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Kraft Foods Reports Lower Full-Year Net Income
USAgNet - 02/06/2009

Consumers may be returning to grocery stores but they are not racing for name-brand products, foodmakers Kraft Foods Inc. and Sara Lee Corp. said as they released their latest quarterly results Wednesday. Both companies lowered their forecasts for the current and upcoming quarters due to weakness overseas and a rising U.S. dollar.

Kraft said it saw unit volume slip in its U.S. beverage, cheese and snack nuts businesses, as it raised prices to offset higher input costs, and Sara Lee said it sold fewer deli and frozen bakery products, reports the Associated Press. To save money, consumers have been turning to private-label products that many grocery stores offer, said Christopher Shanahan, a research analyst with Frost & Sullivan. And as the recession lengthens, and layoffs and wage freezes mount, consumers are finding these typically less expensive brands increasingly attractive.

"Income is basically not growing at the same rate as food prices and food budgets," he said. "So now consumers are getting smarter. They're increasingly considering private label and exploiting savings and cutting coupons."

Shanahan said private label products have sold better in Europe than the U.S. for many years because European consumers trust them more. But that is changing.

"I think the U.S. is quickly catching on," he said.

Kraft, the Northfield, Ill.-based maker of Velveeta, Oreo cookies, Planters snack nuts and Maxwell House coffees, said its overall unit volume fell 5.2 percent in its fourth quarter, which ended in December. Sara Lee said unit volumes fell 2.5 percent in one of its biggest segments — North American retail — in its second quarter, which also ended in December.

The AP reports that Kraft Chief Executive Irene Rosenfeld said the company is keeping pricing in line with increasing ingredient costs, and higher prices contributed 9.8 percentage points of Kraft's growth in the quarter.

Higher prices pushed unit volume down in categories like cheese, but Rosenfeld said Kraft doesn't see that as a long-term trend.