Little Caesars Winning Inflationary War Despite Price Hikes

Earlier this year, Little Caesars raised the price of its famous "Hot N Ready" pizza for the first time in 25 years — upping the cost from $5 a pie to $5.55. However, consumers don’t seem to mind. 

"We've actually seen customer accounts and transactions increase," Little Caesars CEO and President David Scrivano told Yahoo Finance Live, crediting the brand's role as a "value player" in the pizza space. Despite the increase, the pizza cost at Little Caesars is still around half the price of its competitors. 

The 11% increase did come with a value bonus of 33% more pepperoni slices per pizza. “We knew people would be pinched with their spending, so we said, ‘let’s improve our product and sell more pizza,’” said Scrivano.

"We've kept the prices as low as we can in this inflationary time," he said, shrugging off rising food cost concerns. “[Rising prices] are impacting us, but not impacting us as much as it could be because our transactions are up.”

Scrivano also noted that franchisees have had stable bottom lines due to the uptick in customer counts. The CEO pointed to Little Caesars’ owned and operated supply chain, which allowed it to avoid costly disruptions. 

“Even with menu price increases, Little Caesars is still a good relative value because everyone else across the spectrum is raising their prices, and Little Caesars still has the lowest prices,” said Dan Rowe, CEO of Fransmart. “Same-store sales growth and new unit counts are a reflection that customers vote with their wallets, and they are voting for Little Caesars, even with these increases.”

With the cost of food rising 10.4% last month from a year earlier, the most significant 12-month increase since the period ending February 1981, Little Caesars isn’t the only chain rethinking its value meals. Competitor Domino’s also increased the price of its $5.99 mix-and-match offer this year, for the first time in over 12 years, to $6.99.

According to Reuters, restaurant chains, including McDonald’s and KFC, have started cutting back on $5-and-under “value” items and emphasizing pricier $10–30 combination meals. 

Similarly to what we saw with Little Caesars, most chains altering their value meals aren’t taking much of a hit. In fact, Black Box Intelligence data shows quick service sales are much higher than the rest of the industry. For example, global comparable sales increased 11.8% in McDonald’s latest quarter, reflecting positive comparable sales across all segments. 

"Value menu items are not really profit drivers. They're designed to drive traffic," BTIG analyst Peter Saleh told Reuters. 

Still, chains and franchisees that remove too many low-priced deals could risk losing customers who come in for those items in particular, according to Mark Kuperman, chief operating officer at Revenue Management Solutions. 

Photo Credit: Little Caesars