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Video game watchdog shuts down, victim of economy
Crude jolts consumers in everything they buy
By Jennifer Waters MarketWatch
Published on Tuesday, Nov 27, 2007
CHICAGO: Let the consumer beware: Costs are going up on almost everything the average American family consumes.
Blame it on crude oil. The rocketing price of crude oil is not only sharply hiking the cost of fueling the car and heating the home, but is also bidding up prices on the raw materials that go into goods from produce to perfume.
At the same time, the push to develop ethanol as an alternative fuel through corn and similar products is inflating the cost of feed for cows, pigs and other farm animals — and that also increases the prices consumers pay.
''Oil affects everything from top to bottom,'' said Phil
Flynn, energy analyst at Alaron Trading. ''Most people wear crude oil every day.''
Giant manufacturers from Procter & Gamble Co. and General Mills Corp. to Wm. Wrigley Co. and Bridgestone Firestone North America Tire in Nashville, Tenn., parent of Bridgestone Firestone operations in Akron, have warned in recent weeks that the price increases they've already put in place this year could go higher yet.
''The continuing upward spiral of raw material costs makes this action necessary,'' said Duke Nishiyama, president of Bridgestone Firestone.
''This unprecedented situation is simply not one that can be managed through the enhanced efficiencies and increased productivity that we are continually implementing at all levels of our company. As a result, we have no choice but to implement this price increase.''
Crude oil is among the most versatile products on Earth. It comes out of the ground as a honey-colored liquid or a tar-black solid, though it can also emerge as red, green or brown. Refined, it becomes petroleum, rich in hydrogen and carbon atoms, and familiar to most as gasoline or petrol.
Petroleum was the ''snake oil'' once thought to have curative powers to heal wounds. In ancient times, it was used to polish swords, grease chariots and preserve mummies. It wasn't until 1859 that the first successful well drilled through rock produced ''black gold.''
It was long popular as the source of kerosene and has been used for asphalt, tar and heavy lubricants. It is also converted into diesel and jet fuel, heating oil and gas fuel.
The oil is used to develop plastic, polyester, rubber, detergent, chemical fertilizers and other pesticides. But it's also used in fragrances and lipstick, in candles and telephones, in pharmaceuticals and insecticides.
Petroleum is used to make artificial limbs and soaps, but it's not used to produce dairy products. Cows are. But cows need to fatten up before they're milked and slaughtered, and they're fed a diet heavy on corn. As more corn is directed to energy production, the price for corn has risen and dairy farmers have passed those costs up the food chain.
Those higher feed costs alone have infused an extra $47 a year per person into grocery bills, according to an Iowa State University study in May.
And don't forget: Farmers sow crops with tractors and use trucks to haul goods, all of which are fueled by diesel. Those higher transportation costs also get pushed up the food chain.
Shoppers at the supermarket checkout counter are paying sometimes record prices for milk, cheese and yogurt at the same time that the costs of Tide, Pampers, Ivory soap, M&Ms and Cheerios are creeping up.
Consider these recent price hikes:
Wrigley — traditionally conservative on pricing — raised prices of its popular gums and candies 10 percent in the second and third quarters.
Hershey Co., whose Chief Operating Officer Dave West was one of the few consumer-product executives to crow that ''consumer spending has been up this year and it's going to be up again next year,'' raised prices by about a nickel a candy bar in April. On an earnings call last month, Hershey said it might increase prices again in January, when there's a ''better view of the commodities situation.''
Kraft Foods Inc. Chief Executive Irene Rosenfeld told investors last month that she's had to raise prices to cover what food companies call ''input costs.'' Those are the raw materials used for food as well as resins for containers. Wax, for example, is used in packaging frozen foods.
Procter & Gamble lifted its prices on Folgers Coffee blends by 8 percent, and by 9 percent on fabric softeners such as the Downy brand. Last month, Chief Financial Officer Clayton Daley said more price increases are coming, including a 5 percent to 12 percent increase on Olay and Ivory cleansing products in January; a 5.5 percent rise on Bounty and Charmin paper products in February; and increases of 5 percent to 9 percent on Pampers disposable diapers and 3 percent to 5 percent on Gillette blades and razors, also in February.
''They are not sticker-shock increases,'' he said on an earnings call. ''Consumers have seen much larger increases in other things they buy than what they are buying from us.''
Lattes and frappuccinos laced with lots of milk prompted Starbucks Corp. to boost prices by about 9 cents a beverage this year.
Also last month, Colgate said prices on its Hill's pet food business were headed higher by 6 percent to 8 percent in the fourth quarter.
General Mills has taken two tracks. One is to raise prices on products like Yoplait and Green Giant vegetables. The other involves a combination of shrinking the size of cereal boxes of Lucky Charms, Wheaties and other ''Big G'' brands while increasing the price for each ounce. As a result, shoppers saw the price per box drop, but they got fewer bowls of cereal.
In September, Chief Executive Steve Sanger said he's not afraid to do it again.
''We are actively monitoring the need to pass along additional input cost pressures as they arise,'' he told investors on an earnings call.
Another example of those cost pressures: Farmers' tractors and trucks are outfitted with tires, the prices of which have jumped. In March, Bridgestone Firestone raised the prices of Bridgestone, Firestone, Fuzion and other tire lines by about 5 percent.
Cooper Tire & Rubber Co., based in Findlay, raised tire prices 5 percent in June and another 4 percent on Oct. 1. Chief Executive Roy Armes said the company will keep taking the ''necessary and appropriate actions'' to protect its profit margins.
Though raising prices can turn off customers and push them away from even favorite items, company executives aren't afraid of a shopper backlash.
''There is not going to be much customer resistance because they are seeing the same energy and commodity cost increases,'' P&G Chief Executive A.G. Lafley told investors.
''We're not talking about high out-of-pocket prices for consumers here, and we're talking about staples.''
Yet, a dime here, a dollar there all add up to more pressure on consumer spending.
CHICAGO: Let the consumer beware: Costs are going up on almost everything the average American family consumes.
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