Domino's to raise pizza prices as costs bite

LONDON, Nov 1 (Reuters) Domino's Pizza UK and Ireland said on Thursday it was raising prices to compensate for the soaring cost of mozzarella cheese and pizza base ingredients.

Domino's, the UK's biggest take-away pizza firm, said sales were strong and Chief Executive Stephen Hemsley said the company would ''murder'' forecasts for sales in the second half.

But but rising cheese and wheat costs would bite into margins, which knocked its shares down 6 percent.

Customers will pay around 10.25-10.30 pounds for a pizza on average, compared with just under 10 pounds, Hemsley told Reuters by phone.

Mozzarella is the biggest cost in making a pizza and costs have rocketed because of a jump in milk prices. In the UK that is partly because British cows were unable to graze as much as usual over the wet summer, Hemsley said.

Booming demand for dairy products in Asia coupled with droughts in Australia and summer floods in Europe also combined to send the price of mozzarella up by over 50 percent or more than 1,000 pounds a tonne since June.

Domino's has absorbed nearly half a million pounds of the extra costs to give its franchises time to change their prices and menus but Hemsley still expects the firm to meet the full-year consensus pretax profit forecast of 17.5 million pounds (.5 million).

Domino's, which has around 500 franchise outlets, will start passing on higher cheese costs to stores from Thursday.

The company also expects a substantial increase in wheat costs for its pizza bases when it reviews its contract in January, because the price of wheat has doubled this year.

Third-quarter sales were up 14.2 percent in the 13 weeks to Sept.

30 in its 400 shops open at least a year, better than some analysts had expected, although the cost concerns tempered sentiment.

With Chairman Colin Halpern retiring at the end of the year, Domino's said the firm's senior managers would all take a step up.

CEO Hemsley is to become Executive Chairman with Deputy Chief Executive Chris Moore stepping up to Chief Executive. Halpern will take up a non executive vice chairman role.

For an interview on the profit impact of the cheese crunch, click on.

REUTERS DKS PM1735