Food Inflation Comes To America: General Mills, Kraft And Kellogg Hike Prices On Selected Food Products

Tyler Durden's picture

After denying for months that surging food prices will eventually come to the consumer, hoping that instead food companies could absorb the margin drop, sellside research is finally capitulating to the reality of what is really happening in the retail store. In a note discussing General Mills, Goldman Sachs says the company raised prices on snack bars some 7% last week. Goldman further clarifies that "this reportedly followed a comparable increase taken by K on its snack bars in mid-December. In addition, KFT has reportedly announced a 6% increase on select Planters branded nut products. We expect more price increases to be announced by the food  companies in the coming weeks." Maybe, but the Chairman sure doesn't. And the Chairman is always 100% correct.

Other observations from Goldman on what are now seen as inevitable price increases across numerous food verticals.

These pricing actions support our Food sector view that price momentum will continue to build as 2011 progresses, driven by easing promotional spending and list price increases (see our 1/5 report, Time to embrace inflation; Upgrade Food to Neutral, GIS to buy). This should drive top-line acceleration and margin stabilization over the course of 2011. Evidence of the progression is already apparent in retail scanner data (see our 1/11 report, Progression to a ‘less bad’ promo environment continues). Scanner data is likely to continue to show a measured pace of price growth. That said, we acknowledge that the growth is likely to build gradually as the pass-through of list price hikes to retail shelves lags and the reduction of promotional spend takes time to execute.

As a reminder, in December, the food component of the CPI increased by 0.1%, the lowest amount since July...

And just to complete the circus, Goldman now views price pass
throughs as a good thing. See: it resolves the margin issue. Uh, yeah.
But someone should explain to Goldman that when calculating revenue, one
multiples Price (P) by Volume (V). And in a stagflationary economy, and
increase in P results in a more than commensurate decline in V,
offsetting all margin boosts.

GIS (Buy) remains our top Food pick and snack bar price hikes reinforce our conviction. To our knowledge, Mills has now executed price increases in categories that account for roughly half of its US retail portfolio (and we think there may be other increases we are not yet aware of). The snack bar price hike alone may tally to 40 bps of price growth at the aggregate US retail segment level (roughly 6% of sales rising 7%). This 40 bps is meaningful when you consider that our model only aspires to 140 bps of price growth on average for GIS’ US Retail Segment over the next four quarters. And the coinciding price moves by Mills’ competitors reduces the risk of cross-price elasticity-driven volume softness. Our PT is unchanged.

And to the Fed, which erroneously believes that a one day sell off in stocks will prevent oil (and food) prices from posting double digit returns on the back of several trillion pieces of linen printed globally in 2010, you have our condolences.... Better keep those emergency evacuation G-Sixes fueled, staffed and ready.

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Larry Darrell's picture

Margin maintainence bitchez!!

jus_lite_reading's picture

How else do you support P/E ratios of 5000x and massive insider sales? Move all jobs to China and pay those slaves $.0002 per day.

Sudden Debt's picture

YOU MEAN THEY GOT A RAISE?!!??

 

THOSE BASTARDS ARE GETTING GREEDY!!!

jus_lite_reading's picture

Wait- did you see THIS?!

 

http://news.ino.com/headlines/?newsid=68975817777781

 

WTF IS GOING ON?!

 

Time to abolish religion! SAVE A BUCK! (or Drachma)

cowdiddly's picture

You can always tell when they make the green squares out of Americans. Greasy mo fo's

Larry Darrell's picture

And on a more thought provoking note:  will the food retailers attempt to eat some of these increases in order to keep people visiting their stores?  Or are their margins already too thin to help keep the populace in the dark any longer?

Cognitive Dissonance's picture

Isn't CNBC running a special this week about supermarkets? Here it is, Supermarkets Inc. tonight, Thursday 01-20-2011.

http://www.cnbc.com/id/40887785/

Gully Foyle's picture

A year or so ago there was a story about supermarkets scamming shoppers by not resetting scanners for special sale prices. The advice was to compare prices after you checked out in case your store was cheating.

Cognitive Dissonance's picture

I always watch the numbers while the items are being scanned. About every second trip I find a problem, usually with something not scanning on "sale". While I might not remember every sale price I do remember exactly what should be on sale. And I always stop the checkout person when something doesn't look right.

My adult son paid me the best compliment the other day. When he was young he always dreaded going to the supermarket with me because I would fight over a quarter. And back then the scanners were wrong every trip on multiple items. But the other day he said to me "Dad, you're the last person I would want to be behind in the checkout line and the first person I would go to if I had a problem because I know you would fight to the end."

