(AP) — Retailers, who begrudgingly went along when food makers pushed up prices to recoup record-high costs, are flexing newfound muscle and demanding price cuts to match the recent steep retreat in ingredient costs.
Food makers are resisting, saying the uncertain economy and volatile costs make price cuts unwise. But retailers aren’t backing down.
Consumers – who responded to the higher prices by favoring grocers’ in-house products over national brands and by shopping more at discounters – may end up with fewer choices all around.
“We don’t have to carry three brands,” Costco Wholesale Corp.’s Chief Financial Officer Richard Galanti told investors earlier this month. “We can choose between brands that are going to be more aggressive, that help us help our members.”
Costco has been lowering its prices, Galanti said, and is prepared to sacrifice profit margins and cut national brands that won’t negotiate on pricing – if that’s what it takes to drive sales.
“We are not the only ones out there pressuring manufacturers,” he said.
Steven Burd, president of grocery chain Safeway Inc., recently told investors that it has gotten some vendors to roll back their prices. Like many retailers, it is finding its new strength in its in-house brands, including Safeway Select, O organics and Primo Taglio deli products.
“We’re going to chew them up on corporate brands,” Burd said of food makers that don’t lower prices. “And we’re just going to keep driving corporate brands.”
Food makers, which raised prices last year after fuel and some ingredient costs hit record highs in the summer, are leery of dropping their prices in case commodity costs come back up and pinch their profit margins. They say they’re still catching up with last year’s costs, even as they confront tougher competition from the retailers they rely on to sell their products.
Producers are making some changes that can provide relief to both consumers and retailers, said Frank Luby, a partner with Simon-Kucher and Partners who consults with companies on pricing.
Some are changing package sizes, often shrinking them while keeping prices steady so shoppers don’t pay more to remain with their favorite brands.
But this tactic can make them targets of their competitors – as ice cream maker Haagen-Dazs, owned by General Mills Inc., learned when it announced recently that it will shrink some of its containers. Rival Ben & Jerry’s, owned by Unilever, said on its Web site – without naming Haagen-Dazs outright – that consumers are hurting just like food makers and they deserve a full pint of ice cream, not just 14 ounces.