U.S. Foodmakers Blame Wal-Mart for Stunted Prices
Reuters | Wed Feb 18, 2004 | Nichola Groom
SCOTTSDALE, Ariz. (Reuters) - Americans may have noticed that their grocery bills have remained fairly stable, but it may surprise supermarket shoppers to learn that they have retail giant Wal-Mart to thank for keeping a lid on prices.
At an industry conference in Scottsdale, Arizona, this week, makers of foods from cereal to soup lamented the difficulty of raising prices on such household staples when discounters like Wal-Mart Stores Inc. wield so much power over the grocery market.
"Our customers are really slugging it out for retail space, and as long as Wal-Mart and some of the other customers are putting pressure on our customer base, it's going to be a challenging environment for all manufacturers," Campbell Soup Co. Chief Executive Douglas Conant said in an interview.
Bentonville, Arkansas-based Wal-Mart is the world's largest company by revenue and a dominant player in the U.S grocery business. The massive buying-power of the company's Supercenters, a retail format more than twice as large as its regular discount stores, means Wal-Mart can often buy and sell goods more cheaply than competitors.
As a result, Wal-Mart's suppliers' hands are tied when it comes to pricing, even as their own costs rise.
Fruit and vegetable producer Fresh Del Monte Produce Inc., for instance, signs contracts with Wal-Mart and others before it knows how crop harvests for the year will turn out.
Fresh Del Monte Chairman and CEO Mohammad Abughazaleh said that last year, for instance, poor weather in Florida hurt tomato harvests, driving Fresh Del Monte's tomato costs sky-high -- yet prices on tomatoes at Wal-Mart held firm.
This year, the Coral Gables, Florida, company has enjoyed wider profit margins on tomatoes as production recovered.
Facing higher shipping costs due to a spike in oil prices, Del Monte would love to be able to raise prices. Instead, it hopes a rebound in the economy will increase consumption and help drive down costs.
"If the economy turns around people would have more spending power so they would buy a little bit more food or dine out," Abughazaleh said in an interview. "If we maintain our pricing and move more food overall, costs will come down."
Fresh Del Monte is not the only U.S. food company that has been forced to swallow rising costs.
Even those who have managed to eke out price gains say the meager rise does not come close to covering their costs. Archer Daniels Midland Co., a maker of soft-drink additive high fructose corn syrup, said it raised 2004 prices on HFCS "in the low single digits" to help combat rising corn prices.
But ADM CEO G. Allen Andreas said in an interview the increase was less than the company had hoped, citing the power of customers like soft-drink giants Coca-Cola Co. and PepsiCo Inc . Analysts had been expecting a rise of around 5 percent.
For ADM and others in the food industry, prices on raw materials like corn and beef have surged in the last year, leaving many struggling to find ways to offset those costs.
Campbell's Conant, for one, said his company would find ways to cut costs in other parts of its business in lieu of raising prices in the near term.
Cereal maker General Mills Inc. said in-store promotions was one way it could help manage higher costs without raising prices, though CEO Steve Sanger said such promotions were only appropriate "in certain circumstances."
"We really do not see a significant pricing opportunity so far at the present time," Sanger said during a presentation at the Consumer Analyst Group of New York conference. "This is one that we'll have to manage."
Kraft Foods Inc. has taken a similar approach, pouring more cash into promotions on everything from Nabisco crackers to Kraft cheese in a bid to restore pricing parity and stay competitive after raising its prices last year.
Reuters | Wed Feb 18, 2004 | Nichola Groom
SCOTTSDALE, Ariz. (Reuters) - Americans may have noticed that their grocery bills have remained fairly stable, but it may surprise supermarket shoppers to learn that they have retail giant Wal-Mart to thank for keeping a lid on prices.
At an industry conference in Scottsdale, Arizona, this week, makers of foods from cereal to soup lamented the difficulty of raising prices on such household staples when discounters like Wal-Mart Stores Inc. wield so much power over the grocery market.
"Our customers are really slugging it out for retail space, and as long as Wal-Mart and some of the other customers are putting pressure on our customer base, it's going to be a challenging environment for all manufacturers," Campbell Soup Co. Chief Executive Douglas Conant said in an interview.
Bentonville, Arkansas-based Wal-Mart is the world's largest company by revenue and a dominant player in the U.S grocery business. The massive buying-power of the company's Supercenters, a retail format more than twice as large as its regular discount stores, means Wal-Mart can often buy and sell goods more cheaply than competitors.
As a result, Wal-Mart's suppliers' hands are tied when it comes to pricing, even as their own costs rise.
Fruit and vegetable producer Fresh Del Monte Produce Inc., for instance, signs contracts with Wal-Mart and others before it knows how crop harvests for the year will turn out.
Fresh Del Monte Chairman and CEO Mohammad Abughazaleh said that last year, for instance, poor weather in Florida hurt tomato harvests, driving Fresh Del Monte's tomato costs sky-high -- yet prices on tomatoes at Wal-Mart held firm.
This year, the Coral Gables, Florida, company has enjoyed wider profit margins on tomatoes as production recovered.
Facing higher shipping costs due to a spike in oil prices, Del Monte would love to be able to raise prices. Instead, it hopes a rebound in the economy will increase consumption and help drive down costs.
"If the economy turns around people would have more spending power so they would buy a little bit more food or dine out," Abughazaleh said in an interview. "If we maintain our pricing and move more food overall, costs will come down."
Fresh Del Monte is not the only U.S. food company that has been forced to swallow rising costs.
Even those who have managed to eke out price gains say the meager rise does not come close to covering their costs. Archer Daniels Midland Co., a maker of soft-drink additive high fructose corn syrup, said it raised 2004 prices on HFCS "in the low single digits" to help combat rising corn prices.
But ADM CEO G. Allen Andreas said in an interview the increase was less than the company had hoped, citing the power of customers like soft-drink giants Coca-Cola Co. and PepsiCo Inc . Analysts had been expecting a rise of around 5 percent.
For ADM and others in the food industry, prices on raw materials like corn and beef have surged in the last year, leaving many struggling to find ways to offset those costs.
Campbell's Conant, for one, said his company would find ways to cut costs in other parts of its business in lieu of raising prices in the near term.
Cereal maker General Mills Inc. said in-store promotions was one way it could help manage higher costs without raising prices, though CEO Steve Sanger said such promotions were only appropriate "in certain circumstances."
"We really do not see a significant pricing opportunity so far at the present time," Sanger said during a presentation at the Consumer Analyst Group of New York conference. "This is one that we'll have to manage."
Kraft Foods Inc. has taken a similar approach, pouring more cash into promotions on everything from Nabisco crackers to Kraft cheese in a bid to restore pricing parity and stay competitive after raising its prices last year.
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