Foodmakers squeezed by costs, strapped consumers

(Reuters) - For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.

In fact, companies such as H.J. Heinz (HNZ.N: Quote, Profile, Research) and Hormel Foods Corp (HRL.N: Quote, Profile, Research) proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fueling a rally in food stocks.

But that relief could prove short-lived, as 2008 could be the year consumers say "enough!" and start shunning branded products for less expensive private-label alternatives, industry experts warn.

"The next round of (increases) will actually start to impact consumer behavior in a profound way," Ken Harris, a principal at consulting firm Cannondale Associates, said.

That could hit profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few.

"When you say input costs are going up 6 percent and you are only getting 4 percent net pricing, where do you make up the rest?" asked Gregg Warren, an analyst at Morningstar.

Rising commodity costs and economically stressed consumers are expected to be the key topics when consumer products company executives meet with analysts at the Consumer Analyst Group of New York conference in Florida that begins Tuesday.

 

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