Recipe For Disaster

Most food gifts catalogers are usually giddy with anticipation this time of year as they gear up for the season that typically brings in the lion's share of their sales. This year, not so much.

On top of significantly higher postal prices and increases in paper costs, food merchants have had to swallow serious hikes in the cost of raw goods to make their products — namely, wheat and cocoa. And when you combine these rising costs with the general slowdown in consumer spending, the holiday season is not looking so tasty.

For instance, soaring wheat prices have hit hard at King Arthur Flour, which mails the King Arthur Flour Baker's Catalogue. Karen Colberg, vice president/general manager, says global wheat prices are at an all-time high — well over triple the cost per bushel since last year.

“The number-one ingredient in nearly everything we make is flour, and with the record price increases for wheat, that's a major contributor,” she says. “This has a very direct and dramatic impact on our cost of goods, be it flours or mixes.”

Beyond wheat, King Arthur is also seeing significant increases in other ingredients, particularly organic flours and grains, dairy products and dried fruits. “Everything seems to be rising along with wheat,” Colberg notes.

Just ask the chocolates merchants. For Harbor Sweets, which specializes in handmade chocolates, cocoa prices have risen 18%, says president/CEO Phyllis LeBlanc. Chocolate accounts for more than 50% of all the ingredients the cataloger uses, “so that's a huge impact for us,” LeBlanc says.

Rudi Hauser Jr., president of Hauser Chocolatier, says the cataloger's prices for supplies have risen anywhere from 5% to as high as 20%. “Cocoa prices are at an all time high,” he says, “and many in our industry believe prices are up artificially by as much as 30% due to speculation.”

Indeed, Ken Kellerhals, CEO of European-style chocolates cataloger Bissinger's, notes that “last year at this time you could buy raw cocoa beans at $1,800 a ton, but right now it's at $3,200 a ton.”

“What's happened is all the people who got out of the stock market have gone into the commodities — oil futures, cocoa futures — and they've really driven those prices up,” Kellerhals says. “And that's something that's really been under reported in terms of its impact on companies such as ours.”

Worse yet, prices for other ingredients, such as nuts and butter, have surged as well. Bissinger's has seen the cost of nuts rise on average from about $3.75 per lb. a year ago to about $6/lb. now, Kellerhals says.

For Harbor Sweets, the price of nuts is up 21%, while butter has increased 9%. “Our sugar prices are holding, which is helpful to us, but we're expecting those to go up as well,” LeBlanc says.

David Kravetz, cofounder/catalog and Web team leader for Fairytale Brownies, says the company's price for baking chocolate is up 9%, butter has gone up 19%, sugar has increased 6%, and flour is up 6%. “We use a lot of butter, so our overall ingredient costs are going to be up about 15%,” he says.

The price is not right

Most food mailers have little choice but to raise their prices. As a small employee-owned company, King Arthur Flour has had to raise prices to stay afloat, Colberg says. “Despite our best efforts, there was no way for us to entirely absorb the impact of the current record-breaking wheat market.”

Fairytale Brownies had last year raised its merchandise prices by approximately 6% while keeping the shipping charges unchanged, Kravetz says. “We had hoped to avoid any price increase this year, but we have decided to raise our shipping rates modestly” by an additional $1 per shipment.

John and Kira's Chocolates, which specializes in artisan chocolates, has seen the cost of raw materials increase about 9% in the past year, says cofounder John Doyle. “The year before that it was about 4%,” he says.

Doyle says his company will increase prices about 12% with the September catalog drop.

“Our primary ingredient is chocolate and we buy European chocolate, which is expensive to get over here,” he says. “Along with the drop in the dollar, it's been very difficult for us.”

Bissinger's is trying to keep prices down, Kellerhals says. “But everybody around is going up 10% to 15% to 20%. I just hope that we can get things under control on the freight end, and the commodities side of it should eventually correct itself.”

Harbor Sweets has had to raise prices from 4% to 10% across the board, LeBlanc says. “For years everybody has been fighting price increases, and trying to hold prices and be more efficient, but I think finally people feel like they have permission to raise prices.” Some merchants might actually be catching up a little bit from holding prices for so long, she notes.

Not that catalogers want to raise their prices, of course. “We are raising prices because we have to,” LeBlanc says.

“There's just no way you can continue to hold your prices with these kinds of increases,” she continues. “But we feel that the consumer is going to understand because they're dealing with these same issues.”

Still, cash-strapped consumers may balk at having to spend more for the same product. Another issue, says Lois Brayfield, president of consultancy J. Schmid & Associates, is that many of the holiday books will be put to bed by late July, so catalogers won't be able to adjust pricing as needed. “This hit a few of our clients this past holiday,” she says.

Shipping happens

In addition to raising product prices, food merchants may have to hike their shipping and handling charges, Boyle says. “This will certainly hurt catalogers in an economy in which consumer confidence is so low in the first place.”

Many food mailers are further challenged with shipping because their products tend to be heavy. And if the products are perishables, they need special packaging, says Tony Cox, founder of food catalog consultancy 5th Food Group. So it's hard to offer free or reduced shipping offers on food gifts. “L.L. Bean can ship a sweater across country in a Tyvek bag for $3,” Cox explains. “You can't do something like that with perishables.”

Cox is now trying several different tactics to save his clients money. For instance, he's having his clients test a $4.95 flat-rate shipping charge. “Desperation spawns a lot of creative thinking,” he notes.