• August 12, 2011

Sara Lee Corp.'s 10.5% higher suggested retail prices versus the same year-ago period caused food retailers to cut back orders for the company's products, contributing to a 6.6% decline in the company's sales volume in its just-reported fiscal Q4, reports The Wall Street Journal.

While the price hikes drove higher net sales for Sara Lee despite the volume declines (net sales rose 9% during the quarter), the company's current fiscal Q4 profits declined to  $111 million, or 19 cents per share, versus $187 million/28 cens per share in the comparable period last fiscal.

Analysts attributed the impact both to the magnitude of the price hikes and the nature of Sara Lee products' categories.

"The supermarket is telling you that these price increases are probably too aggressive," D.A. Davidson & Co. analyst Timothy Ramey told WSJ.  In Sara Lee's categories, such as deli meat, "people tend to consider price, not brand," added Morningstar analyst Erin Lash.

Sara Lee Corp. CEO Marcel Smits said that in most cases, the company was the first within its categories to raise prices in response to rising input/commodities costs, creating a timing disadvantage with retailers concerned about consumers' reaction to price hikes and with consumers themselves.

"We are generally ahead of the curve [with raising prices] and that means we'll have some volume risk," Smits said, adding: "We are not serving the long-term future of the business if we just let our margins erode, and therefore our ability to innovate and support our innovations."