Cheese Prices Could Trigger Higher Pizza Cost

Bad weather contributed to more U.S. exports of cheese, thus making pizza’s costliest ingredient even pricier.

February 07, 2014

LOUISVILLE, Ky. – What’s the costliest ingredient in pizza? Cheese, which typically snags between 35% and 40% of food costs. With the price of cheese rising rapidly, higher pizza costs could be close behind, Bloomberg Business Week reports.

Mozzarella cheese prices have jumped around 16% since December, while cheddar cheese prices have soared 25%. Bad weather in New Zealand and Europe coupled with higher feed costs that harmed worldwide milk production last year pushed up the cost of cheese and increased U.S. cheese exports.

From January to September 2013, U.S. exports of cheese rose 17% over 2012, with a huge share ending up in China, Mexico and South Korea. With more Americans eating cheese, U.S. inventories will reach its lowest level in 10 years.

Pizza chains shouldn’t have too much to worry because other food costs, such as wheat and meat, have dipped. “I’ve had a lot of questions about cheese because it spiked up, and cheese is the biggest commodity,” said Michael Lawton, Domino’s CFO, in January. “Even taking that into account when you look at the whole basket, and you look at the projections on cheese for the year, we are still projecting that we would be down in the range of 0% to 2%.”

Lawton explained further that “in the commissary system, we have a relatively fixed penny profit per pound. … We adjust prices up or down as commodities move up or down. This obviously does impact us in our corporate stores. Longer term, commodities like any cost are an issue, because we want our franchisees to enjoy some good financial returns.”

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