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Friday, February 22, 2008

Challenging Time For Pizzerias

With more people utilizing take-out dining options, pizza delivery is growing strongly in my neighborhood. Today is Friday and I expect plenty of delivery cars on the streets near my home tonight. The pizza segment has a long tradition of take-out and delivery service.

I worked in a pizzeria during my college years and we served lots of pizzas to go each night. The delivery option was not available for our customers. With a growing number of pizza lovers requesting delivery, the current economy offers pizza chains plenty of challenges:

Gas prices are up due to a weak dollar and soaring demand for foreign oil;
Mozzarella cheese prices have seen dramatic increases;
Domestic vegetable oil prices have risen and imported olive oil is up;
Canned tomato products have experienced modest increases and flour is trending higher.

Taking a closer look at the mozzarella cheese market, we have seen major shifts in the price curve (see chart below):

Market Data from ( - An Online Community for Foodservice Operators was used in creating the chart.

Early January market prices from 2007 to 2008 have increased 62.5%. The trading range in recent months, between $2.00 and $2.50 per pound, is well above 2006 levels.

Pizzas use anywhere from 6 to 12 ounces of mozzarella cheese per pie. Many operators pay 75 cents more per pie for this key ingredient. If the target food cost percentage was 25%, they'd have to raise prices $3.00 to maintain margins. With plenty of delivery and take-out options competing for market share, a $3 increase may be a tough sell.

I'd recommend more profitable add-on sales to improve results. Soft drinks, garlic knots (a New York favorite), salads, chicken wings, and other non-dairy options could help the bottom line.

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