Impact Of Food Cost On Pizza Restaurants

Wednesday, April 22nd, 2015

There is one thing both consumers and those in the restaurant business don’t want to see, and that is the cost of food going up. Consumers have been feeling the pinch at the grocery store for some time as rising prices and shrinking package sizes have become commonplace. For those in the restaurant business, rising food costs mean an overall increase in the cost of doing business. That often results in a decline in quality, a decline in portion sizes, increased prices for customers, or possibly all three. Over time those things can lead to unhappy customers which can hurt your pizza restaurant. The U.S. Department of Agriculture (USDA) recently released the first information and projections on food prices for 2015. To understand the impact of food cost on pizza restaurants, you must also understand Consumer Price Index and Producer Price Index.

Understanding Consumer Price Index and Producer Price Index

If you watch the news, you may be familiar with the Consumer Price Index (CPI). These figures represent the average retail price the average American pays for a representative assortment of general items. However, these figures don’t include food or energy. The CPI for food is calculated separately by the USDA. The USDA also compiles the Producer Price Index (PPI) for food. This compilation measures the changes in prices paid to domestic producers of food for their products. In other words, farm and wholesale prices. These figures are probably of more interest to those in the restaurant business. The two are interconnected and the USDA price forecasts are based on the food CPI numbers.

Food markets are considered volatile because prices tend to change often, seasonally, and drastically. Because of this fluctuation, retailers, food manufacturers, and restaurant owners will often absorb some of those temporary price changes. However, consistently high prices eventually have to be passed on to consumers.

The food CPI has continued to rise at an above average rate. The USDA report contributes these price increases to widespread viral outbreaks and drought conditions in California, Texas and Oklahoma.

The two biggest areas of price increases on both the retail and wholesale level were meat and fresh vegetables. That isn’t great news for pizza restaurants since those two groups comprise a majority of pizza toppings. Specifically, wholesale beef prices are at all-time highs and have risen a whopping 23.6 percent in the last year. Beef prices are expected to continue to rise but more slowly as herd sizes begin to recover from the effects of drought.

The 2015 price forecast isn’t all bad news for pizza restaurants. Hog populations are starting to recover from widespread disease outbreaks, which is expected to start driving the price of pork down. Wholesale prices for wheat flour are expected to continue to fall, as are wholesale dairy prices.

Given some of the drastic price increases for key pizza ingredients, it is very likely that pizza restaurants will have to pass some of those increases on to consumers. Pizza restaurants are at a bit of a disadvantage over some sit-down restaurants when it comes to being able to take measures to absorb price increases. There is less flexibility with seasonal menu options and portion sizes. Consumers expect to find at least some standard offerings in familiar sizes at pizza restaurants. One way to help control rising ingredient costs is to implement some portion control during the pizza assembly process. This control can be done through standardizing recipes or improving portion control measures that already exist.

There are a couple of positives for pizza restaurants. While prices for pizza ingredients have been going up, you aren’t going to see the kinds of increases that burger and steak places have. This will likely make pizza restaurants look more attractive to budget conscious consumers choosing to dine out.

If you are in the mood for delicious pizza, contact us today at Pizza Planet and view our menu online. We offer various sizes and toppings. You can even build your own! If you are located in Amarillo, Texas and would like to place an order, call us at (806) 352-6666. You can also connect with us via e-mail for more information about the pizza we offer.