Chief Pricing Officer

Need more proof that pricing is more important than ever? Well, how about this headline from the Associated Press: “Food Prices Remain Stuck at High Levels.”

The American Farm Bureau Federation (AFBF) released its quarterly survey of retail food prices and found that even though gas prices and other costs of production may have dropped slightly, manufacturers are still feeling the pinch of rising production costs. Of the 16 items surveyed in the study, 11 went up in price, while only five went down. The overall price increase for these 16 items was 10.5 percent. Among the products that went up: pork chops, sirloin tip, ground chuck, cheese, apples and potatoes. The reason?

“We continue to see increases in several staple food items due primarily to the long-term effects of high energy prices in the food sector. Sustained high costs for processing, hauling and refrigerating food products are reverberating at the retail level,” said Jim Sartwelle, an AFBF economist.

Regarding the top gainer in this quarter’s survey, Sartwelle explained, “Acreage planted to potatoes was down nearly 8 percent this year. The combination of a smaller crop and some production losses in the field has led to higher-priced spuds in the produce aisle.”

The reality for food producers is that price spikes are here to stay - at least for the foreseeable future. So, what to do? Producers and manufacturers need to find a balance between maintaining profits without passing too many costs off to consumers. With proper insight into prices across channels, customers and product lines, producers should be able to make smart decisions about where margins can be maximized and where demand can be shaped with price in order to drive profitability without across-the-board price increases.

Reuters’ veteran commodities reporter Bob Burgdorfer published a profile of SignalDemand yesterday establishing them as the only company offering a margin optimization solution to the food and meat industries on a large scale. The article was titled “Food Price Volatility Helps SignalDemand” - here is an excerpt:

“…SignalDemand’s software uses algorithms and econometric modeling, allowing customers to input the cost of ingredients such as corn, wheat, or soybean oil, to determine how much to charge for finished products.

Companies  can also calculate how high or low their prices need to be in the future, because sales contracts to restaurants and other food service customers are often for a one-year period.

‘The tremendous volatility is making people nervous about long-term contracts,’ said [Mike] Neal, [CEO of SignalDemand]…”

Commodity markets swinging high and low, combined with the global economic downturn means that manufacturers can’t afford to not be on their toes. Manufacturers need highly accurate forecasts to give them confidence to commit to long-term contracts.

Lucky for them, SignalDemand is up to the task - ready and able to help manufacturers compete in a tight market. (Disclaimer: I am a board advisor for SignalDemand)