It's been a tough year for the pizza industry. Rising cheese costs and fuel prices combined with stagnant or even falling comparable-store sales have hit many operators where it hurts: on the bottom line.
One of the biggest stories of concern to pizzeria operators this year has been the dramatic rise in cheese prices. In May, Pizza Marketplace reported that operators like Wayne Mosley, co-owner of a 12-unit Rocky Rococo pizzeria franchise in Madison, Wis., have seen cheese costs rise 26 percent since the beginning of the year, and cheese prices are up nearly 50 percent from April 2005.
"We've been in the business for 33 years, so we've seen a lot of swings," Mosley said. "It looks like this is going to be a long painful one."
The price of block cheese on the Chicago Mercantile Exchange was averaging about $1.70 per pound in May, compared with $1.34 per pound at the beginning of the year and $1.16 per pound in April 2006. Prices haven't been this high since January 2005, when prices topped $1.75 per pound. Prior to that, prices hit a high of $2.20 per pound in April 2004.
Cheese prices have continued their roller-coaster ride, swinging wildly from $1.85 per pound at the beginning of August to more than $2.15 per pound at the beginning of September. Prices then fell sharply, hovering around $1.90 per pound until late October, when they shot back to the $2.20-per-pound mark. After falling to $1.80 per pound before Christmas, prices rose to above $2 per pound to finish out the year.
Threats from all sides
Operators also faced an increasing threat this year from shops such as Subway and Dunkin Donuts, which both announced plans to add personal pizzas to their menu. However, some saw the challenge as a potential blessing for the industry.
"When the big discount warehouses such as Costco started offering pizzas, many people thought it would have such a negative impact on pizza chains, but it never happened," said Lex Nepomuceno, chief marketing officer for Everett, Wash.-based Garlic Jim's Franchise International Inc., franchisor of Garlic Jim's Famous Gourmet Pizza restaurants.
"Actually, it might end up being a positive because it introduces pizza as a daily food option for people who like to eat donuts and sub sandwiches every day," he said.
Plans to expand the number of RedBrick Pizza restaurants in operation to more than 12,000 over the next eight years (from approximately 70 today) hit a hurdle as the company faced lawsuits from several disgruntled franchisees.
The franchisees claimed that RedBrick founder Jim Minidis had failed to disclose pending litigation against the company, while RedBrick's attorneys claimed their suit was part of an effort to wrestle control of the company from Minidiz. In June, a Los Angeles Superior Court judge ruled against the franchisees.
While restaurant operators are typically slow to embrace new technologies, nearly everyone has hopped on the online ordering bandwagon. Although No. 3 chain Papa John's first introduced nationwide online ordering in 2001, Domino's and Pizza Hut both rolled out nationwide online ordering capabilities this year.
Additionally, Papa John's and Domino's are rolling out text ordering, enabling customers to order pizzas with a few clicks of a cell phone or personal digital assistant.
Operators also looked to technology to help combat the high cost of energy in 2007. The potential for increased energy savings is one of the reasons Papa John's began outfitting all of its U.S. company-owned stores with high-speed ovens made by the Elgin, Ill.-based Middleby Corp.
The oven, the Middleby Marshall 770 WOW! Oven, bakes 30 percent faster than a normal conveyor oven, while reducing energy consumption. The oven links to Papa John's proprietary in-store point-of-sale system, operating at varying energy levels based on order flow.
"We've seen energy savings of 20 to 30 percent at some of our restaurants," said Papa John's spokesman Chris Sternberg.
A look at the future
Shakey's Pizza, which had seen its fortunes suffer over the past 20 years, plans to continue a comeback efforts despite the sudden departure of CEO Tim Pulido, who left the chain in November after less than two years. Pulido, who resigned to become president of casual-dining chain Mimi's Café, had orchestrated a plan to revamp Shakey's image and tap into the company's near-universal name recognition.
Joe Remsa, who had been serving as executive vice president and chief operating officer of the company since 2004, was named interim CEO.
"Tim came in and we focused a lot on defining who we were as a brand and understanding that brand as our customers saw us," Remsa said. "We are executing on the strategy we developed."
Fuel prices promise (or threaten) to remain high in 2008, with some analysts predicting $4-a-gallon gas in the next few months. High fuel prices will have a domino effect, boosting the price of ethanol as consumers seek alternative fuels.
Ethanol demand will keep the pressure on corn prices, which will in turn boost the price of cattle feed. High feed prices can only mean cheese costs likely will remain high as well.
The move toward "green" operations, including the use of energy-efficient buildings and equipment, sustainable food products and biodegradable plates, utensils and cleaning products, promises to be one of the dominant trends of the next few years.
The Fort Lauderdale, Fla.-based upstart Pizza Fusion, which opened its first restaurant in February 2006, is one of the leaders in the "going green" movement. The company has four units in operation and contracts for more than 60 franchised units in seven states.
Pizza Fusion cofounders Mike Gordon and Vaughan Lazar are building their business on the motto, "Saving the Earth, One Pizza at a Time."
"Preserving the environment is something we're passionate about," Lazar said. "We went to great lengths to develop a business model where social responsibility is just as important as profitability."