The Wall Street Journal reports that several food manufacturers, including Kraft Foods and Hershey Co., are raising prices on a number of their products by between one and four percent, citing increased costs for raw materials and transportation.
However, as the Journal notes, it isn’t easy to make price increases stick in an environment where many customers are demanding the lowest possible price, and a number of retailers are willing to do whatever is necessary to satisfy that demand.
And, there’s another challenge. “As packaged foods get more expensive, consumers are increasingly shifting to cheaper ‘private label’ products sold under grocery stores' own brands,” the Journal writes. “Stores have sharply expanded their house brand offerings during the past several years, and the makers of these goods have gotten better at mimicking big brand-name products. Through the seven years ended in 2004, sales of private label goods grew at more than twice the rate of branded goods, according to ACNielsen.”
However, as the Journal notes, it isn’t easy to make price increases stick in an environment where many customers are demanding the lowest possible price, and a number of retailers are willing to do whatever is necessary to satisfy that demand.
And, there’s another challenge. “As packaged foods get more expensive, consumers are increasingly shifting to cheaper ‘private label’ products sold under grocery stores' own brands,” the Journal writes. “Stores have sharply expanded their house brand offerings during the past several years, and the makers of these goods have gotten better at mimicking big brand-name products. Through the seven years ended in 2004, sales of private label goods grew at more than twice the rate of branded goods, according to ACNielsen.”
- KC's View:
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We think that the Journal makes an excellent point – that there are too many alternatives and pressures in the modern food retailing environment to make it possible for these price increases last for very long. It would be interesting to know if the companies raising prices are simultaneously adjusting their allowances and promotion funds; if so, it might mean that bigger, value-driven retailers would be compensated for the price increases, while smaller retailers find themselves at an even greater disadvantage.
Ultimately, most retailers shouldn’t even be having this discussion – because if they are trying to compete on price they’ve probably already lost the race. It is value – which can be defined in so many ways in addition to dollars and cents – that they should be stressing. It should be “the other thing” that they are emphasizing…the thing that makes them unique, different, compelling.
