Do Rising Food Prices Add Up?

The news about rising food prices and the estimations you hear in the news have had me scratching my head. Here's something I wrote about the topic on my food blog. I suspect that the energy and exchange rate excuses, and the estimates at price growth, don't jive with what you see in the grocery stores, and I note how ADM's gross profit growth significantly outstrips its revenue growth.

McDonalds and Starbucks Square Off?

An NPR piece recently discussed how Starbucks and McDonalds are each trying to cut into the other's market: the former introducing breakfast sandwiches and the latter introducing coffee bars in its 14,000 locations. I could see some potential conflict here - yesterday, while en route to Manhattan, I got off the road, noted a Starbucks, got a sweet coffee drink, and added a breakfast sandwich when I noticed that they were available and would only take "30 seconds or a minute" as the worker said - or longer, by my watch.

But for the most part, are the companies and the business press nuts? The two have distinctly different atmospheres and roles to play. People who go to one might go to the other, but under significantly different circumstances. Expecting people to head to Starbucks instead of McDonalds for breakfast is absurd - good luck getting what you want instantly. (And no hash browns?) And expecting people to bring in a laptop and hang out with a McLatte is equally wishful thinking. The people covering business should see this and not take the all too easy angle of "they're out for each other." Even if they are, notice that they're both going to trip and hit the ground face-first, not running, in the process. Or could this be the beginning of the new secret advertising campaign: Have It Their Way?

Food Hikes Join Oil's March

According to the Financial Times, the UN's Food and Agriculture Organization is warning of a significant boost in food prices - a 21 percent increase in the world's food import bill as compared to 2006. Developing countries will be hit even harder at 25.5 percent, and may follow Russia's direction of retail price controls. Of course, that's only going to aggravate things, as merchants will get to the point of no longer being able to operate, the food sector generally being one of the lower margin businesses in the world.

The culprits? One is oil. Pricing approaching $100 a barrel are encouraging greater use of corn for biofuels, which means less room to plant crops for eating. Add various droughts that are lowering wheat production, and the short term is looking shaky. It does make me wonder how bad things would be if the value of the dollar wasn't slipping, as the pound exchange rate just hit $2.10.

Grocery Chain Tests Marketing Concept

The New York Times today has an article on how Hannaford Brothers Company, owner of the grocery store chain, used a one-year experiment with a food "healthy" rating system:

The chain, the Hannaford Brothers Company, said that the program had a major impact on steering purchases in the expansive packaged-food section of the store, including cereals, soups and breads.

Not only is this of general interest to any food company, but it's interesting to see a company actually test a marketing concept. In this case, foods got a zero to three star rating. It worked best with packaged foods, less well with meats, and didn't have a lot of impact with produce, most of which got starred ratings.

Chocolate Manufacturers Want to Change Brand

Normally when companies talk about changing brand, they mean an advertising campaign. Real brand change is organic and involves changing the entire company to some degree or other. That could mean what Delta Song did when it deliberately engineered a specific customer experience before going to market or as companies do when they refine a brand by focusing on what they really do best. But some large members of the U.S. chocolate industry - through the industry trade group Chocolate Manufacturers of America - are petitioning the FDA to change the definition of chocolate so they can reduce their costs. (You can see a quick rundown on this with some links at my food blog.)

Certainly lowering costs is important, but when it requires a wholesale redefinition of what you make, you really enter the dangerous waters of trying to create a new type of business. Drop the cocoa butter and replace it with vegetable fat and no matter what the FDA allows you to call it, the result isn't chocolate as people understand it. Perhaps such manufacturers as Hershey, Nestle, and Archer Daniels Midland (ADM) think that people won't notice. Many might not, but some percentage of the population will. Think candy sales can't go down? They have at times for some manufacturers, as these companies all know. Making more money is great, but not if you potentially endanger your future business. Why do I get the sense that the CEOs of these companies, or even the presidents of the relevant divisions, haven't talked to a single customer in years?