Looming labeling regulations threaten to pinch pizza profits

By Steve Coomes

In the online ordering section of Domino's Pizza's website is the Cal-O-Meter, a calorie counter that adjusts up or down as customers build their pizza orders. The site also has a "Lighter Options" button that suggests waistline-friendly options.

Cool, huh?

Sure, but not totally effective for new menu labeling guidelines created by the Food and Drug Administration. The nutritional information supplied Domino's and many other pizza company websites won't be sufficient to meet the new regulations when they take effect in mid-2012. The FDA says that same nutritional information must also be available on stores' menu boards, which is a challenge for any pizza company.

"We've been sharing our nutritional information with consumers for 12 years, so we're clearly not against menu labeling," said Tim McIntyre, vice president of communications at Ann Arbor, Mich.-based Domino's. "We understand that the point is to get that information to the point where consumers are making decisions, but only 10 percent of our orders are placed in the store. We're not like Burger King or McDonald's where most customers are at the counter making a decision. Ninety percent of our orders are placed by phone or online."

Same as the 567-unit Hungry Howie's Pizza. Even though half of the chain's orders are for carryout, only 10 percent of total orders are placed at the counter, said Brian Ognian, vice president of franchising for the Madison Heights, Mich., chain.

"There's a million possibilities, so how are you going to package that on a single menu board?" Ognian said. "I don't think anyone's really answered that question."

While every pizza company has a lineup of standards with easily-calculated calorie counts, the real challenge is with guest customization. According to McIntyre, there are 34 million potential combinations on Domino's menu alone, leaving the government proposing pizza companies share an item's "potential range" of calories rather than specifics. But when those ranges can vary so widely, McIntyre questioned the effectiveness of such a strategy.

"Is that really helpful to see a range of 2,000 to 6,000 calories?" McIntyre asked. "It's just not as simple as they might have thought."

Since the menu labeling regulations apply to restaurant companies with 20 or more units, only about 280,000 of the nation's approximately 800,000 eateries will be affected. In the pizza segment, approximately 85 companies have 20 or more units and will be subject to the new rulings, leaving some breathing a sigh of relief and others feeling penalized for belonging to a larger system.

The cost for pizza chains

Only 10 percent of outlets in Domino's 4,950-store domestic system are corporate-owned, while thousands of units are owned by franchisees with far fewer than 20 stores each. Similarly, small franchised store groups at Pizza Hut, Papa John's Pizza and Little Caesars likely number in the tens of thousands. Nearly all Hungry Howie's stores are franchised, and most are owned by operators with just a few units or less.

"So you've got owners of one to three Domino's stores subject to those rules because they're part of a larger system. They bear the cost of the (menu board) upgrade, not us," McIntyre said. "But an independent who has the same number of stores or even more doesn't have to retrofit menu boards and absorb that cost."

Such inconsistencies makes Ognian wonder if elected officials really considered the effects of the new rules.

"What I don't think the government truly looks at is the cost of things like this to the individual businessperson," he said. "Switching out menu boards at two or three stores is a tremendous cost to a franchisee. That's straight out of their paychecks."

Dwayne Northrup, CEO of Garlic Jim's Famous Pizza in Everett, Wash., said menu boards at the company's 28 stores are fairly easy to change out and that corporate will bear the systemwide cost for the upgrades. Based near Seattle, Garlic Jim's has had two years of practice already with that area's menu labeling regulations, which aren't quite as tight as those expected from the FDA.

"Depending on the final language of the regulations, it could be difficult to figure out every possible combination on the build-your-own menu," he said. "But we'll do what we have to do to comply."

Short list on menu labeling

  • Only pizza companies of 20 stores or more must follow new FDA regulations in 2012
  • All nutritional info should be posted online, on in-store menu boards or printed menus
  • "Standard-build" pizzas should bear exact nutritional information; customizable pies can use a range of calories
  • FDA estimates in-store menu-board retrofits to cost $1,100-$1,800 per store, though pizza operators expect the cost may be double to triple that amount.
  • New research by NPD Group found customers order minimally fewer calories and items from menu boards bearing nutritional information
  • NPD's same study predicts consumers will likely revert to previously established buying patterns once menu labeling has become commonplace.

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User Comments – Give us your opinion!
  • Kim Blum
    While it may be a challenge for pizza companies, the FDA will most likely allow for a range of nutrients. If they put the nutrition information for several pizzas and then include the range, it would give customers a better idea of which toppings contribute the most fat and calories. Another option is to list the nutrition information for cheese pizza, then list the nutrition information for each of the toppings rather than the thousands of possible combinations.

    For expert nutritionals by a registered dietitian, contact KB Nutrition Consulting: www.kimblum.com
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