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.

Pizza Rossa turns to dough on line

Pizza Rossa are famous at Crowdcube. They have raised £600k in two tranches, won the 2013 Crowdcube Best Start Up Award, promised the world and to date delivered nothing. But are things about to change?

Rossa pitched on CC with a promise to sell their square slices to the City on Saturdays. This was back in 2013 when we were posting Q's on the CC forum. We asked them how they intended to sell 15% of their turnover to a city that was all but closed at weekends. They told us we didnt know anything. Shortly after opening their second unit, they had closed it and pulled back the original unit to a 5 day week. These guys won a business plan competition at LBS for gods sake.

In the 2015 pitch, PR stated this - and it was sanctioned by the FCA regulated Crowdcube - 

Our second outlet opened on the 20th of November on London Wall (London EC2M) and it is already a success story.

So why did it close? Even the 2015 projections have been shown to be complete BS. You might have thought they would have learnt a little from 2013. The product seems well received.

Since, they have achieved little apart from burning all the money invested. Now in 2017, with only 1 unit open, they have taken to home delivery. Why has that taken 4 years to work out?

Anyway the penny has eventually dropped and from the accounts for YE Nov 2016, they may just have saved themselves from the brink -  a relatively small loss seems to have ended the haemorrhaging - although the patient is still critical.  Naturally the Crowdcube projections used to sell the equity are long gone - as ever, pure fantasy. Now its a question of how little can they manage to lose each year. They raised a small amount of extra cash in 2017 and now promote themselves as almost exclusively on line. Time will tell but a sloth might be a better CEO than the current one.  

Here is a typical Crowdcube 'success' story. And you wonder why there has been no ROI.

Pizza Rossa raised twice on Crowdcube in 2013 and 2015. An LBS award winning business plan and Crowdcube accolades to die for, the Pizza chain is a sad sight 4 years on, with just the one solitary unit.

We asked the London Business School how they allowed their hard won barnd image to be used on such an obviously flawed project but have yet to receive a reply. LBS have asked Pizza Rosa to repspond and below is the email from them 'explaining' how things have gone so very wrong. Apparently the LBS connection is not significant, which rather contradicts the statement made by the CEO of PR 'Our Success Will be London Business Schools Success' on the video! Anyway the CEO very kindly gave us these 'clarifications'.......:)

'A few clarifications follow below.

1- The London Business School did not back the pitch. We won business planning awards not only at LBS but also in international competitions, in front of entrepreneurs in private incubators, with top accounting firms and were finalists in a national competition organised by one of the leading British banks. We were a business incubated at LBS but LBS as a business education institution did not endorse the pitch. Nothing different was stated anywhere and your sentence "Your pitch was backed by LBS" is incorrect.

2- The projections in the initial pitch were based on market research and benchmarked against existing businesses. All projections in the business plans were made to the best of our knowledge at the moment of writing them. The first pitch was based on a business plan for a start up and this was clearly stated in the pitch. 

Optimism is inherent to entrepreneurship otherwise none would leave a secure and comfortable life and get exposed to the risks of starting a business. 

The projections in the business plan for the second pitch incorporated the initial results after opening the second outlet (which opened 5 months after the first). The third outlet opened 10 months after the first (in a progression aligned with the initial business plan). We started commercial agreements with third parties ahead of the initial projections. There were a number of contingent, cultural, commercial and market conditions that forced our decision to close down the second and third outlets.  We were looking to raise more equity in the second round to target a different part of the market and rectify some of the initial assumptions that were proven wrong: we did not achieve that. Our bad, but the above delayed our plans.

3- An an LBS alumnus I found interesting your comment about having done a "real MBA at Cranfield".

4- Crowdcube clearly states that investments in start ups are at risk. It is up to investors to review the business plans to form their idea about investments. The Q&A section in each pitch is generally a very good platform for criticism and skepticism to be exercised on every projection/information included in the pitch. 

We have highlighted the 'reasons' for the closure of units 2 and 3 almost as soon as they opened. We thought this was highly informative.

Pizza Rossa sums up much of what is wrong with Crowdcube's model of equity crowdfunding. 

They came to Crowdcube in 2013 boasting the top award from the LBS enterprise competition. The CEO was typically arrogant - throwing back any advice and denying that there could anything wrong with the model. As it turned out it was fundamentally flawed for the most ludicrous reasons - which says volumes for the LBS enterprise programme.

Even when they returned at the start of 2015 for more cash, they refused to accept that things had not just gone badly wrong but had essentially not gone at all. Attempts to trade units in the City on Saturdays, a point made to them in the first round and flatly contradicted by the CEO, proved disastrous as did new unit openings. Promises in both rounds of a 'chain' have been shown to be total nonsense. There is still, after 4 years, just one unit costing an incredible £600k plus to open. 

Losses have mounted and the latest accounts due out any day will show us more of the same. It has been a total shambles.

Why?

