ConAgra Brands (NYSE:CAG)
Historical Stock Chart

From May 2019 to May 2024

The lowly loaf of bread is at the center of a price battle on grocery shelves.

A key baker, Wonder Bread maker Interstate Bakeries Corp., emerged from bankruptcy in February under control of private-equity firm Ripplewood Holdings. There are signs it has been promoting aggressively, analysts say, using lower prices to drive volumes.

The added competition, pressures of weaker consumer spending and the ever-constant threat of private-label rivals have also pinched other manufacturers, some of which have responded with promotions and price reductions.

Private label is a force in the bread category, and companies that sell branded breads in the U.S. include Sara Lee Corp. (SLE), Flowers Foods Inc. (FLO) and Campbell Soup Co.'s (CPB) Pepperidge Farm. Lower prices for a staple like bread bode well for cash-strapped consumers. But the trend is less favorable for manufacturers, which run the risk of hurting margins if they cut prices too much or of lowering volumes if they don't.

Bread is a "bare knuckles, commodity-like category," said D.A. Davidson analyst Tim Ramey. "We are seeing some aggressive pricing there."

Sara Lee in a recent conference call complained that certain competitors had been pushing to "gain share at the expense of margins."

"This hurts the category for manufacturers and retailers alike. While commodity costs have come down slightly, they do not come close to justifying the price reductions we've seen," said Chief Executive Brenda Barnes.

Outside store data show the company is bringing some of its own prices down. A spokeswoman said the company is focused on offering consumers high quality at a "price point to meet their everyday needs."

Packaged-food companies, in general, have avoided the large-scale price rollbacks many investors had feared. But they have become more aggressive in offering promotions in some parts of the grocery store. Over the last year, frozen meals have been another area of aggressive promotions, with Nestle S.A. (NSRGY) offering sharp promotions on its Lean Cuisine brand, raising competition for H.J. Heinz Co. (HNZ) and ConAgra Foods Inc. (CAG).

Data from market researcher Information Resources Inc. show prices coming down across several brands of bread in U.S. stores over the last few months.

Interstate Bakeries brands and some smaller privately held bakeries had some of the bigger drops in average prices for the four weeks ending July 12, compared with a year earlier. Interstate went into bankruptcy in 2004 and emerged in February. "They lost volumes during the bankruptcy and they are trying to recapture [them]," says Heather Jones, an analyst at BB&T Capital Markets. The company said in an email that its emergence from bankruptcy had put it in a position to provide "rational competitive pricing that benefits consumers and retail customers."

Average unit prices for Interstate's Wonder Fresh Bread came down 29 cents, or 13%, to $2.27 and its Home Pride Fresh Bread fell 38 cents to $2.31, according to IRI. Sara Lee bread was down 9 cents to $2.53, and prices for private-label bread came down by a few cents.

Prices for Campbell's Pepperidge Farm Fresh breads were up a few pennies in recent store data. A spokesman said the company did reduce prices slightly for its Farmhouse sandwich bread slightly in certain markets, but that the company is generally more geared toward premium breads.

Data show pricing up for Flowers Foods' Nature's Own fresh bread. Flowers didn't comment, but Jones says it has been able to hold on to its pricing partly because of its good relationship with retailers and strong market positioning.

- By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com