Weston Bakery truck trailers sit idle at a George Weston Ltd. owned facility on the Queensway in Toronto.Louie Palu/The Globe and Mail
Food companies are looking to raise prices this year, even though many food commodity prices are on the decline.
Executives at bakery giant George Weston Ltd., which also controls supermarket leader Loblaw Cos. Ltd., said on Thursday they are now testing more price increases after having bumped them up 5.7 per cent in the fourth quarter of last year. That followed on the heels of price hikes in the two previous quarters.
Maple Leaf Foods Inc., another large player in baked goods and prepared meats, also has raised prices in early 2012 despite consumers' value-conscious mood, its executives said this week.
"We may have some opportunities" to hike prices further, Ralph Robinson, president of Weston Foods, the bakery division of George Weston, told an analysts' conference call on Thursday. "It's a very difficult market, very challenging market right now. So we're looking at every opportunity."
Food makers say they are still catching up with last year's rise in such commodities as corn, cocoa and coffee – even though many of those prices have peaked by now. Corn, for example, is down nearly 20 per cent since last summer.
At the same time, food makers need to be cautious about how far they go with price increases, as they the same time they grapple with a budget-challenged consumer who is scared off by higher prices, often switching instead to lower-priced items.
And higher fuel expenses are causing added pain for both producers and shoppers, who think twice about getting into their car to go to the supermarket as the prices at the pump move up – resulting in the companies taking a hit to their sales growth.
Food prices at retailers have climbed in Canada over past months, jumping almost 5 per cent in January from a year earlier, according to Statistics Canada. Shoppers shelled out 6.5 per cent more for meat, 9.9 per cent more for bread and 8.3 per cent more for fresh vegetables, according to Statscan's Consumer Price Index.
However, major grocers have reported that their own internal food inflation has lagged that of Statscan, because customers are hunting for bargains and turning to cheaper alternatives.
Still, food producers and grocers haven't yet passed on to consumers all the effects of their commodity price hikes, said Kevin Grier, senior market analyst at the George Morris Centre, an agri-business researcher in Guelph, Ont.
"We as consumers still haven't felt the full brunt of price increases."
As a consumer, a price hike will force him to stick more to necessities – bread rather than pies or cakes; chicken legs instead of pricier chicken breasts. "I'll buy less of the discretionary things," Mr. Grier said.
Retailers have been forced to offer more discounted items to offset price hikes. "Although rising costs have forced some prices up at retail, the challenging economic climate has created a highly promotional environment that has limited the grocers' ability to raise prices across the board," Patricia Baker, an analyst at Scotia Capital, said in a recent note.
On Thursday, George Weston warned that its profit in 2012 would drop because of increased costs at Loblaw. But the company will try to achieve full-year operating margins in line with those of 2011, which "most likely means more [higher]pricing," CIBC World Markets analyst Mark Petrie said.
Weston's Mr. Robinson said that when price increases are implemented, shoppers typically react by scaling back their spending for three to five months.
"In the Canadian market, for example, we had an increase in March [2011] We had the predicted decline in volume, and then we saw somewhat of a resurgence, and in recent months we've seen it falter again.
"So I think in this instance the softness is perhaps related more to economic conditions, and consumer challenges than it is to pricing. But obviously it is an industry that's sensitive to pricing."
In its fourth quarter, George Weston's profit rose to $173-million or 72 cents a share, from $172-million or 70 cents a share a year earlier. On an adjusted basis, the company's profit grew by almost 9 per cent to $1.10 a share. Revenue rose 3.5 per cent to $7.63-billion.