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Price To Be Key At U. S. Consumer Conference

How much recession-wracked consumers will pay for brand names will be a key focus when executives behind the best-known food, drink and cleaning products meet Wall Street analysts next week.

That is a far cry from last year’s Consumer Analyst Group of New York (CAGNY) conference, when companies were boasting how much they were able to raise prices to cope with soaring costs for oil, grains, resin and other commodities.

But now that commodity prices have dropped and the U. S. economy is more than a year into a recession, companies like Kraft Foods Inc. and Procter & Gamble find themselves battling lower-priced private-label manufacturers and retailers who are pushing back against price increases.

“There will be a fair amount of discussions about consumers trading down, be that toward ‘private label’ or lower-priced ‘value brands,’ said Matthew Kaufler, portfolio manager at Federated Clover Investment Advisors.

Several hundred analysts and consumer products executives are due to convene at CAGNY in Boca Raton, Florida, from Feb. 17 to 20 in what is the largest annual gathering for the industry.

The economic meltdown has hammered the stocks of most food, beverage and household products companies – a group that had long enjoyed safe-haven status among investors on the grounds that people always need to eat and brush their teeth.

Several industry stocks last hit their 12-month highs on or around Sept. 15, 2008, the day Lehman Brothers filed for bankruptcy and sent financial markets into a tailspin.

Since then, all consumer-related sectors have been pressured. The S&P household and personal products industry group index has fallen 30.5 per cent since tapping a 12-month high on Sept. 15.

The S&P packaged foods and meat index is down 24.3 per cent since reaching a year high on Sept. 19 and the S&P Beverages Industry index has shed 21 per cent since hitting a 12-month high on Sept. 15.

“These stocks are now really beat up. Consumer staples stocks have been hit hard, this year and at the end of last year, and they’re really trading at levels I didn’t think we’d see, quite honestly,” said Jack Russo, analyst at Edward Jones.

Aside from the slumping economy, many companies are still dealing with steep commodity costs due to contracts signed when prices were at their highs last year, though most expect to see a benefit from lower costs later this year.

But retailers and consumers want to benefit from those lower costs now. Private label is gaining market share in grocery, drug and retail superstores as consumers look to save money in an era of soaring unemployment.

In one example of tense negotiations between retailers and manufacturers, Belgian supermarket group Delhaize said on Feb. 10 it halted orders for 300 Unilever ULVR. L products when annual price talks ended in a deadlock.

Also likely to add to the pressure manufacturers are feeling, Wal-Mart Stores Inc., the world’s largest retailer, plans to relaunch its “Great Value” private brand, which includes 5,500 unique food and household items.

At the same time, U. S. companies with large international exposure, including Kraft, H. J. Heinz Co. and P&G are all being battered by the stronger dollar, which reduces the dollar value of sales made overseas.

“International, currency, private label and then the benefit of commodity costs. I think all of those things will kind of be front and centre,” Russo said.

The crowd at CAGNY is expected to be smaller than last year, due to consolidation in the financial industry and cost cuts at some firms that will leave analysts listening to webcasts from home.

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