Tweaking recipes as prices rise

With prices continuing to march higher for commodities ranging from corn to wheat, food companies are cutting costs, raising prices and otherwise adjusting to tighter margins for the long haul, reports WSJ.com. Sara Lee Corp. reformulated some of its regional bread brands with cheaper, lower-protein wheat. Meanwhile, General Mills Inc. reduced the number of Hamburger Helper varieties from 75 to about 40, and Campbell Soup is decreasing the number of ingredients (meats, vegetables, flavors and spices) in its soups. Many companies plan to raises prices, but that could backfire, according to Lehman Brothers analyst Andrew Lazar, citing data from market research firm ACNielsen showing a sales-growth slowdown among large packaged-foods companies. That suggests higher prices may be turning off shoppers. According to ACNielsen, which tracks sales of food at supermarkets other than Wal-Mart, February was the first month in quite a while that volume growth rates trended down for every single one of the companies it monitors. Credit Suisse analyst Robert Moskow favors stocks of food companies like Kellogg and General Mills that have less exposure to ingredient costs. For those companies, between 31 percent and 33 percent of the cost of goods sold comes from raw materials -- while raw materials represent 45 percent to 55 percent of the cost of goods sold for Kraft, Sara Lee and others. Companies with strong growth in overseas markets can offset some of the pressure from commodity inflation and the slowing U.S. economy, but those with a weaker international presence will be challenged. Acquisitions by food companies also are expected as a way to boost sales, and another strategy for food companies is to dump non-core brands so they can reinvest in their business or return cash to shareholders.