Heightened expectations for pricing as 2011 kicks off

by Josh Sosland
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It’s difficult to recall such a tense time for the food manufacturing industry directly associated with the start of a new year. Recognizing the need for responding to rising ingredient and other costs, numerous companies have announced plans to raise prices early in 2011.

Many executives expressed confidence that the price hikes would be successfully executed. These comments underscored the importance of such changes while at the same time, merely because of the emphasis given to the message, also have generated at least some sense of uncertainty as to whether increases will hold.

Continued perceptions of consumer frugality, retailer resistance to higher prices and the fact that many food companies raised prices within the past couple of years combine to create the concern about whether the price moves truly will become reality. The importance of reflecting higher costs in baked foods prices is, if anything, even more important than in the balance of the food industry.

Baking was subjected to more pricing pressure over the past year or so than many other industry segments, and bakers generally enjoy slimmer margins. The pressures in bread reflected the longstanding popularity of bread promotions as well as the instability in the ownership of certain major companies. Price weakness also represented a trade-off by companies looking to avoid giving greater advantage to private label and store brands, even at the expense of branded bread margins. While baking companies have said for months they are cutting back on promotions, the industry still appears strongly in need of further price adjustments in the new year.

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