Rising Flour and Dairy Prices Imperil the Pizza

Domino’s Pizza Chairman and CEO David A. Brandon bemoaned the drop in domestic store sales in a recent statement while blaming “the combination of unprecedented cost inflation and cautious consumer spending.”  Skyrocketing wheat and dairy prices have increased flour prices by 93% in the past year and cheese by 25% during the same twelve month period, reports the New York Times.   Add in the stiff competition from McDonald’s and Burger King’s value meals with higher ingredient costs and one can see why pizza chain sales are slowing after many years of growth.

Papa John’s International President and CEO said his company is also struggling in a “difficult cost and competitive environment” in a statement released with financial reports showing same-store sales fell in the fourth quarter of 2007. 

Although pizza chains frequently offer specials, it’s virtually impossible to order a meal for less than $5 – especially if it’s delivered.  “You can’t go into a Pizza Hut or Domino’s and spend $3 or $4 and get a meal,” said Jeffrey A. Bernstein, a Lehman Brothers restaurant analyst. “It’s a pretty high average check.”  Bernstein also told the Times that pizza is not the easiest food to consume while “on the go.” 

Pizza chains have weathered other economic downturns with special price promotions and discounts but the price of ingredients is making that harder according to Bob Goldin, Executive VP of Technomic, a food industry research and consulting firm. “The industry is in a slump, with some exceptions. Burger and sandwich places are doing reasonably well,” said Goldin.  “Consumers are very cautious right now.”