The days of rapidly rising grocery prices might be nearing an end, as supermarkets push back against food companies that are reporting profit increases.
The days of rapidly rising grocery prices might be nearing an end, as supermarkets push back against food companies that are reporting profit increases.
With corn, wheat and other commodity costs coming off their summer peaks and the economy continuing its slide, grocery chains in the U.S. and abroad are balking at food makers' efforts to raise prices further.
Some retailers are using food companies' earnings reports as leverage to reject price increases, according to industry analysts. Others are pushing for more promotional allowances - such as buy-one-get-one-free deals - to help move higher volumes of goods.
Kraft Foods Inc. and Kellogg Co. reported higher-than-expected quarterly earnings Wednesday - thanks, in part, to price hikes.
Kraft's revenue rose 19 percent from the year-earlier period, and Kellogg's sales climbed 9.5 percent.
Kraft Chief Executive Irene Rosenfeld declined to comment on relations with retailers but indicated the company might have to ease off price increases.
"As we look ahead, we're assuming our margin growth will come from volume growth and higher-margin products in the portfolio and not pricing,'' Rosenfeld said.
Kellogg Chief Executive David Mackay said he has yet to see a dramatic shift in the way retailers are negotiating with the cereal maker on pricing and promotions, but "certainly there's a heightened sensibility to the pressure that consumers are under. Naturally, that's going to lead to very full discussions on all these topics.''
He also said the economic slowdown is leading the company to increase its focus on cost controls.
The days of rapidly rising grocery prices might be nearing an end, as supermarkets push back against food companies that are reporting profit increases.
With corn, wheat and other commodity costs coming off their summer peaks and the economy continuing its slide, grocery chains in the U.S. and abroad are balking at food makers' efforts to raise prices further.
Some retailers are using food companies' earnings reports as leverage to reject price increases, according to industry analysts. Others are pushing for more promotional allowances - such as buy-one-get-one-free deals - to help move higher volumes of goods.
Kraft Foods Inc. and Kellogg Co. reported higher-than-expected quarterly earnings Wednesday - thanks, in part, to price hikes.
Kraft's revenue rose 19 percent from the year-earlier period, and Kellogg's sales climbed 9.5 percent.
Kraft Chief Executive Irene Rosenfeld declined to comment on relations with retailers but indicated the company might have to ease off price increases.
"As we look ahead, we're assuming our margin growth will come from volume growth and higher-margin products in the portfolio and not pricing,'' Rosenfeld said.
Kellogg Chief Executive David Mackay said he has yet to see a dramatic shift in the way retailers are negotiating with the cereal maker on pricing and promotions, but "certainly there's a heightened sensibility to the pressure that consumers are under. Naturally, that's going to lead to very full discussions on all these topics.''
He also said the economic slowdown is leading the company to increase its focus on cost controls.
U.S. retail grocery-store prices rose 7.6 percent in September from a year earlier, according to the Bureau of Labor Statistics. U.S. grocers Supervalu Inc. and Safeway Inc. and Belgium's Delhaize Group, which operates several U.S. chains, recently cut profit or sales forecasts due to food inflation and the weak economy.
Traditional supermarkets are under growing pressure to compete on price with low-cost grocers such as Wal-Mart Stores Inc. and Germany-based Aldi Einkauf GmbH.
Some retailers have suffered as consumers trade down to discount stores and cheaper store-brand goods.
But grain and soybean prices have fallen by about 50 percent from their summer highs.
"It's going to be difficult for food companies to maintain price let alone take price,'' said Jim Hertel, managing partner at retail consulting firm Willard Bishop LLC. "The prospect of a prolonged economic slowdown has made retailers' price competitiveness top of mind.''
Representatives for Save Mart Supermarkets, a privately held California chain, and Safeway declined to comment on pricing.
A spokeswoman for Supervalu said, "We have in place a rigorous process to ensure that we offer our customers value at the store shelf.''
While reluctant to publicly discuss supplier relations, supermarkets have been telling financial analysts they're taking a tougher stance with food makers.
"There isn't a retailer who doesn't tell us that they're going to put more pressure on suppliers,'' said Volker Bosse, a retail analyst with UniCredit Markets & Investment Banking in Munich. "Retailers face a strong head wind from falling consumer confidence.''
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