance and as we predicted, penetrating ineptitude. In his first Crowdcude pitch he brushed aside our concerns about his numbers. This guy was big on his London Business School credentials but had no head for figures or business.

According to their projections they were due to be making over £500k profit last year with 5 outlets, when in fact they made a £44k loss with just one. Accumulated losses were £674k.  

The company made zero or even negative progress - closing all but one of its units as soon they opened them. The idea, the delivery and brains behind it all were poor, plus plus. This one was inevitable. There are plenty more still 'going' that will end up in the same hole.

In his explanation - below - there are no real reasons for the failure apart from the fact the idea was nonsense and the execution was dreadful. Whether the founder lied to you investors in an attempt to get your cash is a mute point. We know what what we know. LBS are partly to blame for all of this as they backed this guy. QED stay away from LBS backed ideas.

We have written about this shambles many times here

Here is his last attempt to make excuses - 

Sadly, I am not the bearer of good news as Pizza Rossa Ltd will close down at the end of the month.

The UK restaurant sector is under growing pressure from rising costs, with various rises in the legal minimum wage over the last 3 years, lower availability of staff in the market as a result of the Brexit vote, a strong appreciation of the Euro against the pound (which led to increases in the cost of ingredients, packaging, equipment and disposables), higher business rates, market saturation and a squeeze in consumer spending.

The casual dining and fast food sectors have seen widespread signs of decline, with Jamie's Italian and Byron due to close several stores as part of rescue packages, Eat and Prezzo possibly going into administration, Pizza Express converting dozens of restaurants to live entertainment venues to stop the decline. Four Italian pizzerias by-the-slice (out of about 20) closed in the last 18 months in central London alone: Marylebone, Tottenham Court Road, New Oxford St.

Our last update dated August 2017 exposed a decline in like-for-like sales compared with the first 6 months of 2016. This trend increased over the following months due to a number of factors:

• street works in Whittington Avenue between mid-July and early September caused a collapse in footfall in the street that resulted in sales being reduced by 40% between August and September, with the impact being felt until November
• permanent competition in our catchment area increased hugely. When we opened Pizza Rossa in June 2014, our direct competition (fast casual, fast food, takeaway) could be quantified in about 30 outlets in a radius of 400m around us. Over the last 18 months alone we have seen 25 new entrants in the area (including major players such as Marks & Spencer Foodhall, two new Pret, Itsu, Wasabi, even Boots with meal deals, etc). These new outlets did not substitute previous food offering: they were all brand new shops replacing retail or opening in new buildings. As a by-product of increased competition there was continuous heavy discounting and promotions for all new openings, thus resulting in further price competition and erosion of margins
• besides the above permanent competition, new street markets increased the casual/mobile offering, with stalls routinely opening at least once and up to 5 days a week outside the Gherkin (St Mary Axe), Devonshire Square, Fenchurch St and, more lately, a Christmas Market throughout December under the Cheesegrater (Leadenhall St). During the better trading days (Wednesday to Friday) these markets can bring 50 additional cost-competitive food sellers in the area
• overall permanent reduced local footfall in the last 12 months: among others, 650 Amazon staff left our building vacant last November, about 2,000 staff left the building opposite our street for complete redevelopment about 6 months ago. These two alone combined meant that an average of at least 50 regular customers per day do not show up at the shop anymore

Bearing in mind all of the above, we decided that leaving the City would be essential for the survival of the company.  We focused on different locations with a different mix of customers (residential, students, offices, shoppers and possibly tourists) and we increased our efforts in other revenue generators such as deliveries and events.
As part of the re-deployment efforts last year we tried without success to buy out one of our competitors and in Q4 2017 we opened a corner inside another shop in Finsbury Park, which ticked a few of the above requirements. This generates income but it is not a game changer.
Over the last weeks we started a negotiation for a lease of a great corner venue in Lower Marsh (Waterloo), but the landlord eventually decided to sell outright the shop rather than leasing it and we were left with no option.

The combination of the above factors forced us in December to meet the landlord’s agent and tell him that we needed to get out of the Leadenhall venue as we would struggle to survive the difficult period from Christmas to Easter. We were offered a significant rent reduction, with new payment terms that would allow the company to get through these difficult months and buy some time to find a different location.
Eventually, despite all previous conversations that suggested that we could stay at Leadenhall until the end of the year or, likely, early 2019, on Friday 23^rd we received unexpectedly the notice from the landlord to vacate the premises. All tenants in the building received the notice on the same day. And this means that we will have to vacate the premises by the end of March.

A Board call was called on Tuesday 02nd of March. We discussed various options to maintain the company trading. These were all regarded as not viable financially and/or operationally. As a result, the Board voted unanimously to close down Pizza Rossa Ltd after the 30th of March.

At this stage there are three main options in respect of the route to closing down the company, in the following order of preference but in increasing order of likelihood. In all cases, sale of equipment, fittings and furniture will be attempted where possible:

• sell the knowhow and brand to any interested parties and distribute any little proceedings (after repayment of all debt and liabilities) to shareholders
• pay off all creditors and strike off the company. If any monies are left, distribute them to shareholders and dissolve the company afterwards
• if none of the above works out, we may have to apply for Creditors’ Voluntary Liquidation (CVL)

Whilst we know that this news is frustrating, disappointing and unexpected, we gave Pizza Rossa our best.
I personally worked full time and was 100% dedicated to Pizza Rossa since December 2013. I did not receive any salary or other compensation for the first approx 18 months, I was remunerated with less than £1,000/month for the following 2 years and I further supported the company’s cashflow by freezing payment of the last 6 months of my salary.
None of the other Directors in the company were paid for their involvement. Moreover, the Board was formed by 5 of the 6 largest investors in the company, so that the best interest of the company was always at the core of all decisions.

We reached excellence in a lot of areas, from food quality to customer satisfaction to operations. All the venues we operated from (even the temporary ones) achieved 5* food hygiene rating, we delivered without problems in large quantities (Roadchef) and for major events (the largest, 2,000 people, the most recent 10 days ago for 600 people), we validated the business model with centralised production and distribution of products with superb quality and standardisation to other outlets that, indeed, did not require a kitchen.

With the benefit of hindsight we could have done some things differently. Besides systemic and local elements as described above, one of the main issues was that despite extensive research prior to starting up, we did not foresee the strong resistance by the British public to pizza for lunch and for takeaway, despite it being a successful evening and weekend food. The belief that pizza is unhealthy was stronger than it appeared in the initial interviews and trials and we had to fight against this perception throughout the life of Pizza Rossa.

As the Managing Director and founder of Pizza Rossa, I can only thank you for your belief and support and say how deeply I regret not having made Pizza Rossa the success we all hoped for.

I will issue another update in due course when we clarify the route we will follow to terminate the company.

Kind Regards,
Corrado Accardi
Managing Director, Founder

I think the 5 star hygiene award best sums up their achievement. Not sure about the claim that they validated the business model! As for the end game, option one is a non starter, option two is a dream and option three is a dead cert. Still in denial I think.