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-Three leading pizza businesses engage in price fixing.
-Their prices are three times higher than their estimated cost of raw materials. The price for a medium pizza is too high.
-They should offer reasonable prices!
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#701 Seoul YWCA 20, Myeong-dong 11-gil, Jung-gu, Seoul, Korea
TEL.: 82-2-774-4050/FAX: 82-2-774-4090
-Three leading pizza businesses engage in price fixing.
-Their prices are three times higher than their estimated cost of raw materials. The price for a medium pizza is too high.
-They should offer reasonable prices!
Consumers have pointed out that the prices offered by some leading pizza businesses are too high. Based on our analysis of the cost and financial statements of different pizza chains in Korea, we at KNCCO (President: Lee Deok-seung) would like to point out some of the existing issues pertaining to the current pizza prices.
1. The prices offered by leading pizza businesses are 2.8 times higher than those for ordinary ones. They appear to engage in price fixing for “premium items,” thereby infringing on consumers’ ability to choose
In Korea, Mr. Pizza, Domino’s Pizza, and Pizza Hut are classified as high-priced brands, while Pizza School, 59 Pizza, Pizza Maru, and Pizza Etang are middle and low-priced ones. The prices of high-priced brands appear to be up to 2.8 times higher than those of middle and low-priced brands, with the comparison having been made based on weight. Some low-priced brands do not do delivery.
Table 1. Comparison of pizza prices per 100g
* The prizes are calculated based on weight, regardless of their sizes.
Looking at the large “premium” pizzas of Mr. Pizza, Domino’s Pizza, and Pizza Hut, some of the items made by different businesses are priced the same (e.g., one pizza menu of Mr. Pizza, two pizza menus of Domino’s Pizza, and two pizza menus of Pizza Hut: 32,900 won; two pizza menus of Mr. Pizza; two pizza menus of Domino’s Pizza: 33,900 won; six pizza menus of Pizza Hut and six pizza menus of Mr. Pizza: 34,900 won). Large-sized premium pizzas that do not fall under this price category were only three menus from Mr. Pizza and two menus from Domino Pizza and one menu from Pizza Hut. Those looking at the price structure will suspect some type of price fixing between these businesses.
2. The estimated cost of the raw materials for a large pepperoni pizza from the three leading pizza brands is about 6,480 won, which is only a third of the selling price
It appears that the estimated cost raw materials for a large pepperoni pizza from the three leading pizza brands comes to 6,480 won (based on retail prices) and that their actual selling price comes to 270% (Mr. Pizza), 310% (Domino Pizza), and 350% (Pizza Hut) more than the estimated raw material costs. The difference between these chains’ prices and wholesale raw materials cost is much greater than this result shows.
Table 2. The estimated raw material costs for a large-sized pepperoni pizza
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Estimated raw material cost *
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Ratio of the estimated raw material cost to the actual selling price
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Mr. Pizza New York Special
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* Estimated raw material cost: estimated raw material cost per gram (won) × pizza weight (g)
* Raw materials assumed to be included: bread flour, sugar, cooking oil, yeast, oregano, tomato paste, tomato sauce, pizza cheese, and pepperoni.
3. Based on weight, the prices for medium pizzas are 30% higher than large ones
It turned out that prices for medium pizzas (3,578 won) are 30% higher than large ones (2,742 won) based on their weight (100g). This is supposedly done so as to encourage consumers to purchase large pizzas.
According to our survey, the difference in weight between the large and medium pizzas made by three leading brands comes 420g. The price difference between the two sizes should be 3,230 won based on our estimation of the cost of raw materials. However, large pizzas are sold at 6,174, which is 2,944 won higher than it should be.
Table 3. The average pizza prices of leading brands
4. Two pizza businesses’ ad expense-to-price ratio is 3.6 times higher than that of food manufacturers and 1.8 times higher than that of fried chicken businesses
- Businesses should not shift excessive ad expenses to consumers
According to the financial status of two pizza businesses, their ad expense-to-sales ratio stood at 7.1% and 4.5% of the financial status (i.e. 3.6 times higher than that of food manufacturers and 1.8 times higher than that of fried chicken businesses.)-. It is noteworthy that Mr. Pizza posted a 0.5%p increase in the ad expense-to-sales ratio in the 2011-2013 period, while its operating profit ratio dropped by 2.2%p in the same period.
The leading pizza businesses engage in fierce competition in marketing and ads, using well-known entertainers. They should not shift these excessive ad expenses to consumers.
Table 4. The financial status of Mr. Pizza
-Pizza businesses should offer reasonable prices to consumers and provide a wider range of products for consumers to be able to choose from!
-The Fair Trade Commission (FTC) should keep an eye on price fixing by pizza businesses!
The leading pizza businesses engage in fierce competition in marketing and ads by using well-known entertainers whenever they introduce new products to the market. They seem to shift all of these costs to consumers. Their prices are exorbitantly high when compared to their estimated raw materials cost and to the prices offered by medium and low-priced brands. Their prices for premium items make observers suspect that they engage in price fixing. They also appear to limit consumers’ right to choose by setting the prices for medium pizzas.
The leading pizza businesses should stop excessive marketing, which burdens consumers. They need to expand their range of products and set more reasonable prices so that their market will be more consumer-friendly.
The FTC should do what it can to improve the conditions of the pizza market in order to enhance consumers’ interest. We at KNCCO will continue to watch to see whether our requests are complied with.
-----------------------------Partners of Korea National Council of Consumer Organizations------------------------------
National YMCA of Korea, Green Consumers Network in Korea, Korea Federation of Housewives Clubs, National Council of Homemakers Classes, Korea Consumer Education Center, National Council of YMCAs of Korea, Consumers Union of Korea, Consumer Affairs Institute, Citizens Alliance for Consumer Protection of Korea
Based on the premium items from Mr. Pizza, Domino Pizza, and Rich Gold (Crown Pocket; Cheese Crust) items of Pizza Hut
Surveyed based on the homepages of these pizza chains between July 1-14, 2014
Mr. Pizza (Oh My Rib), Domino’s Pizza (Cheese Cake Sand; Garlic Steak), Pizza Hut (Bacon Potato; Super Supreme)
Mr. Pizza (Shrimp Gold; Potato Gold), Domino Pizza (Churrasco Cheese Roll; Double Crust Blooming)
Mr. Pizza (Half & Half; Hongdukkae Bun; Hongsi; Mamma Mia; Hongae; Lobster); Pizza Hut (Cheese Opera; Bacon Steak; Cheese King); Double Barbecue; Bulgogi; Barbecue Chicken)
We could not obtain their standard recipe and thus estimated their raw material costs based on the weight of the pizza and the book, Perfect Practical Knowledge on How to Make Cookies and Bread, Hyungseul Publishing
Mr. Pizza and Domino’s Pizza, which are subject to outside audits
Business Management Analysis 2012, The Bank of Korea
BBQ, Kyochon Chicken, BHC, and Nene Chicken, which are subject to outside audits
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