OPINION: Cheese prices, gas prices, false advertising, oh my!

May 17, 2004

Cheese prices to remain fairly firm

I'm not a betting man, but I'd wager a wad o' cash that no pizza operator would ever have called the May 13 price drop to $2 block cheese "good news." But given the fact that block prices hung in at the $2.20 record for nine days in mid-April, every dime saved adds up. If your shop uses 1,000 pounds a week, that's about $10,000 saved over the course of a year.

In a recent PizzaMarketplace survey, nearly 70 percent of the respondents said they have raised their pizza prices, or were planning to, in order to counter this most recent cheese price increase. That's good news, because it doesn't look like prices will retreat to former levels anytime soon. What's worse, no analyst I've spoken to is calling this a "price spike" any longer,

Steve Coomes, Senior Editor

rather this appears to be a new plateau where prices will hover well into the future.

Fact is, commodities prices are up across the board, and many of them impact dairy farmers directly. And when Farmer Brown sees his costs go up, you know yours will follow.

How operators can run their businesses profitably in this market without passing along the costs to consumers is beyond me. Absorbing losses longer than the next guy may be one way to remain in business, but it's no way to make a living, much less a profit.

And by the way, not a single operator who told me they raised pizza prices this year has reported back with any complaints from customers.

If my sources are correct, and if what I'm reading is true, we're headed for a period of inflation that, much like the recession from which we just emerged, could cool the whole economic recovery underway. Therefore, now is the time to convince customers your pizza is the best product on the market. As consumers demonstrated during the recession, they'll still order pizza when money's tight, but they'll order it less often. They'll buy the pizza they like the best, not necessarily the cheapest one that fills then up in a pinch.

Make every effort now to ensure you get the call when they're hungry.

Gas pains

Gas prices are at record levels, too, and just when I was about to complain about paying $2 a gallon for my latest fill-up, an operator in Southern California told me he was paying $3 a gallon.

Well, at least we're not in Europe, where some countries pay $5 a gallon.

Operators: Are you increasing reimbursement rates for drivers or not? Either way, let me know, as I want to do a story on the subject. The same goes for you drivers: Let me know if your reimbursement rates have increased. E-mail me at stevec@networldalliance.com.

If you've never tacked on a delivery fee, now might be the time. Your customers know gas prices are through the roof, and seizing the moment while they're empathetic to your situation is wise. Trying to add a delivery fee for reasons they don't quite understand, such as driver insurance rate increases, or in a period when gas is more affordable, could hurt you.

In the meantime, check out these two Web sites that report where in large cities you can find the cheapest gas: GasBuddy.com and Gaspricewatch.com. Both get their information from volunteers who note prices as they drive around town.

Free delivery or false advertising?

According to a story in the St. Louis Business Journal, if you advertise "free delivery," but offer discounts for carryout, you might be sued. In the report, two multi-store Domino's Pizza franchisees were charging $12.01 for a delivered one-topping large pizza, but $6.99 for the same pizza if the customer picked it up.

A few patrons cried foul, some lawyers got in on the action, and it now appears the franchisees will have to give away $21 million worth of discount coupons to remedy the situation.

In response to the story, a PizzaMarketplace survey asked whether operators advertised free delivery but gave carryout discounts. Twenty-five percent of respondents said they did, while nearly 42 percent said they didn't. Another 33 percent said they made it clear to customers that a fee is applied to all delivery orders.

I suspect that the "carryout discount" is more widespread than that--it's certainly common where I live. In fact, I take advantage of it.

But is that false advertising, as the St. Louis plaintiffs claimed?

Honestly, I can't see how any operator could deny it.

I suppose this deception is easy to pull off because delivery customers never go to the actual pizza shop where they would discover the carryout special is actually less expensive than what they usually pay. And I'm sure there are plenty of customers who are aware that bringing a pizza to their homes costs someone some money, and they just play along and don't complain.

That doesn't, however, justify saying delivery is free if the same pizza costs less when carried out. And a potential settlement of that magnitude should serve as a warning to pizza operators that some customers don't appreciate such trickery.

Topics: Commentary

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