Prices Going Up On Oreos, Kraft Mac & Cheese and…

Discussion
Nov 09, 2005
George Anderson

By George Anderson

The high cost of energy has not made its full impact apparent on grocery story shelves but that may be about to change.

Kraft Foods announced it is increasing prices on many of its popular nationally branded products by an average of 3.4 percent. Warehoused delivered items will see price increases
go into effect immediately with direct store delivered items to follow on January 2.

The Associated Press reported that Kraft Foods’ decision to raise prices comes on the heels of the manufacturer and others reporting lower results as higher energy prices
have cut into profits.

In a conference call with analysts on Oct. 18, Kraft Foods CEO Roger Dermodi indicated that the company was aware of the balancing act it would have to perform with product pricing.
“We’re cognizant and watchful of consumers’ spending power as they’re having to spend more on filling up their tanks of gasoline. The important thing for us is to maintain and
continue to build the value they see in our brands in the face of these other pressures.” 

Moderator’s Comment: Will Kraft Foods’ decision to raise prices begin a wider trend to higher overall prices for grocery products? What will it mean
for retailers that sell Kraft Foods’ products?

George Anderson – Moderator

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15 Comments on "Prices Going Up On Oreos, Kraft Mac & Cheese and…"


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Mike Bavington
Guest
Mike Bavington
15 years 3 months ago

I agree with the comments as to which retail outfits will pay the increase. I constantly see my bigger outfit competitors dropping their prices while my wholesalers tell me they have to charge me more for the same products due to increasing supply costs. I am quite sure that I and 500 independents are subsidizing the price that my bigger competitors are getting.

Bernice Hurst
Guest
15 years 3 months ago

This discussion intrigues me. There was a similar cause and effect story put about last week by Manor Bakeries in the UK which blamed its reduced profits/falling sales etc on prices, competition and all the factors that might make consumers think twice about keeping their purses in their pockets. Although I am inclined to agree that these price rises won’t necessarily cause falling sales amongst big fans, I also wonder whether there aren’t other factors (like product ingredients and quality) that might become a consideration. Six months from now, IF sales have fallen, will the price increases be the only significant factor blamed? I’m not convinced that using things like higher fuel prices as an excuse is good enough. This really isn’t a time when prices should be going up.

Gene Hoffman
Guest
Gene Hoffman
15 years 3 months ago

Will suppliers other than Kraft now raise prices? Of course! And what will it mean for retailers who sell Kraft products? They will call upon their imagination and raise retails. And if there are any resulting benefits in raising prices, they will most likely accrue to the biggest volume retailers.

Meanwhile, Kraft and Roger Dermodi will validate the increased prices by working to increase the perceived value of Kraft products and other manufacturers will do likewise. Haven’t these processes been ever thus for many other reasons prior elevating gas prices and the twilighting of Alan Greenspan?

Mark Lilien
Guest
15 years 3 months ago

Alleged price increases may not be what they seem. For many grocery suppliers, there are 2 prices: everyday and deal. Will the deal pricing rise by the same amount? For many suppliers, the deal volume is major. Furthermore, more and more groceries (both manufactured and unprocessed, such as fresh fruit) are coming from low-wage countries. As the dollar stays strong, due to higher and higher interest rates, items sourced from outside the USA should get less expensive.

Ryan Mathews
Guest
15 years 3 months ago

Of course prices will rise; they’ve been artificially depressed for too long. As for those Oreo or “Blue Box” macaroni fans — my guess is they won’t skip a beat and will continue their traditional spending patterns.

Len Lewis
Guest
Len Lewis
15 years 3 months ago

Energy affects everything. Prices have to go up. Efficiency, intense competition and a basic aversion to food price inflation have kept prices below the inflation rate of other commodities for some time.

Food is still cheaper in the U.S. than virtually any place in the world. But an increase is inevitable under the present circumstances. One can only hope that manufacturers keep it real. If, like the oil companies, we start to see extraordinary profit reports in the next quarter or two, inquiries will be made.

Tony Orlando
Guest
15 years 3 months ago

My concern, as always, is this: the increases Kraft has announced, ….. Will they be passed equally as a percent to even the big boys, i.e. Sam’s Club, Wal-Mart, Costco, and Target, or will the rest of us have to deal with an ever increasing gap between our new cost and theirs? Will we subsidize the increases due to the hammering Kraft will take going against the big boys? I hope not, because we are already paying up to 20% more in wholesale costs to do business. Special bonus packs are exclusively offered to these big box stores, and I’m sure the pressure will continue on Kraft to find someone to absorb these increases. Who’s backs will it fall on? Hmmmm…place your bets.

