Grocers, name-brand food producers at odds over prices

"It is only recently that we have seen some price decreases for certain commodities, such as milk, butter, wheat, corn, soybeans and edible and mineral oils, but most of these still remain above historical averages," said Dean Mastrojohn, spokesman for Unilever U.S. "We also see prices for certain commodities that we use, such as beef extract, tomatoes and tea, continuing to increase."

Food manufacturers will eventually bow to pressure to moderate prices -- and some have already started to lower prices here and there -- as consumers change buying habits and inventories of unsold products build, said Christopher Shanahan, an analyst at consulting firm Frost & Sullivan in San Antonio.

Price increases by national brands have left supermarkets in a difficult position. Shoppers are fleeing to less expensive Wal Mart Stores Inc. and other discounters, trading down to house brands and other products that have smaller profit margins. In some cases, they are just going without.

"You would not believe the amount of food we have to put on the table," said Mike Dills, a bed salesman from Apple Valley who shops for a blended, multigenerational family of four adults and six children.

Dills recently took advantage of a Stater Bros. special on two house-brand 30-ounce, self-rising pizzas for $7.

"They are the same quality as the Freschetta or DiGiorno brands that sell for $5.99 each," Dills said.

Choices made by budget-conscious shoppers such as Dills are starting to take their toll on Kraft, which saw its share of the frozen pizza market slip late last year. It also has lost share in the macaroni and cheese and cold cuts segments of its business.

Kraft spokesman Mike Mitchell noted that in each of those categories, the company was still growing -- just not as fast as competitors, especially house brands.

Kraft estimates that its overall cost of commodities will continue to increase this year by about $200 million. That comes on top of a $2-billion increase in commodity expenses paid by the company last year.

Kellogg also defended its prices by citing what it called continued high expenses.

"In spite of the recent drop in commodities, prices for commodities are still well above historical averages . . . and Kellogg Co. continues to price behind commodities," spokeswoman Susanne Norwitz said.

Nestle said the cost of ingredients for Dreyer's increased 30% to 60% from 2003 to 2008, yet the company did not increase prices until last year.