Pizza profits sliced

A sharp rise in the cost of cheese this year is cutting into profits in the pizza industry and has prompted Pizza Hut to raise prices.

With cheese prices up by 55 percent this year, other pizza chains may follow suit.

Block cheddar cheese hit $2.06 a pound this week on the Chicago Mercantile Exchange, a 55 percent increase from the end of 2006, when it was $1.33 a pound. Cheddar is the benchmark for mozzarella and other types of cheese, which typically make up the largest single ingredient for pizza companies.

“It’s definitely a major concern,” said Rob Mooney, president of Louisville, Ky.-based Bearno’s Inc., which has 16 restaurants in Indiana and Kentucky.

Like many larger outfits, Bearno’s locks in cheese prices months ahead of time. But if current prices don’t drop by this fall, Mooney said, his company would have to shell out roughly $300,000 more over the next 12-month period.

Dallas-based Pizza Hut, the nation’s largest delivery chain, recently raised the price of a regular cheese pizza to the same level as a one-topping pie.

Jennifer Little, a Pizza Hut spokeswoman, said the new strategy is to treat cheese “almost like an extra topping.” Little said the price change also could be justified because a typical cheese pizza has about 50 percent more cheese than a similar-size pie with one topping, such as pepperoni.

Pizza Hut, part of Louisville-based Yum! Brands Inc., uses 300 million pounds of cheese annually.

Papa John’s International, also based in Louisville, uses about 100 million pounds of cheese a year. The chain has locked in prices through the third quarter of this year, but spokesman Chris Sternberg said the company also is feeling pressure from fuel prices and higher minimum-wage rates.

Reasons for the cheese price increase include a drought in Australia and growing demand in China and Russia for American-made dairy products.

The biggest reason, according to Rob Hainer, spokesman for the Southeast United Dairy Industry Association, is a sharp rise in the cost of feed grain, primarily corn. Fueled by the growing popularity of ethanol, corn prices have risen to about $4 a bushel, roughly double the price from a year ago.