It’s no surprise that food prices have been going up – commodities have been on the rise for some time now, and the fact that gas prices have jumped yet again (up 20 cents from last week around here!) isn’t going to help matters at all. But as quarterly reports are coming in, it is interesting to note that not all consumers are taking those new prices lying down. Packaged food companies like Kraft, General Mills, and ConAgra, who all raised the prices on their products to offset their costs, are now reportedly facing decreased sales as consumers seek out cheaper alternatives to their usual name brand favorites.
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According to Reuters, Kraft reported its fourth-quarter earnings this week, and the results paired a 7.6 percent average price increase with a 1.5 percent decline in volume and mix of products sold. (Reuters also notes that the decline in “mix” infers that consumers purchased more products on the lower end of Kraft’s price scale.) ConAgra is looking at similar numbers, as are General Mills and Wal-Mart:
"There is a new normal with customers," Wal-Mart Chief Financial Officer Charles Holley told reporters. "Markets are more volatile, gas prices are more volatile and so I think the customer is going to continue to look for ways to save money because they don't know what's around the corner."
Is this something that food producers should be worried about? Just like lobbyists, consumers also vote with their money and there are plenty of cheaper high-quality own brand options to choose from these days. If current commodity trends continue, businesses are at some point going to have to make a tough choice between raising prices (and losing loyal consumers) or keeping them steady (and allowing higher commodity costs to eat into profit margins).
In the long run it seems like keeping prices steady would be the answer – encouraging consumers to stick with their brands through the lean times could pay off in continued loyalty once the economy recovers – but it’s a risky situation no matter how you slice it. Either way, it will be interesting what path these industry titans decide to take as things progress.