From: Reuters
Published March 18, 2008 06:29 PM

Kraft eyeing consumer choices as prices rise

By Brad Dorfman

CHICAGO (Reuters) - Kraft Foods Inc <KFT.N> knows that commodity costs are soaring, that cash-strapped consumers are eating at restaurants less and that they and all their competitors are raising prices.

What they also know is "consumers have to eat," a point Rick Searer, president of Kraft North America, made several times during the Reuters Food Summit in Chicago on Tuesday.

But what the company is still waiting to see is exactly what people will want to eat in a time of unprecedented commodity costs, soaring gasoline prices, falling home values and an economy that some argue may already be in a recession.

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"We don't know how consumers will shake out in terms of what choices they make over time," Searer said.

So far, Kraft and other food companies have said they have been able to push through price increases with little push back from consumers, though Searer did say that Nielsen data show that dollar sales are up across a broad range of categories, while volume, as measured in products sold or pounds, is down.

Kraft has committed to offsetting soaring costs for wheat, energy, edible oils and a host of other commodities through price increases and cost-cutting, Searer said.

The company, which is in the middle of a three-year turnaround program, is also investing heavily in new product, such as an overhaul of its salad dressings line, in order to attract consumers who are either switching from restaurant foods or thinking of moving down to lower-priced brands.

When it comes to price increases, retailers, who might have balked at higher prices in the past, see the higher commodity costs Kraft does.

"Retailers do understand the need for commodity cost-justified price increases," he said.

The company has also increasingly been working with retailers on promotions that could be attractive to budget-conscious families, such as a deal that would involve Kraft's DiGiorno pizza, salad dressing, the retailer's produce and a beverage of the retailer's choice, Searer said.

Kraft shares were up 47 cents at $30.34 on Tuesday on the New York Stock Exchange. The stock is down 7 percent this year, compared with a 5.5 percent decrease for the Standard & Poor's packaged foods index <.15GSPFOOD>.

(For summit blog: http://summitnotebook.reuters.com/)

(For more on the Reuters Food Summit see <ID:nN14376471>)

(Reporting by Brad Dorfman, editing by Gerald E. McCormick)

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