Food and Drink

Food giants feel the heat

Eve Troeh Feb 17, 2012

Jeremy Hobson: Two popular food companies are about to tell us how much money they’re making. Campbell’s Soup and Heinz will report earnings this morning. Both companies are struggling with the rising cost of ingredients — and just how much of that price increase can be passed onto consumers.

Marketplace’s Eve Troeh Reports.

Eve Troeh: When a food company raises prices, customers look elsewhere. So to keep the eyeballs on your brand, you want to keep prices at bay.

But that’s hard to do as costs rise for raw ingredients, says Ken Perkins at Morningstar.

Ken Perkins: Now there’s sort of a dilemma between: Do we raise our prices and risk alienating consumers from our brands? Or do we let our profits slide?

And alienate shareholders. Companies have been exploring their options: Innovating shiny, new products to spur demand — or keeping the price of a product the same, but getting sneaky on the size.

John Frank: The hope was that if you took an ounce or two out of the bottle, it wouldn’t make that much of a difference. The consumer wouldn’t notice, really.

That’s John Frank at Mintel International. He says the big brands could also cut their marketing budgets. But they risk losing ground to the grocery stores’ own brands.

Frank: A lot of supermarkets are stressing and marketing their own private label much more actively today.

And they’re making those store brands taste better. Because if the big names do jump in price, more customers could switch for the long haul.

I’m Eve Troeh for Marketplace.

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