B&G Foods, owner of more than 50 brands including Green Giant, Cream of Wheat, Victoria and Ortega, plans to raise retail prices by about a dime at the end of this month. According to Reuters, the New Jersey company hopes to make up for rising transportation costs.
During a May 16 presentation at BMO's annual Farm to Market conference in New York, CEO Robert Cantwell said the company will also cut back on promotional spending. B&G hasn't raised its list prices in three years, Reuters reported.
B&G indicated in its most recent earnings report that it would look to trim freight costs by using rail, getting customers to pick up products rather than delivering them and consolidating warehouse space. The company also plans to open a distribution facility in California later this year, which is projected to save $5 million per year in transportation expenses.
B&G's action reflects the profit squeeze many food manufacturers are experiencing as costs for ingredients, transportation and labor keep going up. For major producers of canned goods such as Campbell Soup, Kraft Heinz and B&G, rising tariffs on imported steel and aluminum have also dented profits.
Not every manufacturer is taking the same route to recoup their costs. Recent earnings from Nestlé and Unilever noted the same pressures holding them back from instituting price hikes: online competition, weak inflation and cost-cutting from discount retailers. Retailers are in the same boat, but, like manufacturers, they've been reluctant to increase prices due to competition.
For companies that do raise prices, customer loyalty is key. B&G's large portfolio includes many popular items such as Cream of Wheat, Green Giant frozen and canned vegetables, SnackWell cookies and Back to Nature granola bars, so the company is banking on consumers' willingness to pay a bit more for their favorite brand. B&G won't be alone in this — Tyson Foods and Hormel Foods both said they plan to raise prices.
While the company's gamble might pay off, it hasn't always for other food makers. Bloomberg reported that General Mills' efforts to raise prices on Progresso soup and Yoplait yogurt ended up backfiring as consumers turned instead to other brands.
Other ways manufacturers have tried to grapple with rising operational costs is trimming expenses and streamlining supply chains. Some have cut their workforces or even shuttered plants. While B&G doesn't seem to anticipate anything that drastic, it is planning for ongoing higher shipping costs, according to CEO Robert Cantwell.
"We know that freight costs have increased for every company that puts anything on a truck and we are expecting these costs to remain elevated throughout the year. This is how we built our budget for the year," he said on a May 3 earnings call with analysts. "We hope that we are wrong and that these freight costs come down sooner."
Whether it makes sense for B&G to cut promotional spending at the same time as it raises prices is unclear. Limiting promotions poses additional risks since consumers may hold off on purchasing the manufacturer's products until they're on sale, or they may migrate to a competitor's brand or a private-label one. Conversely, too much promotion could undercut the reasons the company raised prices in the first place.
B&G had some success in 2015 when it incrementally hiked prices and limited promotions. According to GuruFocus, the company didn't see reduced sales and projected it would gain between $8 and $10 million from taking those steps. Its fiscal 2015 gross profit as a percentage of net sales rose 0.8% from the previous year, which the company said "resulted primarily from price increases."