The Deli that Did1

Warren Buffett, CEO of Berkshire Hathaway, made his first profit reselling bottles of cola at the
age of six and earned about $5,000 delivering newspapers in high schooli. Michael Critelli, the
CEO of Pitney Bowes was a dishwasher at an inner-city bakery located in Rochester, N.Y.

Bill McDermott, CEO of SAP Americas, the North and South American unit of German software
maker SAP, held several jobs as a teenager. Bill describes himself as "driven and on the run"
like his late grandfather, basketball Hall of Fame shooting guard Bobby McDermott. At 16, he
noticed a help-wanted sign in a local delicatessen on his way home from a restaurant shift. He
approached the deli owner in his busboy uniform and soon found himself behind deli counter. A
year later Bill bought the deli with $7,000 in promissory notes, agreeing to pay back in a year or
forfeit the store.

Four years later, the success of the deli amazed everyone. Bill attributes its success to the
intense customer focus and a sound business model—both of which he attests are interlinked.

Currently, the deli is serving between 500-600 customers a day. By all accounts, the deli’s
offerings were basic—limited sandwich options, chips, drinks, and minimal variety. His primary
customers—he realized—belonged to one of three groups and had distinct needs. For the senior
citizens that couldn't easily leave their homes, he implemented a delivery service. He allotted
credit to blue-collar workers, who were often short of cash at the end of their work weeks. While
his rival, a 7-Eleven down the street, allowed just four high school students in the store at a time,
Bill invited whoever showed up to hang out. He also rented videogames like Pac-Man and
Asteroids for them – correct in his assumption that they would buy food while they played.

Fast forward—1982. Bill reviewed the notes that Morgan, a potential buyer, had prepared in
anticipation of buying the business. As a potential owner, Morgan had several questions:

1) Was the deli positioned to meet the needs of its target customers? How so?
2) Compared to other delis why was this business so much more profitable?
3) A consultant has offered several growth strategies. Morgan is evaluating them with Bill:
a. Introduce several new varieties of sandwiches—including different toppings, breads and
meats to provide better and wider choice
b. Open another deli, 50 miles from the current location. At half the expense, the new
location would start at 50 customers a day.
c. Expand the customer base by pursuing the boutique apartments in the neighborhood
(average annual income of resident $298,000)

________

1 © 2017 by Vikas Mittal, Collaborative for Customer-Based Execution and Strategy™. This document is only licensed to be
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1
This document is authorized for use by Marketing Management Student, from 4/23/2018 to 6/3/2018, in the course:
Marketing Management - Grewal & Singh (Summer 2018), Indian School of Business.
Any unauthorized use or reproduction of this document is strictly prohibited*.
Exhibit 1: Morgan’s notes

Expenses (excluding cost of goods sold) Yearly (in $)

Rent $60,000
Wages and salaries 143,000
Transportation 24,000
Credit-provision 30,000
Utilities 36,000
Video Parlor 10,000
Insurance and business services 42,000
Other 48,000
TOTAL 393,000

Ticket breakdown Per Customer

Sale $10
Cost of goods sold (3)
Margin 7

Customer Composition: 60% elderly, 30% blue collar, 10% teenagers

Sources & Credits:

“Early Start in Business Teaches CEOs Lessons They Use to This Day,” Wall Street Journal, January 22, 2007; Page B1.
“From running a deli to head of SAP,” Forbes, 10/5/2010, by Robert Reiss, Contributor.
“The power of persistence,” by Bill McDermott, November 26, 2006 in the New York Times.

2
This document is authorized for use by Marketing Management Student, from 4/23/2018 to 6/3/2018, in the course:
Marketing Management - Grewal & Singh (Summer 2018), Indian School of Business.
Any unauthorized use or reproduction of this document is strictly prohibited*.