March 19, 2008

Kraft and Sara Lee suffer weak profits due to rising commodity costs
 

Pork and beef production costs are rising but both Kraft and Sara Lee are having difficulties in rising meat prices to balance out their costs and profits in the US market.

The companies will find it difficult to raise meat prices when the US consumers are facing inflation and a possible recession.

Analysts believe that if both companies are to increase prices, they have to be cautious as they may lose market share to lower-priced and non-branded meats.

Sara Lee's commodity costs had skyrocketed by more than US$170 million in the last six months, according to Brenda Barnes, CEO of Sara Lee. Higher costs have also contributed to a weak profit in the company's most recent quarter.

Kraft's 2007 pre-tax profit margin has also declined to 10 percent from 11.7 percent in 2006, marking the company's fifth consecutive annual decline. To cover the rising costs, Kraft is actively reducing its business expenses and developing new products, said Irene Rosenfeld, CEO of Kraft.

The companies' dominance in the packaged meat segment may help them in these troubled times; Sara Lee has about 18 percent market share and Kraft ha about 19 percent. No other company occupies a market share of more than 10 percent.

Sara Lee had meat sales of US$2.6 billion in 2007, forming 21 percent of its total revenue.

Kraft did not provide meat sales figures but said its subsidiary Oscar Mayer had more than US$1 billion in sales in 2007.