Well here they are, the repercussions. We had such a nice run of commodity-based pricing, it was inevitable that some rising prices would eventually hit.
Many of us reap the rewards during low market conditions without consideration that they will go up. After March, we feel as if they have not only hit, but now we are in what we have been calling the perfect storm. If you have been keeping your finger on the pulse of your invoices, it is not only the cheese market that is hitting us. Every market driven product we use has taken an increase. Not only that, but fuel and shipping costs have also risen, adding to the pressures on manufacturers to get into your bottom line.
We have a double-edged sword working here at La Nova. We are not only an operator, but as you know we are also a leading manufacturer in the wing business. It is a tough position to be in. We are raising our customer’s prices; our manufacturers are raising our prices. It seems as if every time we turn around, there is an increase coming from every direction. What’s the solution for you? I’ll get to that later. Now I want to give you some information and industry resources that I have used over the last few months to find out what is going on out there. Why are cheese and poultry markets not only rising, but also at record highs?
Here are a few sites I use to give me market information. If you want to, take a look. At least it gives us some information as to why these costs are incurred. Here they are:
- www.urnerbarry.com (for poultry, beef, and other key items)
And I have to give credit to Ed Zimmerman from Success Foods. Ed is an invaluable source regarding the cheese market and other key indicators that affect our course of doing business. He can be reached at email@example.com.
The tone of all of the information I received is pretty much the same. No relief from increased prices in cheese until somewhere around late August. And that is a prediction only, with no guarantee of relief. The dairy farmers have pulled production back. They are reaping profits that they feel are justified after having drastically low income over the last two years. Expansion of production is also limited by lower heifer imports from Canada due to beef import restrictions that won’t be relieved any time soon.
It’s a fairly simple equation: Supply is down, demand and pricing increases. Normally, we would see the market trend down after Super Bowl for poultry and cheese. This year, we saw exactly the opposite, record breaking increases within an 8-week period.
The block market was $1.12 last year on April 1, 2003. That market closed at $2.10 on the same day one year later. The wing market was priced as high as $1.30/lb. with a lot of other product being sourced on the open market at much higher premiums.
Before we go after our manufacturers about their increases, I learned that many of the manufacturers are not reaping the benefits. Cheese manufacturers sell primarily at an average over block. And I can speak from experience that our wing company, even though we have been forced to increase prices, has not reaped any benefits from the increases. When you have to fight to get your customer’s product because of supply issues alone, you can only imagine the concerns when pricing is increased at the same time.
This brings me to our only reasonable solution if we are going to maintain and strengthen the segment: raise prices! We have worked through the increases here at our store. Every once in a while we have to have a discussion with one of our customers. After letting them know what the cost changes are to us and the reasons behind the increase, we have not seen a loss of business overall. Most don’t even notice and continue to buy because they love the pizza. Customers may not approve of price increases, but if done properly, they will understand. They mainly want to feel like they are not being gouged. Use boxtoppers, flyers, handouts or ads to explain the rising costs of cheese, chicken, beef and gas to you and how you must slightly raise prices to ensure they are getting a quality product. A good article on how to handle this was written by Big Dave Ostrander and can be found at: www.pmq.com/bigdavesummer_2000.shtml.
At the manufacturer level, we have been guiding our partners to raise also. The pizza industry needs to become more aggressive on quality and premium pricing. We can either raise the bar on what we feel we deserve for our product, or be subject to grief during times like these when markets rise.
I wish the best of luck to everyone in the industry during these hard times. This is generally when the cream rises to the top and the operators that aren’t in touch with the issues are left behind. Use PMQ and their resources to stay ahead of the game.