It’s not just your imagination; pizza prices are going up. Pizza is at the intersection of several economic trends, many of which were caused by the COVID-19 pandemic. Together, these have led to higher prices. Even more frustrating is that this trend may continue, though it is challenging to guess how long it will last.
Before exploring why prices are going up, it is helpful to understand what drives the price of a pizza to begin with. Why is pizza priced the way it is?
Why is Pizza So Expensive
As with so many things in life, “expensive” relies on what you compare it to. Pizza is expensive compared to other fast food, mainly because of the work involved in making a pizza and the price of ingredients. Deep-fried food such as fries or chicken is relatively low on labor, as large batches of food can be cooked at once and do not require much attention.
By contrast, pizza dough requires a lot of time to prepare, especially if it is made fresh. An untrained person can easily tear a pizza crust, making it unusable. Cheese should also be freshly grated. Sauce and toppings also need to be portioned and spread over the pizza before going in the oven. Overall, this leads to more time investment than other fast foods.
Another driver of cost is the ingredients. Mozzarella is often the most expensive part of making pizza, as good quality cheese is pricy. Topping quality is also related to pricing. For example, top-notch pepperoni is going to be noticeably more expensive. Many types of fast food include fries as a side – fries are dirt cheap to make and are very filling. Pizza generally does not come with an affordable, filling side dish like fries.
There are other factors in pricing, though these are pretty consistent between fast-food restaurants. Overhead expenses such as rent, equipment, phones, internet, and the like will be similar across different types of fast food. Pizza shops operating in urban locations might opt for a no dine-in model. This allows the restaurant to save on floor space, which will enable them to rent a smaller place, which reduces their expenses.
Traditional pizzerias will sometimes use coal or wood-fired stove. These old-fashion stoves lead to a more complex flavor but usually have higher operating expenses than a gas oven. The exact impact of this cost is difficult to guess, though it will likely be minor in most cases.
Why Pizza Prices Are Going Up?
Pizza prices are increasing for a lot of reasons, many of which are tied to the ripple-effects of the COVID pandemic. The most notable dynamics are inflation, supply chain disruption, labor shortages, and the influence of delivery apps. Also worth noting is when you combine last years wheat harvest with this years droughts and extreme heat it clearly compounds the situation.
While inflation is a hot-button political issue, it is not the leading cause of increasing pizza prices. Generally, prices across the economy have been growing over the last two years. This is because world governments, including the US, have been printing a lot of money to stimulate their economies. While this is good for the short-term health of the economy, it means the overall buying power of each dollar (euro, pound, yen, etc.) is weakened slightly.
Inflation affects everything in the economy, including pizza. The effect is modest – a pie that cost $10 last year might cost $10.25 or $10.50 now because of inflation. If inflation were the only dynamic at play, it would be barely noticeable. Since there is a combination of effects, the overall price increase is more apparent.
There was a lot of attention on the supply chain in the early months of the COVID-19 pandemic. People were hoarding toilet paper, stores were sold out of flour, and farmers were forced to pour fresh milk down the drain because they could not get it processed. How all these were tied to the “supply chain” was hard to unravel for a layman. What was just as mystifying was that many of these crises seemed to go away as fast as they appeared. Stories would pop up every now and then about specific foodstuffs disappearing, but they would usually return shortly afterward.
This experience is quite different for a restaurant. If you as a consumer see that the grocery store is sold out of canned tomatoes, you may curse under your breath, but you will find something else. If you run a pizza restaurant, when your supplier says they are out of tomatoes, you are dealing with a real problem!
Overall, supply chain issues since the winter of 2020 have led to price increases for main staple food items. Wheat, tomatoes, and cheese are all close to historic high prices. These price changes often take time to hit the final consumer, but these are one of the many forces pushing up pizza prices.
Tied in with the supply chain is fuel prices. While oil prices fell hard in the early months of the pandemic, they are close to a 5-year high. Each ingredient used in pizza is likely transported by truck several times as it travels from the farm to your plate. This means that increased fuel prices will lead to increased transportation costs, which leads to pricy pizza.
Labor costs have also gone up in the aftermath of the pandemic. Restaurants, especially franchises, rely on minimum wage or near-minimum wage workers to operate. Many countries worldwide, including the US, offered substantial unemployment assistance during the first year and a half of the pandemic. This meant that workers were under less pressure to work long hours for low pay.
As restaurants reopened, workers were less willing to work at minimum wage. To overcome this reluctance, many restaurants have needed to increase their pay to attract new employees. These costs are often passed on to the consumer, leading to higher pizza prices.
As the unemployment assistance measures expire, it is difficult to predict how the labor market will react. Labor prices may slowly drop to pre-pandemic levels. This may lead to a decrease in pizza prices, but you should expect this effect to be slow.
Also, the pandemic is clearly not “done.” Some of the unemployment support measures may be extended, or new ones will be created. This makes it challenging to anticipate the trajectory of wages in the restaurant industry.
Another force that has caused distortions in restaurant pricing is are delivery apps. While everyone is familiar with these services, many people don’t appreciate their complicated role in the food industry.
Pizza delivery has been around for decades. Usually, delivery costs a bit extra, but pizza places rarely make money on delivery. Consider the time necessary to deliver each pizza and the cost of gas – it is clear that delivery charges are not a source of profit for pizzerias.
In the mid-2010s, food delivery apps began to gain traction. Companies like Grubhub and UberEats aimed to disrupt the restaurant business by creating a one-stop shop for food delivery. This creates a surge in food delivery, where suddenly anyone could order anything from avocado toast to ziti any time of day! Pizza places, ranging from local restaurants to international chains, began using the apps to stay competitive with other restaurants.
The business model of the food delivery services is surprising. Often, they take a commission from the restaurant. Restaurants have had to increase prices to cover this fee. These price increases have been partly masked by low delivery prices – low because the restaurant is paying them rather than the customer.
The delivery app market is also highly competitive, so each service has relied on promotions and price cuts to stay ahead of other apps. Many of these businesses have been operating at a loss, burning millions of dollars! Grubhub alone lost 68 million USD in Q4 of 2020. This competition has led to artificially low delivery prices.
Investors began pressuring delivery apps to actually make money a couple of years back. This led to increasing prices during the early months of the pandemic. These fee increases were seen as poor taste in the pandemic, leading some cities to instituted fee caps. Those fee caps are reversing in some areas now, causing delivery fees to spike.
Overall, the delivery app scene has made everything about the restaurant industry more complicated. Some areas are seeing price jumps, while others are still enjoying low costs. It is hard to anticipate how this will shake out in the long run, especially given the volatility of the market and the shifting regulation covering the gig economy.
Predicting Pizza Pricing
Congratulations, you are now an expert on pizza prices! It is clearly an extremely complicated subject, sitting at the intersection of many economic trends. By understanding these dynamics and thinking about how they intersect, you can appreciate why pricing pizza is so complicated.
So, where are pizza prices going to go from here? It is tough to tell. Inflation will always be around, but it is impossible to guess how the rate will change given the bizarre state of the economy. Supply chains are far better than they were at the pandemic’s peak, but they are still shaky and could be disrupted again by any number of disasters. Labor prices will likely decrease gradually, but it may take a long time before consumers notice the effect. And delivery apps are a whole separate mess, subject to the whims of politicians, business people, and investors. How these forces will interact and collide over the coming months and years is anyone’s guess.
Maybe it is better to not worry about the price of pizza tomorrow and simply enjoy the pizza we have today.