Adapting to Change

By Peter Thor, President, Bellissimo Foods

Our industry is changing at a faster and faster pace.  New products, a complex international supply chain, fewer but larger producers, greater regulation and changes in consumer demand are the new reality. This morning I was struck by how appropriate for the pizza industry is the long-ago observation by Charles Darwin, ” It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change“.

Just as the weather has been variable this year, so have the cost basis for key ingredients. It is forcing change on us, and gives opportunity for adapting. Business fundamentals require focus on key activities; thus quality, service, and your value proposition are strategic.  But, adapting to changing consumer preferences for natural and local ingredients, and adjusting menu and marketing to take advantage of better ingredient options to drive incremental sales makes a lot of sense.

Take the case of cheese, the #1 cost ingredient in any pizza, typically accounts for about 40% of your direct cost.  The average CME wholesale block market price of cheese is 20% higher than the same month last year, and 10% higher than last month’s average. Still, it is relatively in line with a 5-year average.

Not so with pepperoni and sausage toppings pricing which have steadily risen this year and have the potential to go higher.  A quick review of underlying costs for pork and beef show why this is happening.  Pork 72’s pieces are 22% higher than last year and beef 50’s have literally tripled in price since last year. The smaller proportion of beef in pepperoni has minimized the large increase, but one cannot help think that emphasizing other toppings options makes financial as well as marketing sense. Both beef and pork exports are up significantly this year, thereby reducing supply in the face of rising demand.

Consumer preferences are changing in part due to socioeconomic reasons and part due to government fostered regulations. As a result, the industry is forced to adjust resulting in some areas increasing costs but in other cases it also decreases production. Producing products that are “clean label”, all natural, antibiotic free, etc. all require changing production processes.

Higher beef and pork prices have also resulted in more attention to chicken for both cost and healthful reasons. Beyond that, the lifestyle popularity of chicken wings is driving the industry to make many changes.  Pizza operators have a natural opportunity to embrace chicken wings as an enhancement to their menu.  Rather than decreasing the pizza segment of business, wings offer a complement that draws customers and helps create the local dining experience that many crave. Prices of wings, though, have increased with their popularity.  Prices for jumbo wings are up 20% from year ago, significantly more than other parts of the chicken.  The USDA is forecasting summer output to be just 1.6% greater than last year, while inventories of chicken wings are 20% less than 2016. One cause is live weights coming off in an effort to resolve some quality issues associated with “woody” breast meat.  Another is that headcount of jumbo birds is down 8-9% which in turn means smaller average wings and lower pounds produced.  Wings and tenders, which are the smallest part of the bird are most in demand. The forecast is for sufficient supply, but expect pricing to remain high and possibly move higher depending on unknowns such as weather.

Other changing consumer preferences offer independent restaurateurs opportunities to adapt. Consumer interest in local sourcing offers a way to beat chain competition via embracing local natural ingredients. While national restaurant sales are slowing and foot traffic is down 3% versus last year, independent restaurants are better poised to recognize and adapt to their local market. Delivery is another driver of sales, encouraging both in-restaurant dining as well as pick-up and delivery.  Independent pizzerias have demonstrably better pizza.  Your passion, process, and ingredients all contribute to your success. A recent commentator on the Food Channel stated, “Diners have demonstrated a willingness to pay higher prices for (quality) local cuisine… and delivery wipes out the convenience advantage that chains enjoy”.  Please remember that WE ARE THE PIZZA PEOPLE, and are dedicated to your success by providing you authentic ingredients at affordable prices.

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