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General Mills Hikes Prices On Some Cereals, Baking Brands

Published Thursday, 21st October 2010 04:45 am - © 2010 Dow Jones


(Adds information on supermarkets and other details throughout.)

By Anjali Cordeiro and Paul Ziobro

Of Dow Jones NEWSWIRES

NEW YORK -(Dow Jones)- General Mills Inc. (GIS) is raising prices on some cereals and baking products, the clearest signal yet that food makers will pass some price pressure from higher commodity costs on to retailers and consumers.

General Mills is instituting "low-single-digit" percentage price increases on select cereal brands and slightly higher increases on some baking products, such as flour and baking mixes, spokeswoman Kirstie Foster said.

Separately, Kraft Foods Inc. (KFT) is also starting to raise some prices, people familiar with the matter said Wednesday, though the scope of Kraft's increases wasn't immediately clear. A Kraft spokesman declined comment Wednesday, but the company recently said it would selectively raise prices on some brands to offset commodity costs.

The moves by General Mills and Kraft could set the stage for the first broad wave of price increases by food makers since 2008, actions that drove profits and stocks for industry players higher. The recession forced food makers to start offering big promotions to entice shoppers who were cutting back.

Now, with the prices of commodities such as wheat and corn surging, these food makers are being pushed into the difficult position of either passing along costs or allowing their margins to erode.

Choosing to raise prices could placate investors. "The prospect of higher price points would be an enticing one," Barclays analyst Andrew Lazar said Wednesday in a research note.

New price increases would come at a time of still-widespread caution among consumers, who are still jittery about the pace of the economic recovery. It could also put some retailers in a bind. Supermarket operators, who have expressed caution about consumer confidence, will have to decide whether to raise shelf prices or sacrifice profits.

General Mills will raise prices on select cereal brands starting Nov. 15, the spokeswoman said, affecting about a quarter of its cereal business in the U.S. Specific brands weren't disclosed, though the spokeswoman said it would be the first price increase on many of the cereal brands in more than three years. General Mills' brands include Cheerios and Lucky Charms cereals and Betty Crocker baking mixes. Price increases on the baking brands will go into effect Jan. 3.

Higher input costs forced the price increases, the spokeswoman said. The company has been using productivity improvements and cost cuts to offset raw-material price pressures and will keep doing so, she said.

Kroger Co. (KR) and Safeway Inc. (SWY) executives have said in recent weeks that they expect to be able to pass along such increases, although other supermarket chains such as Supervalu Inc. (SVU) are engaged in another round of price cuts in stores to keep shoppers coming in.

Supervalu on Tuesday said it was going to run another round of price cuts, a direct response to declining sales and market share.

The new strategy comes as a major supplier in the past week told Supervalu that it will raise prices "across the board," Supervalu Chief Executive Craig Herkert told analysts Tuesday. A Supervalu spokesman declined comment on which supplier warned the company of higher prices.

Wegmans Food Markets, a privately held grocery chain, said nearby competition is the main factor in determining prices, but rising costs for commodities such as corn are also being closely watched.

"Whenever possible our company will absorb cost increases rather than passing them on to our customers," Wegmans spokeswoman Jeanne Colleluori said. "However, sometimes that scenario simply isn't possible."

-By Paul Ziobro and Anjali Cordeiro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

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