I am seeing lots of sales, especially with meat.

Grocers Find Food Prices Hard to Swallow

The days of rapidly rising grocery prices may be nearing an end as supermarkets push back against food companies that are reporting profit increases.

With corn, wheat and other commodity costs coming off their summer peaks and the economy continuing its slide, grocery chains in the U.S. and abroad are balking at food makers' efforts to raise prices further.

As price increases boost reported profits at Kraft Foods and elsewhere, supermarkets are demanding change.

Some retailers are using food companies' earnings reports as leverage to reject price increases, according to industry analysts. Others are pushing for more promotional allowances -- such as buy-one-get-one-free deals -- to help move higher volumes of goods.

Kraft Foods Inc. and Kellogg Co. both reported higher-than-expected quarterly earnings Wednesday -- thanks, in part, to price hikes.

Kraft's revenue rose 19% from the year-earlier period, and Kellogg's sales climbed 9.5%.

Kraft Chief Executive Irene Rosenfeld declined to comment on relations with retailers but indicated the company might have to ease off price increases.

"As we look ahead, we're assuming our margin growth will come from volume growth and higher-margin products in the portfolio and not pricing," Ms. Rosenfeld said.

Kellogg Chief Executive David Mackay said that he has yet to see a dramatic shift in the way retailers are negotiating with the cereal maker on pricing and promotions, but "certainly there's a heightened sensibility to the pressure that consumers are under. Naturally that's going to lead to very full discussions on all these topics."

He also said the economic slowdown is leading the company to increase its focus on cost controls.


U.S. retail grocery-store prices rose 7.6% in September from a year earlier, according to the Bureau of Labor Statistics. U.S. grocers Supervalu Inc. and Safeway Inc. and Belgium's Delhaize Group, which operates several U.S. chains, recently cut profit or sales forecasts due to food inflation and the weak economy.

Traditional supermarkets are under growing pressure to compete on price with low-cost grocers such as Wal-Mart Stores Inc. and Germany-based Aldi Einkauf GmbH.

Some retailers have suffered as consumers trade down to discount stores and cheaper store-brand goods.

But grain and soybean prices have fallen by about 50% from their summer highs.

"It's going to be difficult for food companies to maintain price let alone take price," said Jim Hertel, managing partner at retail consulting firm Willard Bishop LLC. "The prospect of a prolonged economic slowdown has made retailers' price competitiveness top of mind."

Representatives for Save Mart Supermarkets, a privately held California chain, and Safeway declined to comment on pricing.

A spokeswoman for Supervalu said, "We have in place a rigorous process to ensure that we offer our customers value at the store shelf."

While reluctant to publicly discuss supplier relations, supermarkets have been telling financial analysts they're taking a tougher stance with food makers.

"There isn't a retailer who doesn't tell us that they're going to put more pressure on suppliers," said Volker Bosse, a retail analyst with UniCredit Markets & Investment Banking in Munich. "Retailers face a strong head wind from falling consumer confidence."

This pressure, Mr. Bosse noted, isn't limited to price cuts. Some retailers also demand such concessions as better service, more leeway in discounting and special promotions.

In a recent research note, Credit Suisse analyst Robert Moskow said U.K. retailers are "increasingly resistant to accepting price increases as they engage in a price war. Manufacturer vendors like Heinz have responded by giving retailers more promotional allowances than ever before."

A spokesman for ketchup giant H.J. Heinz Co. of Pittsburgh declined to comment.

During a meeting with analysts earlier this week, Eduardo Castro-Wright, chief executive of the Wal-Mart Stores division, said declining oil prices should affect the prices of store items. "We will aggressively look for opportunities" to share cost savings with customers, he said.

"We're always having discussions with our major suppliers about cost prices -- either because they've approached us about an increase or we've approached them asking them to review their prices," said Dominic Burch, a spokesman for Asda, the U.K. unit of Wal-Mart. "As a retailer that is growing its volumes significantly, we also expect our suppliers to invest in that growth, sharing the economies of scale they are making with our customers."

Kraft's net income for the third quarter was $1.4 billion, or 93 cents a share, up from $596 million, or 38 cents, a year earlier.

The latest period included a gain from the sale of Kraft's Post cereals business. Excluding items, earnings per share were flat at 44 cents.

Kellogg reported third-quarter net income of $342 million, or 89 cents a share, up from $305 million, or 76 cents, a year earlier.

Through a new lean manufacturing initiative, Kellogg is aiming to reduce waste and is increasing its productivity savings target for 2009 to 3% to 4% of its cost of goods sold, up from 3%.

The blame for the exorbitant cost of gas was aimed directly at GWB. Think he'll get any credit for the lower prices at the pumps now? Naahhh, he won't. MSM assholes.

every economic problem.