New York, Mar. 27 - Cash-strapped consumers are facing further hikes in food prices at the supermarket, putting added pressure on their pocketbooks at a time when the economy is weakening.
On Thursday, ConAgra Foods Inc. became the latest food company to announce a round of price increases. ConAgra said it is raising prices on almost all of its consumer brands - or 95% of its portfolio - by roughly 5%. That would mean higher prices for a range of ConAgra products ranging from Wesson oil to Marie Callender's frozen meals. A ConAgra spokeswoman said the price increases laid out Thursday are the first increase that applied to almost all of the company's consumer brands. Over the last year or so the company has occasionally raised prices on individual products.
ConAgra is following in the footsteps of other packaged food companies, which have been raising prices steadily. Food companies may have to push them up further to keep up with higher prices for commodities like wheat and corn. For the companies, the price hikes could limit further erosions of profit margins - to the extent that consumers aren't driven to cheaper alternatives. For consumers, the price increases add inflationary pressure at a time of growing economic uncertainty.
At a consumer conference last month, Sara Lee Corp. announced more price increases on its bread products, the fourth such increase in roughly a year. The company already hiked prices for its bread by an average of 5 cents in April last year, and by about 10 cents in September and December 2007.
A Kraft Foods Inc. spokesman said the company raised coffee prices twice this year, each time by about 5%. The company raised natural cheese prices in January due to significant increases in the cost of dairy products. The spokesman declined to comment on upcoming price increases.
Matt Arnold, a food analyst at Edward Jones believes that consumers could face even higher prices. "Since the last pricing has been taken there has been even greater inflation in commodities," he said. "It's at a time when the consumer is arguably weaker."
Food companies have hiked prices due to a surge in agricultural commodities, which have climbed even further recently. Corn prices have risen 32.4% versus the same time last year. May corn futures on the Chicago Board of Trade settled at $5.52 1/4 a bushel on Wednesday, and have consistently been trading in record territory over the past few months. Wheat prices, in comparison, have risen 105.4% in the past 12 months. CBOT May wheat ended at $10.33 a bushel Wednesday, and it too has been trading in record territory for a while now.
ConAgra has lagged behind many other food companies in raising prices as the company was working to improve the strength of its brands, Arnold said.
A ConAgra spokeswoman said the company aimed to hike prices to retailers by March 24. When the changes occur in the supermarket would depend on the retailers, she said.
A Kellogg Co. (K) spokeswoman said the company raised snack prices at the end of December, and cereal and frozen food products at the end of January. The spokeswoman said the company won't speculate on pricing strategy or possible future pricing actions.
Food companies also run the risk of alienating consumers when they raise prices, particularly in a weak economy.
In an early March note to clients, Credit Suisse analyst Robert Moskow said that Nielsen retail sales data showed average sales growth of 1.3% in the 4-week period ending Feb. 23 for packaged foods. That growth was a little weaker than it has been in recent months, as pricing increases of 5.6% caused a unit volume decline of about 4%, he said.
Private label gained share in 64% of the categories he followed, making the largest gains in commoditized categories like milk and cheese and with little impact in heavily branded categories like cereal and soup, he added.
"This could be a sign of increased consumer elasticity to price, but it is too early to call it a trend," he said. "Investors also should recognize that this data understates sales growth by perhaps 200 basis points because it excludes faster growing channels like Wal-Mart and warehouse clubs."
Edward Jones analyst Matt Arnold said that ConAgra volumes will be watched closely in coming months after the price increases.