MFG 2.0

Nestle, Unilever, Kellogg vs. Their Customers

Interesting article in today's LA Times about a battle brewing in between food manufacturers and their largest (non-Wal-Mart) customers.

Big grocers are complaining that food manufacturers continue to raise prices, even in an environment of plummeting commodity prices.

There's a tug-of-war underway over food prices between the nation's supermarkets and giant food manufacturers including Nestle, Unilever and Kellogg. . .
"It's disingenuous to consumers that all commodity costs are coming down, interest rates are coming down, everything is coming down, and are taking their prices up," Steven Burd, chief executive of Vons owner Safeway Inc., told investors Thursday.

Jeff Noddle, chief executive of Supervalu Inc., described the conflict as "kind of a battleground with manufacturers right now. We are pressing for a reduction in prices."

On the other side, the food manufacturers claim that the situation is more volatile than it appears.

"It is only recently that we have seen some price decreases for certain commodities, such as milk, butter, wheat, corn, soybeans and edible and mineral oils, but most of these still remain above historical averages," said Dean Mastrojohn, spokesman for Unilever U.S. "We also see prices for certain commodities that we use, such as beef extract, tomatoes and tea, continuing to increase."

And all of this is happening in the age of what web site calls the Grocery Shrink-Ray -- manufacturers reducing product sizes without reducing cost (and in some cases actually raising the package price despite shrinking the volume). From the LA Times story:

Kraft raised the wholesale price of a box of its staple macaroni and cheese an average of 9% in the last year, according to several supermarket chains, despite 38% to 68% plunges in cheese and wheat prices. These increases factor in the growing practice by the manufacturers of shrinking the weight of the contents without reducing wholesale prices.
Grocers said that Unilever last year increased the wholesale price of its Skippy peanut butter by about a nickel a jar after shrinking the contents of the container by almost 10%.

Who knows? Maybe the reduction of package size will correspond to a reduction in portion size, which will then correspond to a reduction in American size, which will then correspond to a reduction in health care costs and save the country some money in the long term. Maybe it's just a case of patriotic, yet sadly misunderstood, food manufacturers trying to save us from ourselves?

TAGS: Innovation
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