Warren Thayer
Guest
15 years 3 months ago
This has been pent up for a long time, and I am sure others will follow, with some relief. Manufacturers have been cutting costs on everything to try to keep prices down. As a result, we’ve been seeing cutbacks in pack size and cheaper ingredients. Even skimping on corrugated has now come home to roost, as master cases are being crushed and damaged at higher levels, and so now this must be addressed, too. But I think this is a tempest in a teapot, at least as far as consumers are concerned. They won’t mind a few pennies increase on their products; they’ve come to expect it. Retailers will try to hold the line, some of them unreasonably so, and they’ll lose out on some of the funny money that gets passed around. Retailers I’ve spoken with say they expect cost increases, but darn well want to see the justification. And if it’s based on a commodity increase, and the commodity later comes down, these retailers will be asking for money back. Nothing much changes… Read more »
Kai Clarke
Guest
15 years 3 months ago

Rising prices on grocery items should be expected. These reflect inflationary pressures, especially the cost of transportation, labor and materials. Their sensitivity to these is apparent in any grocery store. Milk, eggs and butter have all been going up and it is just now that packaged goods are getting noticed. These have to reflect the trends in the overall market, and Kraft is following these, not leading them. The public position of a large corporation like Kraft gets noticed, but the grocery industry has been undergoing tremendous pricing pressure to remain competitive despite the obvious increase in inflation. We can expect to see more of the same in the coming months.

Camille P. Schuster, PhD.
Guest
15 years 3 months ago
This may be an interesting round to watch. On the one hand, if one manufacturer raises prices and then the retailers raise prices and the consumers accept the higher prices and continue to purchase, there will be a lot of people jumping at the opportunity to raise prices. However, if Kraft’s price increase accelerates the demand for lower priced private label brands, manufacturers will be caught in a difficult spot. Those companies that have been switching to a consumer demand, cost efficient business process may be able to compete effectively and accommodate gasoline price increases with small price increases and maintain their competitive position. Companies that have not been using this model have not been able to take advantage of efficiencies yet and do not have a strong competitive position if not using a consumer demand model. They have no choice but to raise prices higher than others, thereby weakening their competitive position. The companies that don’t have to follow Kraft’s lead in the price increase or that don’t have to increase prices as much… Read more »
Edward Herrera
Guest
Edward Herrera
15 years 3 months ago

The energy cost ratio to grocery spending has been felt in Europe for some time. That is why Private Label in Europe has a larger percent of the food business than in the US. Building a retailer brand becomes more attractive in all aspects. The biggest concern for the brands, in my opinion, is the commoditizing of all brands by big retailers and the quality value relationship of Private Label.

Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
15 years 3 months ago

I am sure this was a very difficult decision for Roger and Kraft. He is a sharp guy and being the first to raise prices is not an easy thing to do. Kraft has been struggling for some time now and, with costs/prices going up throughout the value chain, it is no surprise that someone would have to take the lead. And, yes, others will breathe a sigh of relief and most will follow. On the retail side: they too will increase prices and I think even mass and club will take an increase. We are at the point in the economic cycle where everyone needs a little breathing room. Hopefully, we can then put a hold on increases for a while after this round.

Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 3 months ago

Watch for all food manufacturers to push the price button: for up!
Kraft Foods, that is having a tough time meeting quarterly numbers, is probably the first of many!

Mr. Greenspan, the inflation button is red. Hmmmmmmmm

Michael Tesler
Guest
Michael Tesler
15 years 3 months ago

My bet is with “tonethebone”. Wal-Mart is becoming increasingly stronger and they not only have the leverage but are the best ever in using it to get what they need from suppliers. Traditional supermarkets (the department stores of the food business) are too locked into tired formats, shrinking market shares and unimaginative management to exert proper control and influence. That said, supermarkets often are exceedingly price oriented in dealing with vendors and focus on price too frequently at the expense of quality and interesting new products and ideas, so they will exert some control. Inflation is inevitable and will affect the volume/price retailers the most, particularly when they do not give consumers other valid reasons to shop their stores. Of course the smaller stores will pay more ….they always do.

Rick Moss
Guest
15 years 3 months ago

Editor’s note: The Food Institute is conducting a seminar on December 6, 2005 in St. Paul to explore the impact of various supplies and other inputs on the cost of food in 2006. The Institute identified the impending inflationary increase about six months ago and has been tracking it. If anyone wants any additional information, they should contact the Food Institute at: http://www.foodinstitute.com

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