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Higher food prices the new reality for consumers

Thu Mar 20, 2008 12:10pm EDT

Reporter's Notebook

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By Nicole Maestri - Analysis

CHICAGO (Reuters) - Consumers should start getting used to those higher grocery bills and restaurant tabs.

To offset soaring commodity costs, U.S. food makers and restaurant chains have been raising prices on everything from chicken wings to chewing gum to coffee.

The price hikes are hitting U.S. consumers at the same time they are being squeezed by slumping housing values, higher fuel costs, a weakening job market and worries of a U.S. recession.

But relief from higher food prices is nowhere in sight.

Food executives speaking at the Reuters Food Summit in Chicago this week said that surging global demand, a weak U.S. dollar and a trend toward using "food for fuel" means these inflated commodity and food prices could be the new reality.

"Long-term projections say that these prices are here to stay," Bauke Rouwers, senior vice president of foods for Unilever Plc/NV's (ULVR.L: Quote, Profile, Research, Stock Buzz)(UNc.AS: Quote, Profile, Research, Stock Buzz) Americas region, told the Reuters Food Summit.

FIGHTING SOARING COMMODITIES

Food companies have tried to offset soaring prices for commodities like wheat, cocoa, milk and energy by cutting costs and making their operations more efficient.

But many have also resorted to raising prices as these behind-the-scenes maneuvers cannot offset the full impact of steadily rising costs for key ingredients or the energy need to make and transport their products.

Diamond Foods Inc's (DMND.O: Quote, Profile, Research, Stock Buzz) Chief Executive Michael Mendes said his company has raised prices on walnuts roughly 30 percent in the past 12 months.

Meanwhile, ConAgra Foods Inc (CAG.N: Quote, Profile, Research, Stock Buzz), whose brands include Healthy Choice meals, Hunt's ketchup and Chef Boyardee pasta, has announced price increases for more than 95 percent of its portfolio.

Food makers said it is never easy to ask the retailers that sell their goods to raise prices, thereby crimping shoppers' budgets. But they said many grocery stores now make their own branded food products and are facing the same tough environment.

"Historically, the last thing any of our sales people would want to do is go and talk about pricing with any customer," said ConAgra Chief Executive Gary Rodkin. "It's never fun to do that, but the environment is such today that there's much more understanding that there's no choice."

Prices are rising not only in grocery stores, but in restaurant chains as well.

PF Chang's China Bistro Inc (PFCB.O: Quote, Profile, Research, Stock Buzz) raised the prices in its bistro restaurants about 2 percent in December to try to offset rising costs.  Continued...

 
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