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Food inflation: 'Most franchisees already raised prices before this year', Little Caesars CEO says

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Little Caesar's CEO and President David Scrivano sits down with Yahoo Finance Live to discuss the pizza chain's pricing and employee wages, labor shortages, and partnerships with the NFL and Warner Bros.

Video Transcript

- Staying with food, you feel it at the grocery store and every time you eat out or order in, food inflation rising more than 10% in the month of June, the largest increase since 1981. How is it impacting the quick serve restaurant industry? David Scrivano is the CEO and President of Little Caesars Pizza, the third-largest chain in the country. Allie Canal also here with us. Nice to see you, David. How is that food inflation impacting business for Little Caesars?

DAVID SCRIVANO: Well, you know, actually, the food inflation for Little Caesars, we've actually seen customer accounts and transactions increase. We're a value player. People love our product. We sell our product for a low price. And one thing we actually did was increase our pepperoni portion by 33% earlier this year because we knew people would be pinched with their spending. So we said let's improve our product and sell more pizza.

ALLIE CANAL: And you're right, David, that $5 Hot-N-Ready pizza now costing 11% more, but that was the first price increase in 25 years. Have you noticed any other changes in consumer behavior, especially when it comes to purchasing? Are people bulk ordering more? How are you seeing inflation play out in the choices that consumers are making at your restaurants?

DAVID SCRIVANO: Yeah, actually, customers are coming in more often. We do get a lot of party orders, a lot of group orders. And pricing is really-- the franchisees get to decide on their price. And most franchisees had already raised their price before this year. So what we did was, by increasing the portion, nationally promote the price at $5.55. And today, you can get a pepperoni pizza at Little Caesars for about half the prices you can get from our competitors, and that allows our customers to just buy more in bulk for parties, for sports teams, or just for a Friday night staying home with the kids.

SEANA SMITH: Well, David, certainly it's been good news for your consumers, the fact that you haven't raised prices too substantially. But what has it done for your business because you, I'm sure, are facing higher prices when you're buying the ingredients that you need for your food? How has that pressured margins at all?

DAVID SCRIVANO: Yeah, well, no question commodity prices have been up all year. And luckily, our system's designed where we own and operate our supply chain, so we haven't had any supply chain disruptions. We've kept the prices as low as we can in this inflationary time. And franchisees, because they see customer accounts grow, are seeing a stable bottom line. So it's impacting us, but not impacting us as much as it could be because our transactions are up.

- Talking to a guy here, David, that grew up on Crazy Bread. It was basically a food group at my high school, so thanks for that. I'm curious about the labor shortage, which we're seeing everywhere from pilots to teachers to lifeguards, you name it. Are your franchisees reporting a difficult time finding employees?

DAVID SCRIVANO: Well, you know, it is-- it's probably the toughest time we've seen in decades to hire people now. One benefit we have is we're a family-owned company. The Ilitch family owns Little Caesars. Our franchisees are locally-owned business people.

So we're able to create a better environment for our stores, and we give great opportunity. We've increased wages. We've done a lot of things to help our crew members grow and prosper. So we're facing staffing challenges, but our stores are open, and we're taking customers every hour of every day.

ALLIE CANAL: Little Caesars is now the official pizza sponsor on of the NFL replacing Pizza Hut. How will that multi-year partnership look like in terms of new products, promotions? And how do you foresee it adding to growth?

DAVID SCRIVANO: Yeah. Well, we're so excited about the NFL and the announcement. In fact, this week, we'll be shooting some commercials. We'll have some player representatives. We'll have some team sponsorships. And then we'll have promotions for our customers.

We'll have different products that will be announced later this year. We'll have sweepstakes for customers. We'll have crew incentives to help take care of our crew, per the earlier conversation. So many exciting things, 100 million fans. We actually launched delivery at the Super Bowl, so we've had some connection to the NFL over the last few years, and we think this is just going to grow our business even more.

SEANA SMITH: Hey, David, when you're trying to identify certain attractive opportunities, obviously the NFL has a huge reach so that makes sense, I think, on a lot of levels here for our viewers, but some of the other partnerships that you have done in the past, how do you identify what's attractive at this point because you're facing a generation, Gen Z in particular, which gets their news and their products, I guess recommendations, from a different place than we have historically gotten in the past?

DAVID SCRIVANO: Yeah, it is a different customer today. And we launched a process we call Reserve-N-Ready, where you can go on our digital app and order a pizza. We have the pizza portal, which the new consumer loves. You can just go in, order a custom pizza, type in your code. It's hot, it's secure, takes about 3 seconds.

But then promotions with companies like Warner Brothers, and we did the Batman Calzony earlier this year. We'll do other social media promotions. We did a-- talk about Crazy Bread, we did a "stuffed people" promotion with our Stuffed Crazy Bread, all on Instagram and TikTok. So very important to reach that consumer these days.

- David, Allie has another question. But a yes or no real quick, are you planning a football-shaped pizza?

DAVID SCRIVANO: No. We are not doing that.

- You can borrow that. You can borrow that. You have to credit me. All right, Allie, go ahead.

ALLIE CANAL: Well, you know, speaking of pizza shapes, you mentioned the Batman Calzony, I think we have a picture that we could show for fans. But this was inspired by TikTok, so to Seana's point, really attracting Gen Z. How do you plan to further utilize digital and social media to really cultivate that brand loyalty moving forward?

DAVID SCRIVANO: Yeah. Well, we'll definitely lever TikTok and all the social media sites. In fact, the commercial for this was casted for the first time by TikTok users, and we starred-- the TikTok users starred in our commercial. Continuing to deploy a top of the line social media approach. We've hired some great new people that really drive digital, drive social. And it's that engagement every single day with our customers that make a big difference, and we'll continue to grow that fan base.

SEANA SMITH: David Scrivano, great to have you, Little Caesars CEO and President. Our thanks to Allie Canal as well.