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Troubles with toppings
11/25/08 - Richard Slawsky
Rising cheese and wheat costs aren't the only issues plaguing pizzeria operators these days.
They've also been coping with wildly fluctuating prices for pizza staples like pepperoni and sausage. Even the cost of chicken, which has been gaining popularity as consumers seek healthful topping options, has been flying high this year. "Anything that is related to the commodity market has seen huge swings in prices over the past year," said Liz Hertz, marketing director for Nevada, Iowa-based Burke Corp, a supplier of precooked meat products. "Meat prices went through the roof this past year. It has moderated somewhat in the past month or two, but there were really wide swings."
According to the International Monetary Fund, world market prices for food commodities rose more than 75 percent from the beginning of 2006 to July 2008.
"Of the toppings that have had the biggest price increase, I'd say we're looking at cheese, chicken, pepperoni and certainly flour," said Shannon Braithwaite, who with her husband owns and operates Peppino's Pizza & Subs in Frisco, Colo. "And, no, cheese costs have not gone down."
Factors contributing to rising prices include increased demand from developing countries, higher transportation costs and the rising cost of corn and grains used as feed. The use of corn for ethanol production has helped to drive up the cost of meat products as well.
"I think that agriculture is incredibly interrelated, and anything that increases demand has an impact," Hertz said. "Everything that the pizzeria operator was paying for has gone up, and everything that we are paying for as far as inputs into our processes has gone up."
Taking action
The rising cost of meat toppings, combined with record prices for cheese and flour, has nearly everyone in the supply chain thinking about raising prices.
"Eventually you have to pass some of those price increases on downstream, and the operator does also," Hertz said. "We are all reluctant to do that, because everyone is having a hard time."
Often, a price increase is a tough sell for pizza customers, Braithwaite said. Even though Peppino's is located in a tourist area close to several ski resorts, customers are still on the lookout for low prices.
"We also notice that even with our locals, pizza prices are harder to raise, as opposed to our sandwich or salad prices," she said. "There's a perception of pizza as just a bit of dough with some cheese thrown on and a topping or two."
There's plenty an operator can do to cope without raising prices, however. Options include such tactics as promoting pizzas that use low-cost ingredients but offer a greater profit potential.
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Jordan Krolick, president of Atlanta-based Stevi B's pizza, rearranged ingredients on some higher cost menu items to create one that offered a greater profit potential. Earlier this year, when chicken prices were high, the company simply replaced some of the chicken with lower-cost ham. "What we do to create some of those products is to take our more expensive items, use them less as toppings, and take more profitable items and use them more, and in the process create something the customers are going to love," Krolick said. "That was the genesis of our Chicken Cordon Bleu pizza."
Cutting back on the amount of toppings is always an option, albeit a risky one, Hertz said.
"They may change how much of the expensive ingredients they are putting on a pie, but then again they risk unhappy customers," she said. "If they are strategic and think it through, though, there are ways they can create value for their customers without jeopardizing their own reputations."
