Rise In Price Competition Ripples Through The Bread Aisle
20 Agosto 2009 - 7:09PM
Dow Jones News
The lowly loaf of bread is at the center of a price battle on
grocery shelves.
A key baker, Wonder Bread maker Interstate Bakeries Corp.,
emerged from bankruptcy in February under control of private-equity
firm Ripplewood Holdings. There are signs it has been promoting
aggressively, analysts say, using lower prices to drive
volumes.
The added competition, pressures of weaker consumer spending and
the ever-constant threat of private-label rivals have also pinched
other manufacturers, some of which have responded with promotions
and price reductions.
Private label is a force in the bread category, and companies
that sell branded breads in the U.S. include Sara Lee Corp. (SLE),
Flowers Foods Inc. (FLO) and Campbell Soup Co.'s (CPB) Pepperidge
Farm. Lower prices for a staple like bread bode well for
cash-strapped consumers. But the trend is less favorable for
manufacturers, which run the risk of hurting margins if they cut
prices too much or of lowering volumes if they don't.
Bread is a "bare knuckles, commodity-like category," said D.A.
Davidson analyst Tim Ramey. "We are seeing some aggressive pricing
there."
Sara Lee in a recent conference call complained that certain
competitors had been pushing to "gain share at the expense of
margins."
"This hurts the category for manufacturers and retailers alike.
While commodity costs have come down slightly, they do not come
close to justifying the price reductions we've seen," said Chief
Executive Brenda Barnes.
Outside store data show the company is bringing some of its own
prices down. A spokeswoman said the company is focused on offering
consumers high quality at a "price point to meet their everyday
needs."
Packaged-food companies, in general, have avoided the
large-scale price rollbacks many investors had feared. But they
have become more aggressive in offering promotions in some parts of
the grocery store. Over the last year, frozen meals have been
another area of aggressive promotions, with Nestle S.A. (NSRGY)
offering sharp promotions on its Lean Cuisine brand, raising
competition for H.J. Heinz Co. (HNZ) and ConAgra Foods Inc.
(CAG).
Data from market researcher Information Resources Inc. show
prices coming down across several brands of bread in U.S. stores
over the last few months.
Interstate Bakeries brands and some smaller privately held
bakeries had some of the bigger drops in average prices for the
four weeks ending July 12, compared with a year earlier. Interstate
went into bankruptcy in 2004 and emerged in February. "They lost
volumes during the bankruptcy and they are trying to recapture
[them]," says Heather Jones, an analyst at BB&T Capital
Markets. The company said in an email that its emergence from
bankruptcy had put it in a position to provide "rational
competitive pricing that benefits consumers and retail
customers."
Average unit prices for Interstate's Wonder Fresh Bread came
down 29 cents, or 13%, to $2.27 and its Home Pride Fresh Bread fell
38 cents to $2.31, according to IRI. Sara Lee bread was down 9
cents to $2.53, and prices for private-label bread came down by a
few cents.
Prices for Campbell's Pepperidge Farm Fresh breads were up a few
pennies in recent store data. A spokesman said the company did
reduce prices slightly for its Farmhouse sandwich bread slightly in
certain markets, but that the company is generally more geared
toward premium breads.
Data show pricing up for Flowers Foods' Nature's Own fresh
bread. Flowers didn't comment, but Jones says it has been able to
hold on to its pricing partly because of its good relationship with
retailers and strong market positioning.
- By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200;
anjali.cordeiro@dowjones.com