Kellogg, Kraft still packaging up profits

Kellogg's and Nabisco snack foods.

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KAI RYSSDAL: You talk dollar these days, you talk oil. Crude fell today on rising US supplies -- 113-46 was the close. Corporations are subject to some of the same economic stresses the rest of us are, and just as our bills are getting a little steeper, so are theirs, especially companies that sell food. Kraft and Kellogg reported lower profits today, but they still did better than anybody was expecting.

From New York, Alisa Roth explains.


ALISA ROTH: Let's use a box of macaroni and cheese as an example. Everything that goes into it is getting more expensive: the wheat to make the macaroni, the milk to make the "cheese," the gas for the truck that brings it to the supermarket. To make up for all those extra costs, the manufacturer charges you, the consumer, more. Tim Ramey follows the food and beverage business for D.A. Davidson. He says, fortunately for companies like Kraft, Kellogg, Procter & Gamble and the rest, we still have to eat.

TIM RAMEY: We just change how we eat it and what we eat, but we don't change the quantity of what we eat. Otherwise, we would all collectively lose weight every recession, and that never happens.

Ramey says when food gets too expensive, the first place consumers cut back is on luxuries, like meals out. That hurts the food companies, too, because they supply a lot of the stuff you find in restaurants, like salad dressing or bread. The consumer's next step is usually to turn to cheaper versions of the same product.

Richard Kilmer is an economist at the University of Florida. He says food companies are worried we'll stop buying their brands, but they still have to make money, so they're trying to work out how much of their costs they can pass on before consumers switch.

RICHARD KILMER: They recognize that likely, when they increase the price, that the amount that they will be selling will go down, so they have to do it with discretion.

Judging by today's earnings numbers, consumers are staying loyal to their brands, but everybody's expecting commodities prices to keep going up, so better get used to the idea of paying more for that mac and cheese.

In New York I'm Alisa Roth for Marketplace.

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