Consumers' hard choices worry food industry

CHICAGO (Reuters) - Go to a restaurant or eat at home? Pay for a brand name or save money on a generic or store brand? Is that bottle of wine really necessary?

During hard times consumers tend to keep money in the household and now, as they grapple with a weakening U.S. economy, record gas prices and a deteriorating home market, they threaten the profits of food and restaurant companies across the country.

"The cost pressures are just intense. It's so far reaching," said food and restaurant consultant Bob Goldin, who added the grain-driven cost increases have affected everything from meat to oils. "We're in 'batten down the hatches' mode right now."

Food and restaurant companies, facing intense cost pressures of their own from soaring commodity and materials prices, will discuss issues that can affect their operations at the Reuters Food Summit in Chicago March 17-19.

Prices for U.S. grains and oilseeds like corn, wheat and soybeans hit record highs this year due to tight supplies and a surge in interest from investment funds that have been diversifying their portfolios into commodities.

Most packaged food companies have said they have been able to pass along price increases for raw materials to consumers without people trading down to lower-priced alternatives.

ConAgra Foods Inc (CAG.N) Chief Executive Gary Rodkin said last month that ConAgra should have raised prices sooner.

But analysts are asking how long consumers will bear the burden, when standard size boxes of brand name breakfast cereals cost as much as $6 a box in some markets.

"Can the consumer still hold up and take this additional pricing hit without being forced to trade down?" Edward Jones analyst Matt Arnold asked.

Food makers say they may benefit from one type of trade down -- consumers eating at home instead of going to restaurants.

"People are being a little cautious. It's almost chic to become a little cheaper now," Goldin said.

Shares of food and restaurant companies have declined this year. The Standard & Poor's food and restaurants index .15GSPFOOD is down almost 7 percent for the year, while the Dow Jones U.S. restaurant and bars index .DJUSRU is off more than 8 percent. Still, both have performed better than the Standard & Poor's 500 .SPX, down almost 13 percent.

Some restaurant operators, especially McDonald's (MCD.N) and its fast-food competitors, are trying to mix profit and value by bundling high-margin drinks with sandwiches and fries and selling them on budget-priced value menus.

Domino's Pizza Inc (DPZ.N) is planning to roll out a value menu later this year.

But P.F. Chang's China Bistro (PFCB.O) has pared back expansion plans and taken some menu price increases to offset ingredient costs. And the company has cut the number of items on its menus and added things for more budget-conscious diners.

And there are signs that brand names and luxury foods may also be feeling the pinch.

Steve Burd, chief executive of Safeway Inc (SWY.N), said sales of private-label products are increasing. And, he added, "In the ultra-premium wine category, over $20 bottle, we've seen a slowdown in our growth."

(Editing by Toni Reinhold)