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After execs with ConAgra made it perfectly clear on a conference call earlier (wrapup) that the...

After execs with ConAgra made it perfectly clear on a conference call earlier (wrapup) that the allure in buying Ralcorp Holdings is to try to dominate the market for private label foods, the next question for the sector is how far can the food giant go. The company can add distribution channels at outlets such as Costco (COST +0.7%) and Whole Foods Market (WFM -0.9%), while also making private label products for huge accounts like Wal-Mart, McDonald's, and Kroger. Are Kellogg (K +0.5%), Kraft (KRFT +1%), and General Mills (GIS +0.7%) in any trouble or will the formidable marketing clout of the packaged food companies beat back the challenge?
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Comments (5)
  • warrantstar
    , contributor
    Comments (6) | Send Message
    I know a lot about the food industry. Basically, the branded food companies have much higher profit margins than the own lable producers. This is because of the following:


    1) The actual consumers of the products are willing to pay more for superior branded products, smarter marketing, and new products which are more in touch with affluent consumers desires.
    2) The massive retailing groups hammer the price down for manufacturers of own lable products. They can do this because the manufacturers have no choice as the retailers tell them to take price cuts or they will buy from other manufacturers.
    3) Manufacturers of branded products appeal directly to consumers of their products. In so doing they reduce the power or the retailers to hammer down prices. Ultimately consumers are willing to go to another retailer if the retailer decides to delist the branded product in their quest to buy at lower prices.


    So own lable manufacturing is basically commiditised and the benficeries are the major retailers, and consumers with low incomes.


    Do you really want to own shares in companies who's only way of surviving is by continuously reducing their prices?
    27 Nov 2012, 04:09 PM Reply Like
  • RSRinehart
    , contributor
    Comments (521) | Send Message
    Warrantstar -- I am baffled by the word "commiditised" in your next to last sentence. What is that word supposed to be or what are you trying to say there? Beneficiaries was garbled too, but was able to figure that one out.


    Also, for someone with a lot of knowledge about the food industry, I would expect you would know label is spelled with an 'el,' not 'le.' Once is a typo, three times is a spelling error. What is your basis for saying you know a lot about the food industry?
    27 Nov 2012, 04:47 PM Reply Like
  • warrantstar
    , contributor
    Comments (6) | Send Message
    I'm not certain about the spelling, but I meant that own label manufacturing is rather like producing a commodity. ie the most important factor in the buyers mind is the price.
    I have worked in the food industry for 33 years.
    27 Nov 2012, 11:46 PM Reply Like
  • RSRinehart
    , contributor
    Comments (521) | Send Message
    Thanks for the clarification. I wasn't trying to be hyper-critical, just couldn't make any sense out of what that word, such as it was, was supposed to be. Typos and misspellings happen - I've made my share. Proofreading your comment and using the spell check at the bottom of the comment box is always a good idea.


    I was curious about what your experience and knowledge in the food industry represented as the basis for your comments. 33 years in the industry is commendable, but it doesn't say whether you are a CFO, a manager or supervisor of some function, a production line worker, truck driver, or operate a forklift in a warehouse. Different types of experience and baclground provide differing levels of knowledge.
    28 Nov 2012, 11:28 AM Reply Like
  • STFXTeacher007
    , contributor
    Comments (10) | Send Message
    Strange perhaps, but I had no problem understanding "commiditised" despite the spelling. Or at least, I believe that I do. Spelling mistakes, especially in this setting, do not particularly offend my sensibilities.
    27 Nov 2012, 11:54 PM Reply Like
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