Kraft Raises Product Prices

Some cookies, crackers and pizza just got more expensive as a result of sky-high oil and gas prices.

Kraft Foods Inc., the nation's largest food manufacturer, confirmed Tuesday it's increasing prices on many of its products by an average 3.9 percent because of rising energy and packaging costs.

The maker of Oreo cookies, Oscar Mayer lunch meats and Kraft Macaroni & Cheese sent a memo to retailers about the action on Friday, spokeswoman Kris Charles said.

Most of the price increases were to take effect immediately, she said, although those on direct-store delivery products such as pizza won't be put in place until Jan. 2.

While the company isn't disclosing specifics of the pricing changes publicly, Charles said the increases apply to its cookies and crackers, Milk-Bone dog treats, beverages, numerous Oscar Mayer products, some pudding products and California Pizza Kitchen pizza.

The leap in the price of oil has struck hard at packaged food companies' bottom lines, affecting plastic packaging expenses and the cost of energy involved in running plants and transporting goods. Kraft last month cut its estimate for 2005 profit, citing the higher packaging, energy and commodity costs.

Chief Executive Roger Deromedi alluded to the possibility of increases in the company's third-quarter earnings conference call last month, saying Kraft had been unable to raise prices enough to offset the soaring cost of coffee, nuts, energy and other commodities. But he acknowledged the risk involved, since retail customers also are taking a financial hit from rising energy prices.

"We're cognizant and watchful of consumers' spending power as they're having to spend more on filling up their tanks of gasoline," Deromedi said in the Oct. 18 call. "The important thing for us is to maintain and continue to build the value they see in our brands in the face of these other pressures."

Morningstar Inc. analyst Greggory Warren said the increases will cut into Kraft's sales volumes but it is taking a calculated risk with its strongest products. The company wouldn't raise prices on cheese items, he said, because of stiff competition from private-label companies that already has weakened results.

"The consumer is very price-sensitive, so we'll have to see what happens," he said. "I think it's going to be a tough winter for food and retail in general."

General Mills Inc. and Campbell Soup Co. both got burned by putting through price increases that their competitors didn't follow, Warren noted. If the same happens with Kraft, the company will be forced to launch more promotions that would wipe out the financial benefit of price increases.