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Crying Over Spilt Milk
When it released quarterly earnings last week, the food giant Kraft reported that the operating earnings of its U.S. cheese and snacks and cereals businesses fell more than 22 percent. The reason: a competitive market prevented Kraft from passing along the sharply higher costs of raw materials, "including an approximately 30 percent increase in dairy costs."
The imported fromages on the shelves of Mirabelle Cheese Shop in Westport, Conn., have little in common with Kraft Singles. But with prices of imported cheese up 40 percent in the past year, owner Dale Saffir is similarly shrinking from passing on her high costs. She points to a Papillon Roquefort, priced at $28.85 a pound, up from $26.50 a year ago. "Given recent price increases, it should be $32.50, but I'm not taking my usual markup," she says. "I can't do that to my customers."
Businesses like Kraft and Mirabelle are effectively functioning as inflation shock absorbers. But economists say their efforts still aren't fully insulating customers from the jolts the commodity markets are delivering. That's because the classes of products that are rising the most—milk, eggs, bread—have a special status. "These are frequent purchases, and you have no choice about them," says Achuthan. "So these price increases have a larger psychological impact on consumers than other types of inflation."
In addition, the prices of milk and eggs, along with gas, are heavily advertised and prominently displayed, unlike, say, the prices of appliances or manicures. They're part of the national conversation. In the 1992 presidential campaign, a defining moment came when President George H.W. Bush reinforced his image as an aloof patrician by failing to accurately gauge the price of consumer staples like a gallon of milk. Candidate Bill Clinton, in full feel-your-pain mode, aced the question.
Even though they're not catastrophically high, the prices of staples are still giving politicians food for thought.
With Miyoko Ohtake in San Francisco
© 2008
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Member Comments
Posted By: BeckyM @ 05/11/2008 9:25:13 AM
Comment: Bill Higgins, co-owner of Real Restaurants, says he's cutting costs by "reducing worker's hours adn keeping the lights off until a few minutes before opening." I suggest that restaurant owners reduce the size of the portions to customers. Most meals arrive at the diner's table with more than a reasonable amount of food for one meal.
Posted By: je_di76 @ 05/06/2008 3:37:34 PM
Comment: Well, I must say the author either lives in land of create my own reality or is a cheerleader for the,??? don't admit we are in a recession??? team. Last year a case of 5 dozen eggs was selling for between 3.88 to 4.25 depending on the store where purchased. I saw the price go to 9.52. Down to 8.25 this week because no one is buying them! I will not pay this price either. I found a local seller FRESH eggs I am paying 1.00 a dozen. About the sizes and weight, needtoknow is on track. Supermarkets and distributors are hoping that consumers are not paying close enough attention to smaller containers less product and higher prices. The largest percentage of what you pay for a product is the corporations cost for advertisement. My solution???.if I don???t absolutely need it don???t buy it or I find an affordable alternative. In order to enlist the changes wanted the profit margin of the supermarkets, distributors and corporations have to be adversely affected. I have no problem telling the local grocer that I will not pay a price for a product, and I prefer to do it when there is a sizable audience. I???m not rude, I use my manners. In one situation while living in a rural town in Nevada, the grocer was rude and belittling when I inquired as to the reason that a head of lettuce was priced at 3.89 at that time I did replace the produce and announced so as other patrons in the produce area could hear ???that it would sit in the bin a rot before I paid that price???. I must of made an impression because no one bought lettuce and he was forced to amend his prices. We need more affirmative action and less placid acceptance.
Posted By: needtoknow @ 05/06/2008 1:41:37 PM
Comment: I'm just wondering if the author(s) took into account the fact that as prices for groceries are rising, sizes are much smaller. Boxes of cereal and bags of chips have shrunk to 1/2 to 2/3 of their previous size. Even things like jars of mayonnaise have dropped about 2 ounces and look at the size of candy bars! They're minute compared to their previous size. I'm sure that prices have increased more if you look at that factor as well.