Conagra, PepsiCo and Other Food Makers Grapple With Higher Costs

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Supply-chain problems and labor challenges become ‘a daily grind’, straining profits and driving up grocery prices

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Supply-chain problems for American food manufacturers are increasing at a time when consumers are spending heavily on food, in supermarkets and restaurants. Consumer spending at grocery stores was up 4% in August compared to the same month a year ago, according to data from the US Census Bureau. Restaurant sales have climbed this year as Covid-19 restrictions ease, though concerns over the Delta version have erased some of the rebound in recent weeks.

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Conagra, which produces Slim Jim Meat Sticks, Palm Cooking Spray and Hunt’s Ketchup, on Thursday raised its inflation forecast for the year, while reporting that its quarterly profit fell 29% to $235.4 million. Executives said the Chicago-based company has faced high costs for meat, grain and steel cans as well as labor and transportation challenges in recent months. The company’s total sales fell 1% to $2.65 billion from $2.68 billion for the quarter ended Aug. 29, a better-than-expected result from analysts surveyed by FactSet.

ConAgra chief executive Sean Connolly said the company is trying to respond to stronger-than-expected demand as consumers continue to work remotely, watch movies from home, and eat their own food compared to before the pandemic. cook.

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“It’s a big problem, but it increases demand on our supply chain,” Mr. Connolly said. “It’s a daily grind.”

Lamb Weston, the top North American seller of frozen potato products, said separately Thursday that its quarterly profit fell two-thirds to $30 million for the quarter ended Aug. 29, following what the Idaho-based company called rapidly rising transportation costs. . Scarce labor and other disruptions, including the intense summer heat that damaged potato crops in the US Pacific Northwest. The company said it would increase prices to offset rising costs, and change production and staffing schedules to help attract and retain more workers.

“Everything we’re doing is going to take time,” said Lamb Weston CEO Tom Werner. For now, Mr Werner said, labor challenges are disrupting production and making the company’s processing plants less efficient.

Food prices are climbing around the world, as rising consumer demand is pitted against dry farm fields in North and South America, which have constrained harvests along with transportation disruptions driven by the COVID-19 pandemic and devastating storms. The Food and Agriculture Organization of the United Nations said this week that its food price index, which measures the cost of meat, grains, sugar and other commodities, rose in September to the highest level in 10 years.

Supply-chain problems are challenging other top US food manufacturers. PepsiCo said earlier this week that it faces higher costs for aluminum cans, plastic bottles, labor, and trucking, though rising sales of Mountain Dew, Doritos and other snacks led the company to cut back for the year. Raised your profit expectations.

Gatorade drinkers in Pennsylvania, New York, Massachusetts, and elsewhere report shortages of sports drinks on store shelves. PepsiCo executives said this week they were scrambling amid a shortage of plastic bottles for the company’s Gatorade beverage. A spokesperson declined to say how much its production was affected.

general mills Inc.

Said last month that the Cheerios and Betty Crocker parent is dealing with hundreds of operational disruptions — such as more expensive ingredients and a shortage of truckers — that are driving up costs for supermarket customers.

To keep pace with demand, Mr Connolly said ConAgra is aggressively recruiting workers and trying to make sure they stay healthy. The company is also striving to maintain the best possible relationship with its employees, he said, at a time when employees of other large food companies such as Mondelez International Inc.

and kellogg Co.

They have gone on strike during contract negotiations to protest what they see as unreasonable demands by employers.

Conagra is also keeping pressure on material and ingredient suppliers and establishing contingency plans to deal with shortages, such as potentially swapping different materials or finding secondary suppliers, Mr. Connolly said.

“We are looking for alternative solutions, even if they come at a higher cost,” Mr Connolly said in an interview.

Officials said strong demand and supply challenges mean that Conagra hasn’t been able to deliver customers’ orders as fully as the company wants them to, though they said they’ve been able to fill almost all orders. The company has said that demand for its Hunt’s products has been unprecedented, and availability of some items will remain low unless it can process more tomatoes than this year’s crop.

ConAgra said Thursday it expects gross inflation — which doesn’t take hedging into account — for fiscal 2022 to be around 11%, against its earlier estimate of 9%. The company plans to continue adjusting prices and cutting costs, and said its prices are likely to rise by 4% or more during the current fiscal.

Executives said they expect ongoing strong demand, price hikes and cost-cutting measures to offset higher costs. So far shoppers are largely sticking with Conagra’s brands despite the high cost, he said, although the company’s price hikes have only recently started appearing on US supermarket shelves.

Mr Connolly said ConAgra may reduce promotions on some items to keep demand under check and avoid increasing supply challenges. “We don’t need to fan the flames,” he said.

Jesse Newman at jesse.n[email protected]

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