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Retailers, consumers and prices

Check Out Line: Beware the ides of rising costs for food companies

July 1, 2010

gis1Check out fears of rising costs for U.S. food companies.

Rising commodity costs and promotional discounts are pressuring profit margins for food companies and analysts said more may be on the horizon.

General Mills, whose brands include Cheerios, Green Giant and Haagen-Dasz, said on Tuesday that the gross margin in its most recent quarter was flat, excluding higher ad costs and other items.

On Thursday, General Mills said it expects pricing and promotions to look the same over the next six months as they have the prior half year. It also sees some players in the sector moderating their promotional activity as commodity costs rise and sees raising list prices in some categories after that. 

The company’s comments were seen as a harbinger of things to come, especially since its 2011 earnings forecast missed Wall Street estimates.

“I think ‘canary in the coal mine’ is a good way to think about it,” Janney Capital Markets analyst Jonathan Feeney said. “This is the first company to talk since Wal-Mart’s rollbacks.”

Earlier this year, Wal-Mart  introduced discounts, which it calls rollbacks, on thousands of items, leading other stores and brands to cut prices.

Discounting is adding to margin pressure for food makers because they are sometimes asked to make up the difference for retailers between a sale price and regular price through  “promotional spending.” 

Last week, ConAgra also reported flat gross margin.

Also in the basket:

Amazon updates Kindle e-reader, cuts price

Constellation Brands profit tops Street view

Diageo pledges whisky against pension deficit

Rite Aid June same-store sales fall 2.5 percent

Archer Daniels invests $100 mln in China bank

McDonald’s menu undergoing makeover-report

(Reuters photo)

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