Sundance points out that the latest wholesale price increases from Kraft-Heinz amount not just to inflation, but to embryonic hyperinflation. Bold, underlined text is my emphasis.
Last year, when CTH discussed the original Kraft-Heinz wholesale notification for January 2022, we warned it was only the first round. The reason for waves of price increases is specifically, because each of the processed food categories is impacted differently depending on the amount of processing involved. Each category is different.
This understanding is why we warned everyone in October of last year to make as much preparation as possible for waves of food inflation. The original notification for contracted terms in 30, 60 and 90 days was +20%. Meaning this month, on those group and sectors, prices to retailers went up by 20%, and you are seeing that in the supermarket now.
For the next wave, Kraft-Heinz is telling wholesalers the fulfillment shipments arriving in March will be up to +30% on the next categories. Oscar Mayer proteins will be the biggest increase at the top end (+30%), Maxwell House coffee on the lower end (+5-10%) and the juice and drink category around +20%. [A $5 beverage pack will cost $6 in a few short weeks.]
The processing sector is still dealing with cumulative cost increases. The fulfillment terms are still catching up with the increased costs. These announcements are ON TOP OF the current price increases we are feeling. We are entering hyper-inflation.
. . .
Keep in mind the points we noted in December:
(1) The outlined price increases noted are against current price terms and contracts. Meaning, these are price increases from right now to the next fulfillment. These are not inflation price increases which are compared to a year ago. These are increases from the current price right now.
(2) The price increases are not the final price increase. This is the price of a contract today from the field to the distribution center. The retailer also has additional price increases (transportation, energy, labor, etc) which they need to add to the wholesale price before you see the final price at retail (grocery store).
The final field to fork price is not yet known but will be higher than noted above. We are only seeing the notifications from field through processing and into warehousing and distribution.
Additionally, the more an item needs to be processed, the higher the price increase will be. Food items that require multiple raw materials, ingredients and bases for processing (ex. condiments), when combined with increased packaging costs (oil, energy), will be much higher than foods with less processing, handling and packaging.
There’s more at the link.
So, let’s consider a hard number. If a product costing $1.00 in November went through a 20% wholesale price increase in December, it would have cost the retailer $1.20 to buy it in January (plus the additional costs described above, for which we can’t account here) and put it on his shelves. Given that he’ll charge a percentage profit on it, the actual price increase would be more than 20%.
Now, on that same product, a 30% wholesale price increase is to be implemented in March. That means, in April, a retailer will have to pay $1.56 to put it on his shelves, plus additional costs, plus profit, plus blah blah blah. In other words, from November to April – six months – the price of that product will have increased by 56c, or 56%. Over the course of one year, if that rate of increase continues, the item’s price will have more than doubled. Not all product prices will go up by that much, but in our example case, it will.
That’s more than 100% inflation in that product’s price in a single year – getting perilously close to hyperinflation territory.
There’s no point in repeating my frequent warnings to prepare as best you can. You’re now starting to see those warnings become reality.