By Richa Naidu and Siddharth Cavale
CHICAGO (Reuters) - Kraft Heinz (NASDAQ:KHC) Co and Conagra Brands (NYSE:CAG) Inc said they may choose to raise prices this year on some products that use wheat, sugar and other commodities that are becoming increasingly expensive due to high demand.
Conagra CEO Sean Connolly said the company, which makes Duncan Hines cake mixes and Marie Callender's pulled pork mac and cheese bowls, will need to implement inflation-justified price increases this year so it can also continue to fuel sales growth through innovation.
Ingredient and packaging costs represent 60% to 65% of Conagra's total cost basket, Finance Chief Dave Marberger said on the sidelines of the Consumer Analyst Group of New York virtual conference.
With people on lockdown cooking more at home – and still stockpiling in some parts of the world – prices for commodities like sugar, wheat and soy are surging, forcing food companies to absorb higher costs.
U.S. consumers on average paid 3.7% more for food consumed at home in January than they did a year earlier, according to the Bureau of Labor Statistics Consumer Price Index. Year-over-year increases in food prices have topped 3.5% each month since last April, the longest such stretch in nearly a decade.
"We have inflation, we are seeing inflation, we are concerned about inflation. We have to mitigate that inflation, or at least part of it, with hedges and with efficiencies in the factories,” Kraft Heinz Chief Executive Miguel Patricio told Reuters in a recent interview. "Will we have price increases in food this year? Maybe in some categories that are very exposed to specific commodities."
"Where we are seeing (inflation) is in grains and everything related to grains ... It's across the board. Sugar has big inflation; mac & cheese because it has wheat; mayo because it has oil; salad dressing because it has oil; all sweet products like desserts," Patricio said.
Kraft Heinz - which makes Jell-O, Kraft Macaroni & Cheese and a slew of Heinz mayonnaise products and salad dressings – said it did not increase prices in the most recent quarter, but did cut down on promotions and discounts.
Other major food companies, including Lipton tea and Hellmann’s mayonnaise maker Unilever (NYSE:UL), have also signaled higher prices due to global commodity inflation.
“We've got some inflationary pressures coming forward. And we do expect mid-to-high single-digit commodity inflation in the first half. So we have to be at the top of our game in pricing going forward,” Unilever Chief Financial Officer Graeme Pitkethly said on a recent earnings call.
The food producers are not the only U.S. manufacturers beginning to respond to sharply higher input costs - the highest in a decade in some national surveys - with price increases of their own. The Philadelphia Federal Reserve's monthly factory survey for January showed prices received by manufacturers for their goods rising by the most since 1989.
U.S. Federal Reserve policymakers, however, have downplayed any imminent inflation risk. They do not regard one-time price hikes in an industry or across a group of goods as inflation, as opposed to sustained price increases across the broader economy.
“Households have been buying more groceries. You are going to see price pressures," Kansas City Fed President Esther George said on Tuesday in a presentation to a real estate symposium. "Airlines, dining out, where activity remains depressed, is offsetting" the price pressure, she added. "In the near term I don't see we are going to have an inflation problem."