It took the Fed long enough but finally even it succumbed to the reality of surging food prices when, as we reported previously [4], it hiked cafeteria prices at ground zero: the cafeteria of the Chicago Fed, stating that "prices continue to rise between 3% and 33%." So with input costs rising across the board not just for the Fed, but certainly for food manufacturers everywhere, it was only a matter of time before the latter also oo threw in the towel and followed in the Fed's footsteps. Which is what happened earlier today when J.M. Smucker Co. said it raised the prices on most of its coffee products by an average of 9% to reflect higher green-coffee costs.
WSJ reports [5]that the price increases primarily impact Folgers and Dunkin' Donuts brand products and exclude products made for single-serve coffee machines. But don't blame it on monetary policy: it's all the weather's fault:
Coffee prices have been elevated amid concerns that unusually hot and dry weather in Brazil's key growing regions will dent coffee-bean output.
Smucker, whose U.S. consumer-foods business includes its namesake fruit spreads and Jif peanut butter, plans to provide more details when its releases its fiscal fourth-quarter financial report on Thursday.
Why wait so long with the price hike? "The company in February had cut its full-year sales and earnings guidance, citing a more competitive pricing environment and lower expectations for sales volume... In the fiscal third quarter, Smucker's U.S. coffee business posted a 2% volume increase, but lower prices helped weigh on sales, which were down 8% in the quarter. The segment's profit, however, grew 4% on lower coffee costs, marketing expenses and manufacturing overhead."
In other words, it could wait no longer, since volumes did not make up for the loss in sales.
And now time for the old bait and switch: boost prices by 9% and at the same time reduce package sizes by 9% in effect lowering the price! So far it has worked with fooling most of the people all of the time. Will it work this time too?