US-Costs, customer changes hit U.S. food biz

By Brad Dorfman and Nichola Groom

CHICAGO (Reuters) - Food company and restaurant executives have lots of worries these days, from cost of labor, ingredients and oil to what package best suits a senior citizen to what industry leader Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research, Stock Buzz) will be up to next.

As the food and restaurant industries' leaders ponder the changing business landscape, they'll detail their challenges and plans for meeting them at the Reuters Food Summit this week.

Cost-cutting strategies are one area top executives at companies including Sara Lee Corp. (SLE.N: Quote, Profile, Research, Stock Buzz), Kraft Foods Inc. (KFT.N: Quote, Profile, Research, Stock Buzz), Cadbury Schweppes Plc (CBRY.L: Quote, Profile, Research, Stock Buzz), Unilever Plc (ULVR.L: Quote, Profile, Research, Stock Buzz), Wal-Mart, Dunkin' Brands and others will likely review at the summit, being held in Chicago.

For the past several months, food and restaurant companies have contended with surging oil prices and the ripples those prices cause -- delivery trucks that cost more to fuel, packages that cost more to make, factories that cost more to run and consumers with less money to spend.

Rising prices on ingredients like sugar and coffee are also weighing on manufacturers.

Some companies have cut jobs to cope with higher costs. Kraft in January announced plans to eliminate up to 8,000 jobs.

Many food and restaurant companies have also raised prices, though those increases have not always kept up with the pace of inflation. It is also unclear how much more customers who find themselves squeezed by the gas pump are willing to pay.

Companies are also looking at new technologies to help cut costs.

"There's a new plastic innovation that was just invented in Denmark that makes plastic thinner and stronger. So, all of a sudden that's of importance," said Ken Harris, a partner at food and consumer products consulting firm Cannondale Associates.

NOT JUST COSTS

While oil and other cost headwinds have commanded a lot of the headlines this year, executives have other worries.

In recent conversations with top executives, Cannondale has found worries over Wal-Mart pushing companies to cut back on product offerings as part of Wal-Mart's streamlining efforts, not having products on demand while they cut inventory, demands of an aging population, and global wars and unrest, Harris said.

An aging population, for example, will likely lead not only to different products, but to different packages, labeling and other alterations.

"The profound changes that will need to take place in order to appeal to seniors is astounding," Harris said.

U.S. packaged food companies trade at a multiple of 17