Kraft Foods chairman and CEO Irene Rosenfeld has insisted that the US food giant’s “very, very strong, iconic brands” and its marketing plans will help the company convince retailers to increase prices in the face of rising raw-material costs.
The group saw its input costs “increase sharply” in the fourth quarter, in common with food manufacturers around the world. The trend for higher commodity costs has caused the business to lower its profit growth target for 2011.
Speaking to analysts yesterday (10 February) after Kraft reported its fourth-quarter and full-year results, CFO Tim McLevish said the company saw the input costs for its “base business” – that is, excluding Cadbury – rise by $500m in the last three months of the year.
McLevish said Kraft had started to increase prices on its products at the start of the fourth quarter but said the “sharp” rise in costs meant those moves were “insufficient” and margins fell.
Looking at the prospects for 2011, McLevish said Kraft sees its the growth in its input costs being in the “high single digits” against the level seen in 2010.
He said: “Our current expectation is that input costs will remain high throughout 2011. As a result, we’re now in the process of implementing further pricing actions to reflect these higher input cost levels. We expect that pricing will continue to lag input costs in the first half of the year. This will pressure gross margins. However, they should recover in the back half of the year, as prices and costs become better aligned.”
Food manufacturers the world over have, in recent weeks, stated that they have increased the price of their products and would continue to do so in the early part of 2011. US food group Ralcorp Holdings said this week that it would “accelerate” its price increases this year to help margins. Last week, Unilever said its moves to raise prices would pick up at a “rapid rate” this year.
Asked whether Kraft felt it had a “competitive advantage” due to its brands and its marketing plans in 2011, chairman and CEO Rosenfeld said the categories in which the company operates meant the business was in “a very strong position to have a conversation” with its retail customers.
She said: “Of course, you can imagine the retailers are no happier about driving costs than we are. But I think the opportunity for us [is that] because we have a broad portfolio, we have very, very strong iconic brands for the consumer. It gives us the opportunity to have discussions with them about snacking solutions, about meal solutions …. those sorts of things.”
Rosenfeld added: “I think we are bringing to our retailers preferred consumer brands. We have shown our ability to be able to help drive the category and drive traffic as a result of our marketing of those brands, and I think that will continue to be a strength of our selling force in the partnership.”