February 29, 2008 in Business

Pizza makers feel pinch

Associated Press The Spokesman-Review
 
Associated Press photos photo

Mary Hellers prepares to bake breadsticks at a Buddy’s Pizza in Detroit. Most pizza makers in the $30 billion-plus industry are struggling with rising prices for ingredients.Associated Press photos
(Full-size photo)

Why they’re on the rise

Wheat prices: Spring wheat for March delivery fell $1.75 Thursday to close at $18.25 a bushel. Wheat historically trades at $3 to $7 a bushel.

Cheese prices: A 40-pound block of cheddar cheese cost $1.76 on Feb. 16, compared with $1.30 a year ago.

DETROIT – First, it was cheese. And many pizza makers across the country absorbed sharply rising prices of the staple ingredient as long as they could before passing along some of the expense. Now, they’re dealing with the surging price of wheat used to make crust.

Players big, small and in between in the $30 billion-plus industry are feeling the heat as they figure out how to deal with the double-barrel price spikes of the gooey and grainy commodities without sacrificing their quality, competitive edge or customer loyalty.

“Our commodity costs have probably tripled since last year on the flour,” said Wes Pikula, vice president of operations for Buddy’s Pizza, a 63-year-old Detroit-area chain of nine restaurants. “We’re stuck with an uncertain future as well as price increases … that are unprecedented.”

The price of wheat has surged because of constraints to global supply and demand from places such as China. But its volatility is as much of a concern as its price.

Spring wheat for March delivery fell $1.75 Thursday to close at $18.25 a bushel on the Minneapolis Grain Exchange. It traded as high as $25 a bushel this week. Wheat historically trades at $3 to $7 a bushel.

Likewise, the price of cheese has been rising during the past year in part because of lower-than-normal cheese production and higher demand. According to the U.S. Department of Agriculture, a 40-pound block of cheddar cheese cost $1.76 per pound on Feb. 16, compared with $1.30 a year ago.

For Buddy’s Pizza, raising prices is the last option – and one it’s evaluating. One effort has been to offer more salads, sandwiches and appetizers.

“You have to drive your business with a different menu variety that doesn’t rely so heavily on a single product,” Pikula said.

He said his company also is exploring other types of pizza “that aren’t so flour and cheese dependent,” such as thinner crusts that might cut the use of each in half.

He said the experimentation is not merely because of rising prices. “People are eating different styles of pizza. It has sort of a double benefit.”

Some big chains, such as Pizza Hut and Papa John’s International Inc., last year raised the price of their cheese-only pizzas to the same amount as one-topping pizzas. Chris Sternberg, spokesman for Louisville, Ky.-based Papa John’s, said in an e-mail Thursday that the chain last fall locked in the purchase of part of the wheat supply needed for 2008. “Through this strategy, which we have continued in 2008, our restaurants are somewhat insulated from the recent run-up in the cost of wheat during the first half of the year.”

He said the company is controlling inventory and working with suppliers to control costs.

Domino’s Pizza Inc. in October estimated it paid 64 percent more, on average, for cheese during the third quarter of 2007. Chief Executive David Brandon said at the time he had tried to raise prices to offset the higher cheese costs, but found it difficult with consumers strapped for cash.

Domenico DeMarco, owner of Di Fara Pizza in Brooklyn, N.Y., recently increased the price of one his slices from $3 to $4, causing a stir on food blogs and tabloids. The pizza is considered among the best in the city.

DeMarco, 71, said the cost of using fresh ingredients, including flour, tomatoes and cheese from Italy, had forced the spike. DeMarco, who makes about 150 pizzas by hand a day, was unapologetic. Economics had forced his hand.

“A lot of people say I should sell it for $5,” the famed pizza maker said with a slight smile as he worked the dough for a $20 pie that was cosst $1 when he opened in 1964. A slice then was 20 cents, he said.

Bob Goldin, executive vice president of Technomic Inc., a food industry consulting firm, described the cost increases as a “disaster scenario,” with no real end in sight and limited ability for most to pass on the bulk of the costs to consumers.

“There are no simple solutions,” he said. “The trend will be to reduce product costs, and some of that may very well affect quality.”

Making matters worse, he said, is an already slowed demand for traditional pizzas.

“It’s hard to imagine, but there may be pizza burnout.”


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