Indiana Daily Student

Volatile cheese prices last year hurt Pizza X, Azzip Pizza profits

Cheese prices fluctuated dramatically last year because of unexpected changes in supply and demand due to the COVID-19 pandemic. These changes hiked food costs for Bloomington’s Pizza X and Azzip Pizza, causing financial headaches.

Cheese prices reached an all-time high in June after hitting a 20-year low in April, according to the New York Times. The price of a 40-pound cheddar block, the cheese industry’s benchmark, plummeted to $1 per pound on the Chicago Mercantile Exchange on April 15. It then shattered its all-time record to reach $3 per pound July 13, according to the Cheese Reporter, a weekly dairy publication.

Like oil and wheat, cheese is a commodity in the U.S. Its prices are partly determined by traders operating on the Chicago Mercantile Exchange. The prices of other types of cheese in the industry are often determined by adding to or subtracting from the benchmark CME price of Cheddar, said Mark Stephenson, director of the University of Wisconsin Center for Dairy Profitability.

“If you’re buying mozzarella cheese for a pizza chain, they’re probably going to quote you something like CME plus or minus however many cents per pound,” he said. “That’s why it’s an important benchmark.”

Stephenson said cheese prices plummeted in the first two months of the pandemic because business shutdowns across the country dried up demand for out-of-home eating, which accounts for about half of all dairy product sales in the U.S. He said farmers then decreased milk production in response to low prices, reducing supply, while foreign buyers flocked to buy cheap cheese in the American market, increasing demand. The U.S. Department of Agriculture also purchased massive amounts of cheese to supply food banks, creating more demand.

“There was a lot of disruption of the supply chain,” he said.

Pizza X Director of Operations Roger Killion said record increases in cheese prices drove up food costs for the company during the pandemic and offset some of its increased sales. He said higher food and labor costs almost wiped out the company’s sales increases.

“In the end, we made less money,” Killion said.

The company’s founder Jeff Mease said Pizza X is likely the top buyer of mozzarella cheese in Bloomington. He said the company purchases its cheese from a small distributor that charges the company a small amount more than market prices of cheese.

“When the cheese market [price] is high, you suffer,” he said. “And when it’s low, you win.”

Mease said cheese usually takes up about 40% of Pizza X’s expenses on food. He said food costs usually take away about a third of the company’s overall sales, and when cheese prices rose by 50%, food costs in turn rose by 20%.

Related: [Despite record sales, Pizza X profits fall as food and labor costs rise]

The high cheese prices last summer and fall were mostly absorbed by restaurants like Pizza X, Mease said. He said customers aren’t as affected by the price fluctuations because Pizza X didn’t change their pizza prices often.

Azzip Pizza raised its pizza prices by about 4% largely because of high cheese prices last summer and fall, co-CEO and co-owner Andy Niemeier said. He said cheese costs at the company varied by as much as 60% between the highest and lowest market prices.

Cheese costs typically take up about 30% of Azzip’s total food costs, he said.

Niemeier said high cheese costs limited the company’s ability to recover from the lack of customers last spring. He said because of its dine-in business model, Azzip didn’t enjoy a sales boost over the pandemic as a result of increased delivery orders. 

However, Niemeier said COVID-19 forced the company to make changes that would benefit Azzip in the long run, such as introducing curbside pickup and delivery options.

“We’re feeling good, that we’ll make it through the pandemic and that we’ll be a better company coming out of it,” he said.

Correction: A previous version of this story misspelled Andy Niemeier’s name.

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