Pricing Still Key for Food Companies

Most of the food companies like Del Monte Foods Co. (DLM - Analyst Report), H. J. Heinz Co. (HNZ - Analyst Report) and Sara Lee Corp. (SLE - Analyst Report) adopted pricing actions to mitigate the adverse effect of commodity cost inflation and currency volatility.

However, commodity prices, especially fuel and energy costs, have moderated to a considerable extent since the end of fiscal 2008 and the first half of 2009. Food companies are planning to invest this surplus generated through price increase and moderated costs to fund their marketing expenses.

Nevertheless, certain costs such as metals like tin are still pressuring their margins. These costs are of special concern to canned food companies, (accounting for approximately 15% of the total cost base for DLM). Again, firms that generate more sales from outside the U.S. are also exposed to currency risks.

However, food companies expect fiscal 2010 to be a bit relieving in terms of margin expansion, and are still adopting price increases for certain products to counter the negative impacts of inflation and foreign exchange.