The cost of producing products continues to rise, but will bakers and snack producers be able to pass on those costs to consumers? According to editor Dan Malovany, maybe not for too long.

Gimme a Break

Boy, times are tough. How tough are they? I’ll tell ya’ how tough they are. In December, Yamazaki Baking Co. raised the price of its white bread for the first time in 24 years. Yup. Twenty-four years. That’s no mistake.

   And it was the first time it raised prices on its other bakery and confection products in 17 years. That’s gotta be some kind of record.

   Guess how long it took Yamazaki Baking to raise prices again? Only five months. The Tokyo-based company, one of the largest wholesale bakers in the world, is hiking the price of its bread and other baked goods by about 8% in May after the Japanese government increased wheat prices by 30% in April.

   If it’s any solace to U.S. bakers and snack producers, the whole world is getting socked in the mouth by skyrocketing commodity prices. Corn prices have soared to record highs. The cost of rice, as well, has risen out of control, and everyone has heard about the horror stories involving wheat. Several countries have reduced their agriculture exports. Some are even hoarding their commodity supplies.

   With the continued pressure on ingredient prices, snack producers and bakers have had no choice but to hike prices anywhere from 5% to more than 10% last year, and it looks like another round of more aggressive increases is in the works.

   Yeah, raising prices isn’t new. And sure, it’s been going on for years, but now it seems to be hitting a point where consumers are starting to notice, and they’re not liking it one bit.

   You can see it with those popular two-for sales. That’s right, the mother of all discounts for driving volume in the snack and bread aisles. Three years ago, consumers in Chicago could buy two loaves of branded widepan variety bread for about $3.50 on sale. At $1.75 each for a loaf of 100% wheat or whole grain bread, that was downright cheap.

   A year later, however, this aggressive discounted price inched up to two loaves for $4 for premium bread. Still a good deal for $2 a loaf. Then last year, the promotional price for a pair of 24-oz. loaves hit $4.50, and earlier this year, the discounted products were being sold for $5 for two loaves.

Woo Hoo! It seemed like the days of giving away bread was over.

   Then BOGO bread returned this spring. Yes, buy one loaf for $3.59 and get another one for free. Personally, I couldn’t believe it. With the price of flour near all-time highs, how could they afford to give it away?

   What happened? As far as consumers were concerned, it seems the price-value equation may have gotten out of whack, at least for this brand. Simply put, bread shoppers had been conditioned into believing that buying two loaves for $5 wasn’t that great of a deal at all. Eventually, the two-for sale was lowered to $4.50.

   For many consumers, who are now paying nearly $4 a gallon for gas, it’s gotten to the point where something has to give. Not surprisingly, many of them are changing their purchasing patterns. ACNielsen reports that nearly half of U.S. consumers have trimmed discretionary shopping.

   That may be the case. Overall projections for foodservice sales growth have been revised down to 3.5% for 2008 from a previous estimate of 5.1%, according to Technomic, which tracks restaurant sales. That’s not good news. If you conservatively estimate at a 4-5% inflation rate for this year, foodservice sales will actually decline in real dollars.

   Is trading down next? Maybe a little. For the most part, Americans are picking and choosing where to splurge. Call it selective indulgence. They would still rather ante up for juicy strip steaks, then pinch a few nickels by selecting a package of private-label hamburger buns instead of the branded ones.

   Heck, the family won’t know.

   Yeah, times are tough, really tough. It’s almost enough to drive you to drink.

   But no, don’t pour us any of that rotgut stuff. That’s because in these rough economic times, if you’re going to pay extra for something, you might as well feel good about it…real good.
   So make it a double.

Dan Malovany, editor