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It is never an exciting topic, and certainly does not get us excited in our restaurants, but the time might be right to look at raising prices, incrementally, and in small doses. Why do you ask, why now? It is our humble opinion at La Nova, as a result of the commodity forecasts on core items, that there is going to be some serious market conditions that will raise costs for us. Instead of reacting with drastic increases, we always feel a little more comfortable easing into a new price level by piecing it through on a monthly or quarterly basis.
Is this a nightmare scenario, as far as cheese pricing is concerned? No, we don’t see that yet, but there are a lot of ancillary markets that are feeling the impact right now. And the core commodities for the most important factor, feed, are spiking and have no impetus to fall back at this point. It may take weeks, sometimes months for the cheese, poultry, boxes and other markets to climb...but anytime feed is spiked it eventually filters throughout the business.
As all market information is based on assumptions I do not want to come off as a futures expert here. I simply have asked and read as much as possible regarding market conditions and try to get ahead of the curve if at all possible. The speculation I have heard is that feed prices, especially for corn and soybeans, will continue to rise throughout the year. The increase in feed, which bears a huge percentage of cost in the market, will influence a variety of markets. Poultry, especially wings are forecasted to be tight and high versus previous years. This was felt as early as January when raw market costs were at record highs. As well, eventually depending on the inventories and production estimates, it seems as if the future’s market is expecting much higher average cheese market prices over the balance of 2007.
Fuel is always a major component of costs and the inability to get a good perspective on the market due to instability has not prepared us for any good news, that’s for sure. And overall with these variables in play and increased minimum wage becoming a reality the cost of doing business is getting higher. And therefore the market is forced to have to bear this weight. Can you afford such cost increases without translating them to your customers? How will you react and what choices do you make in order to prepare and work through these potential changes?
So many times when we work with operators from a manufacturing standpoint, and as well with our operator relationships, we hear almost a position of fear when it comes to raising pricing. We at La Nova have always gotten a premium price for our products and believe we have the product that allows for that. If you are comfortable with the quality and believe in your product, we believe you should have a position of strength and confidence when it comes to pricing and price increases. Our industry, pizza specifically, provides the absolute best value for the consumer. Now don’t get me wrong, if you skimp on portions or quality of ingredients I can understand your concerns regarding retail price. If that is your position, we strongly suggest you revisit your market strategy and start to drive your brand with quality as the focus.
The cost of business is rising, the available disposable income at consumer level is falling, and the propensity of the average household to cook on a daily basis has plummeted. What has that allowed us to do at La Nova? It has allowed us to grow our brand and our business still serving a great product at even a higher price to our customers. You know what, they keep coming back. We push a very high level of service and customer satisfaction, but the core reason we can grow and not have to compete with price driven competitors is we make a great pizza. And for the health of the industry as a whole and for your bottom line we suggest you do that as well. Put out a great product and price that product so you are rewarded for your hard work and efforts.
Fear is never a position that you will build a great brand from, so cast it aside, be confident in raising your prices and set the tone in your market for what people want: great food at a fair price. And it is only fair for you to react when your costs increase. Great luck this year and may you all be blessed with growth and profitability.
