Grocery sector hit by raw materials price hike

28 April 2011
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28 April 2011 | Adam Leach

Commodity price rises have had a considerable impact on the grocery sector, with both Premier Foods and Associated British Foods increasing prices to cope with raw material cost inflation.

Premier Foods, which owns the Ambrosia and Branston brands among others, reported increases of more than 10 per cent on raw material and packaging costs as a result of mounting and volatile commodity prices. To counteract this it agreed price rises on a range of products, which came into effect in March. The company reported the move in its first quarter results, published yesterday.

Robert Schofield, Premier Foods chief executive, admitted the consumer environment for the first quarter had been “more difficult”, but he said he was optimistic about the future. “We continue to anticipate making progress in 2011, but due to the pricing lag and the slow start to the year the profit delivery will be more weighted to the second half in 2011 than 2010,” he said.

As reported by SM, Premier increased prices in October to cope with a 50 per cent rise in the cost of wheat. Costs rocketed when Russia banned grain exports after fires affected crops during the summer.

Like Premier, Associated British Foods (ABF), which also published its first quarter results yesterday, took a hit on the grocery side of its business as a result of commodity costs. In particular profit margins were squeezed by a continuing rise in wheat prices, which led to a price increase at the consumer end. The company also saw a drop in profits in its ingredients business as a result of increased molasses costs. 

However, ABF was also able to reap benefits from the commodities market. In particular it saw growth across every sector in the feed side of its business. Chief executive George Weston, said: “The breadth, diversity and resilience of our businesses have enabled the group to deliver good growth.”

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