Rising Costs Force Price Hikes for Consumers

Consumer goods companies are forced to hike prices to offset rising costs of supplies. Some of these price increases are due to flooding in the U.S. Midwest, while others are simply because gas is too expensive for distribution. In effect, consumers are becoming less willing to go out and buy more expensive products.

On the Rise
Corn prices hit a record high on Monday, June 16, 2008, and are set to keep climbing as flooding continues to burden a key producing region -- the U.S. Midwest. There are tight supplies, making the prices higher by 90 percent from a year ago. According to an article written by Nigel Hunt of Reuters, there is a renewed concern about food price inflations with the crop, a staple for both humans and livestock in many regions of the world.

Increasing the use of corn in the United States to produce biofuel ethanol is decreasing the supply as well as the use of grain for chicken feed. Earlier this year Pilgrim's Pride was forced to cut back on producing its livestock because of the price it costs to feed them. CEO of Tyson Foods Inc., Richard L. Bond believes that prices on the consumer end will continue to rise and has thus called for the government to change its ethanol policy to help bring down the price of corn.

In this same Reuter's article, Analyst Sudakshina Unnikrishnan of Barclays Capital in London says, "I think we are definitely going higher. There is no let up either on the demand or supply side..."

Unnikrishnan continues, "The belief earlier was there would be a rebound in soybean plantings at the expense of corn, but you are now seeing the weather affecting soybeans as well."

In a story called, After the Flood, Grains Analyst Jack Scoville at Price Futures Group comments, "Today we're about the dollar and crude oil. Crude is off to the moon and the dollar is off to the cellar."

CEO of Kraft Foods Inc., Irene Rosenfeld, told shareholders that Kraft has to raise its prices to protect its margins and profits, which dropped last year due to the soaring costs of wheat, dairy and other commodities. Nestlé has also raised its prices by about 3 percent on average last year, the biggest increase since 1997.

J.C. Penney CEO Myron "Mike" Ullman III says, "I don't think I've seen an environment as unpredictable as the current environment." This statement follows Ullman's plans to open 50 new stores nationally this year, but because of prices, was scaled back to 36.

According to a Wall Street Journal story, a growing number of people are willing to do extra work, judging from the increased traffic on shopping sites over recent months. An online measurement firm called Hitwise says that coupon Web sites have increased 56 percent for the week ended June 6, compared with the same week in 2007. Among the most popular coupon destinations are Coupons.com, CouponMountain.com and Eversave.com.

This same article mentions CouponMom.com, which tracks grocery-store sales and pairs them with available coupons to bring the price down even more. This site has seen traffic more than double in 2008 compared with last year, according to Stephanie Nelson, the Coupon Mom herself. "We've never experienced this degree of traffic growth," she says. "More and more people are saying they have to have a handle on this...it's time to buckle down." (For information about coupons, read more at marketwatch.com.)

Miller Brewing Co. CEO Tom Long says that more people are drinking cheap beer as a direct result of higher prices for food and gasoline. "Thankfully, beers are still quite an affordable luxury, but yes, I think when people have less disposable income ever week, something like beer is affected," he affirms.

"We're trying to make sure across the portfolio, we've got something people are going to want to drink. Whether they've got a pocket full or they're feeling a little bit pinched, that we have the right beer for them," says Long.

Consumer Help
Newly-launched free consumer sites and tools have been formed aimed at saving people money:

1. www.deallocker.com: Offers guaranteed to work coupons -- not like sites that list coupons with bogus codes
2. www.freeshippingon.com: A tool that helps you find items where there is a free shipping promo being offered
3. www.typobuddy.com: uncovers bargains on auction site -- like eBay or craigslist -- due to misspelled words -- such as express maker instead of espresso maker
4. http://deallocker.com/tool/secret-amazon-discount: A tool just for fans of Amazon.com that lists items that have been recently and heavily discounted