29 March 2022
Ordered a pizza lately? Notice it’s more expensive than the last time you ordered a pizza?
It’s not just you. A MinnPost analysis of prices at local pizzerias found that the price of pizza — like the prices of lots of things, whether groceries, gas or clothes — is up relative to before the COVID-19 pandemic.
More cheddar for cheese
To get an idea of how pizza prices have changed recently, MinnPost used the Wayback Machine and information provided by the restaurants to see the price of a specific pie (generally the largest cheese) from seven local pizzerias: Black Sheep, Fat Lorenzo’s, Football Pizza, Galactic Pizza, Leaning Tower of Pizza, Mama’s Pizza and Mesa Pizza. (To be clear, this was not a scientific survey.) We then averaged the prices together for the year, and looked at changes to the average price of a pie year over year.
The results? Pizza prices are up. In 2018, the price of these pizzas averaged out to $14.79. Today, it was $17.00 — an increase of $2.21, about or 15 percent.
Comparing pizza price increases to inflation in the overall economy, they roughly track. That suggests pizza makers, experiencing increased costs, are passing those costs onto consumers.
Percent change in price from 2018 by year, average pizza price and CPI
For the overall economy, inflation is measured with a BLS mechanism called the Consumer Price Index, or CPI. This index is compiled by averaging the cost of a bunch of goods urban consumers buy — cars, clothes, meals out, etc. — over time, to get a sense of how much more households are paying.
In recent years, inflation has been at or around 2 percent, as measured by the CPI.
Recently, though, it’s been higher, and rising enough so that many consumers are noticing. The most recent report from the BLS found prices were up 7.9 percent in February over the previous year.
Given the general increase in prices, it’s not surprising that pizza prices would be up too, said Mark Wright, senior vice president and director of research at the Federal Reserve Bank of Minneapolis.
Generally speaking, the price of physical goods that people buy tends to stay flat or fall over time, at least long-term. That’s because innovations in production make manufacturing more efficient, Wright said.
Not so much with services, like eating at a restaurant. The big costs for restaurants are ingredients and wages for employees. Unlike with the production of durable goods, restaurants don’t get much more efficient over time. That’s why the prices at restaurants tend to increase over time.
“When you’re baking a pizza, you’re still basically combining the same ingredients in the same way, using the same kind of oven that people have been [using] for decades,” Wright said.
The pressures of rising prices are being felt by pizzerias.
The price for a 14” build-your-own pizza with just cheese at Galactic Pizza has risen modestly, by about 7 percent, since 2018. Currently, it’s $15.05, or a dollar more than it was in 2018.
John Wackerman, who has owned Galactic Pizza for five years, said he chose not to raise prices earlier in the pandemic because he felt like it would hurt business. But in the second half of last year, he raised prices by 5 percent to try to keep up with increasing costs. He may have to do it again, he said, with the rising cost inputs including food and labor.
“I think in July when we redo the menu I will have to do a larger price increase because I’m getting battered — the cost of cheese and all the other ingredients are going up quite a bit,” he said. He said Galactic Pizza uses higher-quality ingredients, including flour and organic vegetables whenever possible, plus accommodating dietary needs for vegetarians, vegans and having gluten-free options. He says he’s been trying to shop around more but prices are going up.
“It’s a rough market out there. Our margins are suffering,” Wackerman said.
The Fed’s Wright backed up Wackerman’s observations. “Restaurants are responding from an absolutely a catastrophic event for them, which was the pandemic — many of them shut down. Many people lost their businesses, people lost their jobs,” he said. In a given year, the trillion dollars Americans used to spend on food services and accommodations (which includes eating out, hotels and other services) dropped about 40 percent to $600 billion. Spending has since recovered, but maybe not to the levels they’d be at had the pandemic not happened, Wright said.
At Galactic Pizza, Wackerman said sales are still down from where they were pre-pandemic, and he’s not sure why.
“It could be people going elsewhere and not staying in Uptown. It could be inflation. It could be there’s other people that are getting [consumers’] dining out-dollars,” he said. He noted that a number of restaurants in the neighborhood have closed recently, including the Herkimer Pub, the Egg & I, Muddy Waters, Cowboy Slim’s and Fuji-Ya.
On top of all that, the labor market is tight for restaurants in particular. In Minnesota’s economy, the restaurant sector has more openings than most.
“Many of the people who worked in that industry before moved on to other jobs,” Wright said.
Pizza prices may not stop rising anytime soon: Russia and Ukraine are both big wheat exporters, and conflict there could drive up prices, Wright said. Also: the winter wheat crop in China isn’t looking great, and last year, the U.S. wheat crop yielded less, so stockpiles aren’t huge.
“There’s a lot of reasons to think grain prices are going to rise, among other food prices, too. And then you add to that or the labor costs,” he said — low-wage jobs are experiencing some of the tightest labor market issues, and seeing wages rise most in recent data.
“Some of these firms are being forced to pay more to retain their people or attract people and even so they’re still struggling,” Wright said.