A price war among Chile's pasta producers squeezed profit margins to the bone over the past year, although a modest recovery is expected this year. The price war was triggered by the introduction of own labels the nation's leading supermarket chains. Own label has proven attractive to the majority of Chilean consumers who correspond to the mid to lower socio-economic strata.

An industry price survey shows that the price paid by the average household for a kilogram of noodles declined 2% from Q1 1999 to Q2 2000, and prices did not recover significantly during the remainder of 2000. The squeeze is most pronounced in supermarkets, which account for over 80% of pasta sales.

Management of Grupo Luksic, one of Chile's leading pasta producers, said the company has difficulty gaining brand loyalty in a consumer market like Chile's where there is little brand differentiation and consumers seek the best price. Leading pasta brands are expected to invest approximately US$4m in mass media publication this year in order to increase brand recognition, although the campaign will not boost prices if oversupply persists.

By Steve Lewis, just-food.com correspondent