By Anjali Cordeiro and Paul Ziobro, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- General Mills Inc. (GIS) is raising prices on some cereals and baking products, a clear signal that food makers will pass some pressure from higher commodity costs on to retailers and consumers.
The company is taking a "low-single-digit" percentage price increase on some of its cereals, a spokeswoman said. The price increase, which the company will make effective Nov. 15, will affect about one quarter of its cereal business in the U.S., she said. This would be the first price increase on many of these cereal brands in three-and-a-half years. The company didn't disclose the names of the brands that will be affected.
General Mills is also raising prices on some baking products including flour and baking mixes. Those changes will on average amount to a mid-single-digit price hike on certain products in the baking category. Higher input costs necessitated the changes, the spokeswoman said. The company has been using productivity improvements and cost cuts to offset raw material pressures and will keep doing so, she said.
Kraft Foods Inc. (KFT) is also starting to raise some prices, people familiar with the matter said Wednesday, though the scope of its hikes wasn't immediately clear. A Kraft spokesman declined comment Wednesday, but the company recently said it would selectively raise prices on some brands to offset commodity costs.
The moves by General Mills and Kraft could set the stage for the first broad wave of price increases by food makers since 2008, actions that drove profits and stocks for industry players higher. Food companies have been offering big promotions to entice shoppers who cut back in the recession, but the more-recent increases in commodity prices is pushing many of these companies to weigh raising prices.
"The prospect of higher price points would be an enticing one," Barclays analyst Andrew Lazar said in a research note.
New price hikes would come at a time of widespread caution among consumers, who are still jittery about the pace of the economic recovery.
The higher prices could put some retailers in a bind. Major supermarket operators, also cautious about the consumer recovery, will have to decide whether to raise shelf prices or sacrifice profits.
Kroger Co. (KR) and Safeway Inc. (SWY) executives have said in recent weeks that they expect to be able to pass along such increases, although other chains are engaging in another round of price cuts at the store level to keep customers coming in.
Supervalu (SVU) on Tuesday said it was going to run another round of price cuts, a direct response to declining sales and market share.
The new strategy comes as a major supplier in the past week told Supervalu that it will raise prices "across the board," Supervalu CEO Craig Herkert told analysts Tuesday. A Supervalu spokesman declined to comment on which supplier warned the company of higher prices