Put simply the CEO and his team didnt have a clue what they were doing. And the same could be said for Crowdcube; although they still picked two lots of lovely commission. LBS seem to have gone to sleep in handing him his ace card of the award - he was not shy in bringing it out to hit people with when they commented on the flawed plans. Crowdcube lavished him with further awards and allowed the company back for a second round at the usual ridiculously increased valuation - £1m to £1.5m. 

Crowdcube vetted and allowed plans that were obviously flawed and projections that were Trumponian. Investors partly dazzled by the hype and in the second round, too afraid to cut their losses have kept this disaster afloat, burnt money and claimed back tax reliefs. 

Another great story for UK plc. 

London Business School and Pizza Rossa cook up a fine mess.

Pizza Rossa funded on Crowdcube in 2014 and 2015 - a total of £600k. Its big claim to fame was its London Business School Entrepreneur Business Plan of the Year Award. 

The specialist square pizza fast food 'chain' filed accounts this month for YE November 2015 - showing a loss of over £300k and leaving the company in the red with accumulated losses so far of  more than £630k.

,

The guy behind the pizza is an Italian, Corrado Accardi, who was on a MBA course at LBS, when he stumbled on a great idea - build a chain of pizza joints. Funding? No problem, with the emergence of the new equity crowdfunding platform Crowdcube. By using an award won at LBS for this stunningly original business plan and his entrepreneurial flair, Pizza Rossa was able to massively overfund on Crowdcube. See here for the LBS trumpet blast that accompanied their success.

The business won Crowdcube's Entrepreneur of the Year or some such tin can and was away. A little while latter all the wheels had come off. Plans to have opened 5 units by now and be in the realms of £300k plus profits, have been well burnt. They have 1 unit open as we write and are producing enormous losses with it. 'The Latest News' section of their website has not been updated for a year. As chains go, its on the small side.

We have written several pieces about them here

Their arrogance and stupidity are in equal measure. In the original LBS 'award winning' plan they had Saturdays as City trading days. Even though it was pointed out at the time on the Crowdcube forum by us and another helper, that Saturday in the City was not a great place to sell pizza, they ignored the advice. The response was, well we won the LBS annual award so we must know what we are doing. Then once all the money had been wasted, they admitted that Saturdays in the City were not strong trading days for pizza - in fact they had the cheek to blame their awful performance on this! They did open a second site but it was closed within a year.

All in all, we think that this has been one of Crowdcube's biggest ever calamities. Based as it was on the very shiny medal issued by LBS  - see this video if you want to have a laugh here. This guy is just taking the P. He hasnt a clue what he is doing and nor do LBS from this evidence.

So can we learn anything from Pizza Rossa? LBS shouldn't get involved in enterprise and certainly shouldnt allow their brand to be used so blatantly for such a farce. And simply do not believe what they tell you. We were warning about this outfit from the get go - it was clear the guy had no idea.

The final joke is that in 2015 Crowdcube raise, the valuation for Pizza Rossa had gone up 2.5 times - so that should make all shareholders feel so much better! Che disordine.

What has happened at the ''Award Winning'' Pizza Rossa?

Pizza Rossa took Crowdcube by storm in 2013/14 when it raised £440k in 17 days.

It won various awards from the Crowdcube platform and was the winner of the LBS start up competition in 2013. The whole raise was based on the founders MBA credentials.

Seems it is harder to run a viable pizza business, using awards as the main ingredient, than they thought.

Shortly after the first Crowdcube success, the company had run out of cash and was back for more, raising another £160k this time. But no need to worry as the 'valuation' of the company had gone up 2.5 times! We have Crowdcube to thank for that. Of course predictions by us that their Saturday openings in the City wouldnt work, turned out to be true. How an MBA messed that up is anybody's guess.

So now they had the money, a little more experience and were good to go, toppings and all.

During an interview with Big Hospitality to promote the second raise, founder and chief executive of Pizza Rossa, Corrado Accardi stated, “We are confident that this new campaign will attract the attention of investors watching the steady growth of Pizza Rossa. Since we opened the first pop-up at Leadenhall Market in June, we have served in the region of 20,000 people – and that’s only a five-day a week operation. We opened at London Wall just three weeks ago, and we are extremely encouraged by the results to date. It seems that the City has really taken to Pizza Rossa, and it proves that our concept is right on target for this audience.”

Very sadly the new prime location at London Wall, seen here, has closed only a few days before its first birthday. No new openings have taken place anywhere since and the company that was to take over the London and then world pizza scene, has just one outlet, 3 years after first milking Crowdcube investors.

One lesson that most people with any savvy know, is that you dont build up a retail business opening and then closing units. It costs too much.

Accounts are not due out until next year but with an expensive shop fit, leases et al it will be sometime before this company gets back on track. First accounts since the initial raise were galaxies off the predictions.

It does seem odd to us that since this initial milking, nearly everything the CEO has predicted has turned out to be rubbish. Standards at LBS must have slipped somewhat since we went to Business School.

Surely we will have the pleasure of Corrado's silky tongue again - cash must be tight. Maybe he'll need to choose another platform this time though as the ever busy Crowdcube Undertakers Department are sure to box up his business shortly. We'll let know.