Pizza makers must weigh rising costs of wheat with competition

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 pizza 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-barreled 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 in the past month because of constraints to global supply and swelling demand from places such as China. But its volatility is as much of a concern as its price.

Wheat traded as high as $25 a bushel this week, when it 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 $70.40, or $1.76 per pound, on Feb. 16, compared with $52, or $1.30 per pound, 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 pizza chains, such as Pizza Hut and Papa John's International, last year raised the price of their cheese-only pizzas to the same amount as one-topping pizzas at company-owned stores.

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.

Messages were left seeking comment from Domino's Pizza officials. The company 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 that he had tried to raise prices to offset the higher cheese costs, but found it difficult with consumers strapped for cash because of soaring gas prices and the weak housing market.

Jimmy Ferrell, owner of the four Fat Jimmy's pizza restaurants in Louisville, said the price of flour has gone up to about $12 for a 25-pound bag. When he got into the business eight years ago, the price was $3.99 per bag.

"You have to raise [prices] a couple times a year just to keep up," he said. "We can't jump up at the same rate that our cost is jumping up."

He said he plans to raise his prices between now and April 1. Not everything on the menu is going up, but overall it will average out to a 5 percent price increase.

He thinks the rising flour prices have hurt small operators more than national chains.

"The national chains have a lot more pull and they can negotiate prices. I don't think we have the same buying power that a Papa John's or a Domino's obviously has."

Bob Goldin, executive vice president of Technomic, 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."

Associated Press reporters Bruce Schreiner in Louisville and Adam Goldman in New York contributed

to this story.