At least I told myself it was a compliment. :>)

-Michelle-'s picture

It's a compliment, or at least it would be to me.

I always give fair warning to people who come up behind me in line.  I've got a lot of coupons and a spreadsheet.  I don't buy anything that's not on my list and I only shop from the sales circular, so I know what my total should be down to the penny.

Overpowered By Funk's picture

Meanwhile Steve Liesman waits patiently for wage inflation - because that's "real inflation". Commodity prices are noise nothing more.

I gotta give to guys like he and Bernanke that can sit there with a straight face and tell me that the CPI is benign. Takes a large set of attachments to roll that bullshit out, and brass ones at that.

Cognitive Dissonance's picture

You give them too much credit. The brainwashed and evangelized don't believe they are lying, thus there is no emotional discomfort involved. Though Bernanke's last 60 Minutes appearance did show some cracks in the facade.

trav7777's picture

because in all other inflationary environments like Chile, Colombia, Argentina, Brazil, Mexico, Russia, Hungary, etc., wages ALWAYS caused the inflation...right?  Oh no wait, they didn't

TexasAggie's picture

The MSM or it is LSM don't tell the average reader/viewer that food and energy are excluded from hte CPI.  Therefore, the shoppers see the rise in food and energy and are confused, just as the MSM wants.

ToddGak's picture

Certainly no threat of wage inflation with 20% unemployment...

My buddy in Arizona does desktop IT support...he got laid off recently and let me know that in looking for jobs, he found out that his job now pays about a third of what it did when he got hired 5 years ago.  So yeah, Liesman's gonna be waiting a while...

SilverRhino's picture

Retail grocery has the thinnest margin and highest entry costs of almost any industry in the USA. 

BRAVO 7's picture

maybe so, but which is it? is the price going up or the value of the $$$ going down?

SheepDog-One's picture

'Which is it'? LOL you cant be serious...or maybe you work at the FED?

ColonelCooper's picture

I guess really, since the answer is both, it's a fair question.

Rainman's picture

Correct about the margins. So it's always about volume !! In SoCal, I have 13 grocery stores/warehouses within a 5 mile radius of my home. Each have been price cutting against each other for years and even more so recently. I suspect some will go bye-bye as the margins squeeze down further. With that kind of competition around, attentive shoppers know what to buy and where and when to go. And the self-bagging/no credit cards are the best in overall pricing. Like the gasoline business, the retail food market will have you pumping up your own bag and checking yourself out. They are only optional indoctrinating now. 

Cereal and chips are the biggest ripoffs. I won't notice a price hike. 

Gully Foyle's picture

http://www.youtube.com/watch?v=yKtWMqW4ICM

Johnny Guitar Watson Ain’t That A Bitch lyrics

Eew, Lord have mercy, I can't get ahead, no way I try
Everything is out of pocket, somebody do somethin'
The brother's situation is abstract, listen, mm

Listen
I'm workin' 40 hours, six long days
And I'm highly embarrassed ev'rytime I get my pay
And they're workin' everybody
Lord, they're workin' poor folks to death
And when you pay your rent and your car
Note, you ain't got a damn thing left

Ain't that a bitch - yes it is
Somebody doin' somethin' slick -
It's got me wonderin', which is which
Might as well go uptown and dig a ditch
Ain't that a bitch - yes it is - now ain't that a bitch

But let me tell you about my qualifications
I program computers
I know accounting and psychology
I took a coarse in business
And I can speak a little Japanese -
Got to work two years to get one week off with pay
And when I'm on my job, I better watch every word I say

Ain't that a bitch - ha ha, boy
Somebody doin' somethin' slick - downtown
It's got me wonderin', which is which
Might as well go uptown and dig a ditch
Ain't that a bitch - it's way too cold - ain't that a bitch
Make me wanna holler

Ah Lord, Lord, Lord, have mercy to see
Won't somebody please help me to see now, Lord
I wanna play the guitar, come here guitar
Aw, somebody doin' somethin' slick

Now listen at this
Stopped at the supermarket to get myself somethin' to eat
And when I looked at the prices, it knocked me off of my feet
I was in the baloney section, and I had to take myself a close look
Now Abdul Jabar couldn't have made these prices with a sky hook

Ain't that a bitch - he he, yes it is
Somebody doin' somethin' slick -
It's got me wonderin', which is which
Might as well go uptown and dig a ditch
Ain't that a bitch - hm - so ain't that a bitch

Oh, ain't that a -------- bitch
Sure is somethin' slick goin' on, sure is somethin' slick
Sure is somethin' slick goin' on, sure is somethin' slick
Ain't that a -------- bitch
Sure is somethin' slick goin' on, sure is somethin' slick
Sure is somethin' slick goin' on, somebody sure is slick

Ain't that a -------- bitch
Sure is somethin' slick goin' on, sure is somethin' slick
Sure is somethin' slick goin' on, sure is somethin' slick
Sure is somethin' slick goin' on, sure is somethin' slick
Ain't that a -------- bitch
Sure is somethin' slick goin' on, somebody sure is slick ....

