Food Companies Seek Ways to Pass Higher Costs Along

(MoneyWatch)  The Financial Times reported Monday that Kraft and Sara Lee are both forecasting increases of food prices in the double digits. Sara Lee said "protein products" (those made of meat) could surge by 20 percent. Kraft said some of its cheese prices might rise by 25 percent.

Things are getting nuts. Like, '70s nuts.

Will people pay 25 percent more for American Singles? When Kraft knows, we'll know.

In the meantime, food processors and retailers are doing all they can to push higher costs along to consumers -- since they pretty much have to.

BusinessWeek takes a look at some of the methods. One is to take advantage of people opting to eat home more often and at restaurants less often. Play up those comfort-food ingredients, offer recipes, point out why your premium products are worth buying.

More marketing emphasis on high-margin items also helps. According to BusinessWeek, "Gen-Y" consumers are supposedly particularly interested in organic, specialty, and ethnic items, where the margins are comparatively wide.

But the most interesting part of the BusinessWeek story is the use of "price-smoothing" technology. Big companies use "elasticity modeling," using software that tells them how much they can charge without losing too many customers. Newer iterations also account for supply levels and product mix. Companies like Cargill are starting to use such software to determine how much to charge retailers for particular products on particular days.

Smaller companies are left with this advice: work with retailers on such matters as shelf placement. If food companies can help retailers, retailers will be glad to help food companies.