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Commodities Down But Food Prices Lag

“It’s not likely we’re going to be reducing prices in the near term.”


Commodity costs may be off their record highs and consumers may be struggling, but that doesn’t mean food manufacturers are about to slash prices.

Many companies such as Campbell Soup Co. and Hormel Foods Corp. are still locked in to contracts struck when prices of ingredients such as wheat, corn, beef, pork and packaging materials were at sky-high levels.

Added to that, companies such as Campbell that rely on exports or factories overseas for a large part of their revenue are now getting whacked by a strong dollar.

“We’re not at a place yet where we’ve fully recovered,” Hormel CEO Jeffrey Ettinger told the Reuters Food and Agriculture Summit in Chicago March 16. In fact, Hormel has increased the price of its chili product.

Campbell CEO Douglas Conant, also speaking at the summit, said it would be some time yet before the world’s biggest soup maker began to cut prices.

“It’s not likely we’re going to be reducing prices in the near term,” he said, noting that the company’s price locks on grains and other commodities don’t expire until July.

Conant said holding firm on prices was not hurting sales.

“Quite frankly, sales are growing, our marketplace presence is growing, consumer purchases are actually growing faster than sales, so we’re winning with the consumer,” Conant said.

Retailers such as Wal-Mart Stores Inc., on the other hand, see the recession as a golden opportunity to woo shoppers with store brands that are cheaper than brand-name products.

The world’s biggest retailer will roll out its revamped Great Value line at the end of the month, offering hundreds of reworked products in 100 categories.

“We’ve carefully designed this so that the price of the product wouldn’t go up,” said Andrea Thomas, senior vice-president of private brands for Wal-Mart.

The chief executives of supermarket chains Kroger Co. and Safeway Inc. say they have asked food makers to reduce packaged food prices since the cost of many products has not fallen in tandem with lower commodity prices.

So far, they say, that campaign has yielded few results.

Still, the share prices of many food producers have fallen sharply in anticipation that price cuts are on the way or that private-label brands will eat into sales and profits as consumers lose their jobs or worry that they might.

While prices for many products have stayed at last year’s level or have fallen only marginally, the food companies say they are focusing on value and affordability.

“Going forward there is going to be an added attention to the affordability aspect,” Hormel’s Ettinger said, referring to new products.

One area where consumers are getting a break is at the meat counter.

“You are seeing some of the best value in grocery stores for steaks than what you have seen in an awfully long time,” Gregg Doud, chief economist for the National Cattlemen’s Beef Association, told the summit.

“You are seeing a lot of features for rib-eyes and T-bones at below $5 a pound. That is some of the best featuring we have seen in many, many years,” Doud said.

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