For some processors, there’s no way around engaging a paradigm shift. George Eckrich, owner of Dallas-based Dr. Kracker Inc. (www.drkracker.com), typically employs two strategies — one basic, the other more daring.
“First, we rented additional warehouse space so we can store packing material and ingredients that won't be affected by storage. That way, we can get additional discounts for truckload purchases. Second, in our new products, we have given up trying to source all ingredients as organic.”
While the company still is using organic grains and seeds, especially as the core of its new product line, Culinary Crisps!, its new products will be “about 70 percent organic.” Eckrich adds, “We continue to bake only with organic flour and organic seeds. But with new ingredients such as dried tomatoes, apple pieces and dried cherries, we’re buying all-natural. We verify that they are 100 percent natural, but we are not going beyond that. We’re balancing affordability and sustainability — which is to say, our own sustainability.”
Eckrich confesses that in the current environment, smaller companies can’t compete with the large manufacturers in securing limited quantities of ingredients at good prices. “We are doing everything possible to keep our prices under control, as we have only seen a few price decreases,” says Eckrich.
Sometimes, cost control means knowing when to sit tight. Many companies, aware that price rises could backfire into lower sales in an economy strained to the limit, choose to simply balance the cost of ingredients with slight retail price rises to avoid larger ones later.
Ingredient supplier Gadot Biochemical Industries must deal with both food processors looking for more economical ingredients and its own ingredient vendors. Gadot right now is trying to reformulate an ingredient with an escalating price using different raw materials.
“Across our portfolio, we continue to adjust pricing as needed based on market factors and the value we deliver to consumers,” says Joyce Hodel, corporate affairs manager for Kraft Foods Inc. (www.kraft.com), Northfield, Ill.
While commodities have moderated recently, input costs remain at historically high levels, she says. “Some inputs, such as wheat and soybeans, are still 150 percent above 10-year averages. In our Q3 2008 conference call, Kraft Foods announced that we expected full-year input cost inflation for the company to be about $2 billion, which is about 13 percent over 2007.”
Hodel explains that many factors influence the retail price of products in addition to commodity costs. “We have been adding value for consumers through significant investments over the past two years in product quality and innovation. Kraft isn’t just blindly talking the long view — the company knows its policy of putting customer needs front and center is crucial to any cost-management program. We must continue to deliver value to consumers and manage competitive price gaps,” Hodel insists.