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Costs Driving Pizza chains to Add Order Surcharges

2 min read
Opinions expressed by Entrepreneur contributors are their own.

While the nation's largest pizza chains continue to offer free delivery in most stores, a growing number of franchisees on the West Coast and in the Midwest are looking to offset rising utility, labor and gasoline costs with customer surcharges, carryout specials and higher driver reimbursements.

Most pizza operators have traditionally resisted adding fees to orders, but the category's pricing pressures over the past year have become so competitive-particularly as the national chains frequently promote pies for less than $10-that it has driven them to pass the higher costs onto customers, operators say.

Pizza Hut says some of its franchisees charge for delivery, but the company has yet to expand a limited test that it launched more than a year-and-a-half ago at an undisclosed number of restaurants nationwide to study consumers' attitude toward a delivery fee.

Domino's Pizza says it has a policy in its franchise agreement that none of its restaurants can charge for delivery. But in light of the skyrocketing utility costs on the West Coast, at 42 franchised stores in San Diego last month, Domino's instituted a nearly $1 energy surcharge on all pizza orders, not just on those that are delivered. A Domino's spokesperson says the details of the fee are supposed to be explained in an automatic telephone greeting to all customers before they place their orders.

Although Papa John's does not charge for delivery at most of its restaurants, at least two franchisees in the system have recently experimented with a small service fee.

Notably, Donatos Pizza, which is based in Columbus and has been closely watched by the segment's national players since McDonald's Corp. purchased it, has always charged for delivery in the range of $1 to $1.75.

East of Chicago used to mandate free delivery to the system, but in anticipation of this summer's higher gas prices, the company changed its policy by making delivery fees optional for franchisees. Chain officials considered a similar move last summer when gas prices surged, but eventually decided against it.

To date, about 15 percent of the stores in the East of Chicago chain have instituted a charge that ranges from 50 cents to $1, according to Dennis Stevenson, East of Chicago's director of marketing. He says that number is expected to rise to 40 percent by the end of the summer. --Nation's Restaurant News

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