Operations – Thoughts & Observations

By Peter Thor, President, Bellissimo Foods

When was the last time you had time to think? Or perhaps better phrased question when was the last time you took the time to really think about where things are going and how best to position yourself and your business for the future? The recent Pizza Expo in Las Vegas was a showplace with a great variety of suppliers of foods, equipment, POS software, and marketing services. New products and concepts were on display everywhere.

A common theme amongst traditional suppliers of cheese, meats and toppings were new products offering different flavors, natural, and sometimes unique items to help pizzerias differentiate themselves from the competition. This is particularly important since pizza, still the Nations #1 preferred food, is under siege from government health advocates trying to reduce caloric consumption as well as competitor fast casual ethnic concepts including wing and burger franchisers. The good news of course is that pizza is still wildly popular and an incredibly good value.

But exposure to so many suppliers and alternate concepts causes us to pause and think about the state of the industry, its challenges, and the likely near future. Perhaps chief among the positives for pizza operators is the recent trend in cost of food. Cheese, which typically represents about 40% of food costs, has come down in price significantly since mid-2014 and has been relatively stable for the past several months. We see that trend continuing because of adequate grain supplies, moderate weather, no major domestic supply or demand constraints, and thankfully a moderation of international demand.  When one thinks about the value of the US dollar increasing more than 20% against international currencies in the last quarter, the news focus’ on oil and lower energy costs. Lower energy costs are beneficial to be sure as they will add approximately $700 in disposable income to the average family.

Less obvious is the impact on food ingredient costs to restaurants. As we’ve highlighted in previous articles, export demand has been an important factor in driving up the cost of dairy and meat products. With the spike in the value of the US dollar versus other currencies, US based suppliers of dairy and meat products are suddenly less competitive in world markets which in turn has resulted in greater domestic supply and lower prices for cheese and pork especially. Pepperoni, for example, has come down in cost close to 20% since its 2014 peak. We also observe that imports of common toppings like tomato products, mushrooms, olives, oils, and other items are coming down in price and causing domestic suppliers to either reduce prices or risk losing volume.

The statistics are in with winter over, concluding with California receiving just 8% of its normal snow-pack. This is important as California farmers depend on snowpack water to irrigate their crops. Since California provides the lion-share of the Nation’s processing tomatoes and summer fresh vegetables, one can expect fresh toppings to be more expensive. But the middle of the country had sufficient moisture and a milder winter which means positive news for the nations grain supply. On balance, we conclude that food costs will be significantly lower for pizzeria operators in 2015, and expect the trend to continue through the year.

Among the more interesting and important trends, we see increasing interest in health related differentiating product features. Some of them seem to be more smoke than real, or too expensive to become mainstream, but a few we believe will become long term product mainstays. To the extent possible, operators should offer unique or differentiable products using ingredients and marketed as “local”, “organic”, and “natural”. For example, “r-bST ” is a growth hormone commonly fed to cows to increase milk production. The FDA has declared that “r-bST free” milk is safe for both cows and humans, but it appears that hormone free milk and cheese will have increasing consumer appeal. Conversely, items like “free range” chicken are more a misnomer and will not become mainstream due to costs and some potential health hazards to humans. There were many displays offering “gluten-free” and “GMO-free”, but both have larger implications and are problematic to either prove or effectively implement. “Gluten-free” especially can also have liability implications for the restaurateur.

In summary, 2015 looks positive both for increasing consumer demand for pizza and also supply and cost for common pizza ingredients. Our hope is that each operator will take some time to consider the larger trends and how best to embrace them to grow your business. Your local Delco Sales Representative lives and works in your area and can help position you for a successful future.

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