Ann Reichle, owner of two Angelina's Pizza restaurants in Olmstead Falls, Ohio, has seen cheese prices increase nearly 50 percent in the past year. Flour prices have nearly tripled during the same period, and an increase in the minimum wage has caused labor costs to rise, as well. Even though she's raised her prices, she's still struggling to cope.
To help get costs under control, Reichle is making some drastic changes in her operation.
"I'm dropping deep-dish pizza from our menu," Reichle said. "I'm doing that mainly because it uses 50 percent more dough than our other crusts."
And Joe Silvestri, who operates Grimaldi's Pizzeria in Brooklyn, is looking for ways to boost business to make up for lost profits.
"We're contemplating selling frozen pizzas over the Internet, so people who come to New York and visit our pizzeria can have it at home," he said. "We're doing some test runs now to see how well it holds up."
Silvestri admits rising commodities costs are having a major impact on his business, but so far he's resisted raising prices.
"We haven't raised our prices in seven years," he said. "Right now, we're just trying to maintain."
A ripple effect
Each Friday, the Chicago Mercantile Exchange publishes a weekly average price for a variety of commodities, cheese among them. Many pizzeria operators buy cheese under what's known as a "block plus" arrangement, paying a set price over the published CME block cheese price.
During the week ended March 7, 2008, block cheese averaged $1.90 per pound. During the same week last year, cheese averaged $1.38 per pound.
And what about the cost of flour?
A 100-pound bag of flour cost about $20 last year. Silverstri says he's now paying $60 for the same amount.
Rising gas prices are adding to the pressure. Reichle said nearly all her vendors have added a fuel surcharge to their invoices because of rising fuel costs.
According to pizzeria consultant Tom Lehmann, much of the blame for rising pizzeria commodity prices can be attributed to a poor economy, rising demand from overseas for wheat and dairy products and government subsidies for ethanol production. As more and more corn is diverted to ethanol production, less is available for use as a cattle feed. That in turn drives the cost of feed up, which then drives up the cost of dairy products, including cheese.
The relationship between the dollar and the euro further adds to the price pressure on cheese imported from Italy, distributors say.
Even though the cost of wheat for pizza dough has gone up, the cost of Durham wheat for pasta has gone up even further, Lehmann said, prompting farmers to switch to the more profitable crop. Sales of pasta typically rise when the economy worsens and strapped families look to scale back their food budget.
The commodity cost crisis is having a ripple effect, putting a damper on the business of people who supply pizzerias with goods and services.
Patrick Quinn, owner of Zeno's Pizza, which provides online ordering services to pizzeria operators, has been hearing a familiar refrain from potential clients, he said.
"A lot of people are telling me they have to ride the current situation out," he said. "They have to make sure they can pay the rent without adding something new to the works."
Making smart decisions
Many operators are experimenting with different cheeses as a way to hold down costs, said Anthony Caliendo, national sales manager with Linden, N.J.-based cheese distributor Milano's. Caliendo's company has been importing cheese from countries such as Syria and Argentina, he said. Those cheeses are typically a little cheaper than cheese from Italy.
"A lot of operators are looking to maintain quality at a lower price, so we are seeing a lot more blending," Caliendo said. "That's one of the things we do (at Milano's)."
Lehmann says the main thing operators need to do to cope with rising prices is to make sure their menu is priced properly. Operators should increase prices if they need to, but those decisions need to be intelligent ones.
Operators might consider adding a surcharge in the same way that vendors add a fuel surcharge, eliminating it when prices fall, he said.
"An average pizza contains about 20 cents worth of flour, so if the cost of flour doubles it goes up to 40 cents," he said. "You don't need to double the cost of your pizza to make that up."