Don Birnam's picture

This Goldman report does call to mind a recent piece I read indicating that the price per pound of dressed squid has dropped significantly over the past 24 hours.

jus_lite_reading's picture

Sheessse! Don't worry mon! The Bernank's got this! 100%. Guaranteed. In 15 minutes or less. Everything solved. 100% insolvent proof too! WOW!

Cognitive Dissonance's picture

Please, I beg of you, do whatever else you want. But leave my Mac and Cheese alone.

cossack55's picture

Noticed KFT mac & cheese, which has been around 2 for buck for ever, is now $1.43/box.  Too late CD.

youngman's picture

When I was in college....I lived on it......17 cents a box then...

Sudden Debt's picture

When I was a student, I had a room above a Turkish Pitta restaurant and across the street there was a Illy coffee bar and next to it a Bar.

In those day it was my little universe :)

Rodent Freikorps's picture

No kidding. It was the only thing making free-range alley cat palatable.

Dr. Richard Head's picture

Whoever junked you is a moron.  That was pee in me pants funny.

Pladizow's picture

The only thing that has a chance of sparking the next American revolution is a threat to food supply.

As long as an American has a cheese burger in one had and the clicker in the other, their government can do what ever they want to them.

The last 4 years exists as proof!

bigdumbnugly's picture

you're right, pladdy.

so many people on here saying the pitchforks are out and such things as that but a pitchfork or two in a whole herd of bovine isn't very intimidating. 

until the family's decision comes down to choosing between supper or the cable tv, ain't nothin gonna happen.

for all the calls to action the question remains unanswered: who will bell the cat?

 

ColonelCooper's picture

The sad part is that 43 million Americans have faced that choice.  Fortunately for them, they can leave the cable on, and go get food stamps.

Cognitive Dissonance's picture

Agreed. Too funny by a mile. Brings all kinds of images to the mind. I instantly thought of Julia Child.

bigdumbnugly's picture

free range alley cat.  mmmm mm.  gives paws for thought when hungry.

tellsometruth's picture

Holly shit thats funny or err sad or ... it says something... oh wait family guy is on tbs for 2 straight hours tonight! that will help ease the pain of the obvious... wouldn't it be great to have Brian on family guy go off about JP MORgue Santelli style... when that happens I'll know PM Mania is here

cougar_w's picture

Try dog. You'll never go back.

andybev01's picture

Wok the dog.

Stock up on soy sauce.

plocequ1's picture

Go to BJs and buy 100 20 packs and store them with your gold

DollarMenu's picture

They will leave the formulation alone, but it will cost you more money.

Not too big a price to live in the Home of the Free to eat as you choose,

but an increase none the less.

RockyRacoon's picture

With or without the bugger?

Financial_Guardian_Angel's picture

Ah! Me and my daughter still eat it all the time. Can't take it away---no!!

Arkadaba's picture

Cog, my ultimate comfort food is KD with chopped up hot dogs mixed in - very yummy!

RockyRacoon's picture

Add a dash or two of Worcestershire sauce.  It changes the color a bit and tastes great.

Salinger's picture

Long before actual price increases are implemented packaged goods companies cut back on promo activity, which for all intents and purposes amounts to a price increase. Still others modify formulations and maximize efficiencies. Long ago food companies learned to source ingredients globally e.g. the dehydrated strawberries in your Cheerios come from China and in recent years back office functions have moved to India etc. There ain't much more to take out of the system:   packaging has long since been light weighted; factories have been consolidated and automated;  and with help from the good folks at Big Agri, that grain of genetically modified wheat and touch of natural artificial sweetener  are part of a balanced diet that in combination with the hormones and antibiotics in your milk will make you the picture of health until you are diagnosed with a form of cancer that didn't exist 50 years ago.  Transportation costs, energy costs, diversion of crops to ethanol along with the impacts of QE 1&2 on commodities have left the food companies with no other options.  

Of course the people who will feel this the most are the middle class who don't (yet) qualify for food stamps.