Pizza Today - March 2020 - 48

THE PAST: IN THE 1990S AND
EARLY 2000S, the formula had worked
well enough for the dairy farmers and
producers to make money. However, for
the past decade, they have operated at
a loss. According to the DFC (Dairy
Farmers of Canada: commissioned report
in 2015), 73 percent of United States
dairy farmer income comes from government subsidies. That's over $22 billion
per year! This does not seem to be a
sustainable plan. Over the past 30 years,
cheese consumption has grown steadily
in the world, with the U.S. and Europe as
the largest consumers. The rate of growth
has been consistent, with no spikes to
disrupt the supply/demand balance. The
largest market in the world, China, has
historically not included cheese in their
diet. Up until recently, no restaurant
chains have been willing to invest to
change this. Of course not; it is estimated
that the Chinese population in 90-percent lactose intolerant.
THE PRESENT: THE COMPLICATED FORMULA IS BROKEN. Two
factors have contributed to this. First, the
demand for whey has skyrocketed since
2017 due to the protein shake craze. This
has led to a gap between block prices
(used for cheese) and barrel prices (used
for byproducts such as whey), causing an
additional $600 million loss to dairy
farmers. The second factor is related to
the pizza industry. The formula uses
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cheddar cheese as a baseline. Cheddar
has been forever the No. 1 cheese in the
U.S., but for the second year in a row
mozzarella cheese has outsold cheddar
cheese. Not only is the formula broken,
but a new consumer has entered the
global cheese market: China. Pizza Hut
is opening, on average, a store EVERY
DAY in China. If you remember your
Economics 101 class, supply and demand
play a factor in prices, even in a regulated
market like cheese. It is expected that
China's demand for cheese will increase
30 percent per year for years to come.
Without the infrastructure to produce
this cheese, much is expected to be
imported from the U.S.
THE FUTURE: IF THE FORMULA IS
CORRECTED, CHEESE PRICES WILL
GO UP. If the government decides to reduce the $22 billion in annual subsidies,
cheese prices will go up. As China learns
to eat pizza, demand for U.S. cheese may
surpass supply, and cheese prices will go
up. We have had inexpensive cheese for
many years in the pizza industry. It
appears that may change.
As a pizzeria owner, what can you do
to manage the price of cheese? First,
know that you can monitor the price your
vendor is paying from the block market.
Visit cheesereporter.com/prices. Second,
consider a single vendor approach to
purchasing. If you are using the single
vendor approach, you can negotiate a

cost-plus contract for your cheese
pricing. If you are using a multiple vendor approach, you may be
selecting the best cheese price each
week, but it will still be 'street prices';
meaning higher prices than a contract would bring you. A cost-plus
contract is exactly that; you pay the
block market price plus X cents per
pound. Because you have access to
the block market price, you know you
are paying a fair price for your cheese.
You can spot-check your invoices any
time you like to ensure your vendor is
holding up their end of the contract.
Even if you have one location, most
vendors in a single vendor relationship will give you a cost-plus deal on
cheese. You get the added benefit of
having that vendor control the aging
of your mozzarella, so you have the
best cheese for your customer. A single
vendor contract can be as little as one
year, although I recommend at least two
years before going back out for bids.
Cheese prices are on the rise. Last January the block market was at $1.37/pound.
This January it was at $1.87/ pound. That
is a 36-percent increase in one year!
Another question facing pizzeria
owners is how to deal with fluctuations
in cheese price. Should we adjust prices
based on the price of cheese? I recommend you ride it out. Certainly, you must
measure your food cost and adjust prices
annually, but no more than that. Our
customer looks for consistency not only
in our product, but also in our pricing.
According to the U.S.D.A., Americans
consume over 30 pounds of cheese each
year. Not surprisingly, our favorite way
to eat that cheese is on pizza. Our future
in the pizza business looks bright, but
profitability is always at risk. Now is the
time to get control over how much you
pay. Say 'no' to street pricing and develop
a relationship with a single vendor. Lock
in a cost-plus contract and get back to
doing what you do best; serving your
customers the best pizza on the planet!
Do this and you will always have a friend
in cheeses! Q
DAN COLLIER is the founder of Pizza
Man Dan's in California and a speaker at
International Pizza Expo.
http://www.cheesereporter.com/prices http://www.PIZZATODAY.COM
Pizza Today - March 2020

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