By Kim Stewart
ANKENY, Iowa—As the fifth-largest pizza chain the U.S., Casey’s knows a thing or two about cheese. So when the Midwestern convenience retailer shared a business update with investors yesterday, two key things stood out: Cheese prices are sharply higher, and credit card swipe fees are skyrocketing.
Cheese costs “have averaged $2.24 per pound in the fourth quarter versus $1.93 per pound in the prior year,” the Iowa-based convenience store chain, which has more than 2,400 locations, said in a statement released ahead of a non-deal roadshow yesterday. That’s a 16% increase.
Each morning, Casey’s team members make fresh dough for the c-store’s pizzas, which are the centerpiece of Casey’s foodservice program. And all that dough, of course, needs plenty of fresh mozzarella. (Read more about how Casey’s is leaning into growth in the May 2021 issue of NACS Magazine.)
“Casey’s business continues to perform well, and we remain on track for record fourth-quarter diluted earnings per share in fiscal 2022,” the company said. Inside same-store sales volumes are up in the mid-single digits, and fuel same-store gallons sold have been flat to up low-single digits.
Casey’s said operating expenses are trending higher than expected, due in part, to “higher credit card fees related to higher retail fuel prices which are up approximately 39% versus the prior year.”
The company isn’t alone in grappling with higher prices for foodservice ingredients and increasing operating expenses, which include credit card swipe fees.
Credit card swipe fees remain one of the highest operating costs for convenience store retailers after labor, according to NACS State of the Industry data. In 2021, overall card fees paid by the convenience store industry were $13.5 billion, up 25.6% in 2021 versus 2020 ($10.7 billion), NACS SOI data indicate.
At an average of 2.22% of the transaction amount, Visa and Mastercard’s U.S. credit card swipe fees are the highest in the industrialized world. Swipe fees are most merchants’ highest operating cost after labor and drive up consumer prices, amounting to more than $700 a year for the average American family.
In reporting earnings for the fiscal third quarter ended January 31, Casey’s in March noted that credit card fees due to higher retail fuel prices were partly to blame for an 18.5% rise in operating expenses compared with the year-ago period.
At the same time, cost increases for ingredients and pizza toppings—like mozzarella—weighed on margin on inside store sales in Casey’s fiscal third quarter. Inside margin was down 20 basis points.
Prices for dairy products in general are up as the dairy industry—like convenience retailers—struggles with labor issues, and the size of the U.S. dairy cow herd is below year-ago levels amid rising feed costs.
“COVID interrupted the longest economic expansion of all time,” Dennis Winters, chief economist at the Wisconsin Department of Workforce Development, told Cheese Market News. “In Wisconsin, we’ve lost about 14-15 years of job growth, and we’re still about 70,000 jobs short of where we were pre-COVID.”
The U.S. Department of Agriculture this week raised its all-milk price forecast for 2022 to a record high of $28.80 per hundredweight, or every 112 pounds. That’s 75 cents higher than USDA’s March projection. The agency pegged milk production at 226.3 billion pounds, up 0.3 billion from March’s forecast but in line with 2021.
Where does all of that milk go in terms of product? Cheese, seasonal ice cream and frozen dairy products “are claiming a growing portion of available milk at the expense of butter and dry skim milk,” Wisconsin State Farmer reports. In February, for instance, total cheese production increased 6.3% over the year-ago month, which as Wisconsin State Farmer notes, is the biggest single-month increase since April 2021.
Food prices in general have risen 7.9% over the past year, according to the Bureau of Labor Statistics’ Consumer Price Index. Dairy and related products, specifically, are up 7%.
Kim Stewart is editorial director of NACS and editor-in-chief of NACS Magazine.