November 2, 2008
Grocers find prices hard to swallow
Food makers' price increases irk industry
Advertiser

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.

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