The Wall Street Journalreports that Safeway CEO Steve Burd has warned it will push its own private-label brands in Safeway stores if the major brands don't lower their prices.
Steve Burd told analysts in an earnings conference call that the sales-growth gap between national brands and private-store brands has become "extraordinary" and accused food makers of being "disingenuous" with consumers by not dropping their prices to reflect declining input costs.
Faced with the economic recession, cash-strapped consumers have been trading down to cheaper products, both dining out and dining in, with more consumers gravitating toward private-label goods at the grocery store.
"I say wait and see, because we're going to chew [food manufacturers] up on corporate brands," Mr. Burd said.
His words underscored tensions over food prices between grocers and food makers. Some supermarket chains have complained about not seeing widespread price relief from big food manufacturers, even as fuel and ingredient costs have fallen in recent months. Food makers say they can't pass along cost savings because they locked into contracts last summer when commodity prices were high.
If the big name brand food manufacturers are forced to bring down prices they may have to cut costs in some way, like reducing advertising, marketing and possibly even layoffs. However, if they don't reduce prices and people don't buy as much of their product because they think it is too expensive then sales will plunge forcing them to cut costs anyway.
The WSJ article says food makers don't want to lower prices because they claim "they have been raising prices behind the rate of inflation." They may think that way but a lot of consumers feel food prices have soared over the past few years. There were plenty of articles last year - see here and here - about how rising food prices were causing problems for consumers and this was before the recession deepened.
