Food makers try to hold prices as retailers push back

By Brad Dorfman - Analysis

BOCA RATON, Florida (Reuters) - Food makers who raised prices repeatedly to fight soaring commodity costs in recent years are now battling with retailers to hold onto those increases as the global economy grinds to a standstill.

Many are touting the relative value of their products versus eating out, promoting their products together with retailers' own brands and holding extensive conversations to let retailers know that in some cases their costs remain high even though many commodity prices have fallen, industry executives and analysts said.

"We're all trying to deal with a difficult economic reality where consumers are getting more demanding and competition is increasing to meet the needs of consumers, so it's just more pressurized," Campbell Soup Co (CPB.N) Chief Executive Douglas Conant said in an interview.

Manufacturers attending the Consumer Analyst Group of New York conference in Florida this week said conversations with retailers are becoming more intense. And those talks do not always work smoothly.

Last week, grocer Delhaize (DELB.BR) stopped stocking about 300 Unilever (ULVR.L) products in a dispute over price and other issues. Though that drastic outcome was limited to Belgium, retailers in the United States are also pushing back harder on prices.

The world's largest retailer, Wal-Mart Stores Inc (WMT.N), more than ever is closely monitoring costs and prices.

"We work with them to understand their costs," Wal-Mart CFO Tom Schoewe said. "So as they're going up, we'll do the right thing and we can pass their prices on."

At the same time "we can go back and say -- oh look, those petroleum-based costs are now down 20 percent," he said. "We need to act as the advocate or the purchasing agent for our customer, so what we need to do is say it's only fair we took it up, and now it's time to take it back down."

The losers are likely to be brands that are not the leaders or a strong number two in their category, analysts and executives said.

"What you're going to see over time is that the weaker, second or third-tier brands in some of these categories aren't going to perform well in this economy," Kraft Foods Inc (KFT.N) CEO Irene Rosenfeld said.

MORE RETAIL POWER

The pressure from retailers comes because they are losing sales as consumers cut back or search for the lowest prices.

"The problem right now is the grocer wants to deliver more value for their customers and they are still seeing more price increases come through" from manufacturers, Morningstar analyst Mitchell Corwin said.

Those grocers have also been helped by consolidation in the industry, which has given retailers a stronger hand in dealing with foodmakers.

"I think at the end of the day, retailers have more power today than they ever had relative to the" manufacturers," Corwin said.