What do magically delicious Lucky Charms have in common with long-haul truckers?
Major packaged food companies are getting slapped with headwinds, says Bloomberg, and it’s transportation and distribution costs that are having a significant impact on their margins. General Mills was recently forced to cut its profit outlook for the year, something it attributes to “higher freight and commodity expenses.”
The major manufacturer of cereals, yogurt, and snacks is going so far as to blame a trucker shortage for its increased costs — and it’s joined by fellow industry stalwarts Hershey and Kellogg’s who say the same. According to Bloomberg, trucking companies are charging as much as 30 percent more for long-distance routes than they did around this time last year because the shortage of drivers — a longstanding problem — is not getting any better, so they can’t add capacity.
In February, Kellogg’s CFO cited regulatory changes as a factor adding fuel to the fire, suggesting that new federal rules that keep operators from driving too many hours at a time are adding costs since logistics providers can’t keep up with staffing needs.
Unfortunately, for packaged food companies, the supply chain is not very friendly on the retail side right now either. An industry-wide grocery “price war” is causing margin erosion, as increased competition from European chains Lidl and Aldi setting up shop in the U.S., as well as Amazon’s purchase of Whole Foods, force existing grocers to price match in order win or retain customer loyalty. With this race to the bottom in full force, it’s a challenging prospect for manufacturers to pad their margins by raising prices. For those brands that can afford to hunker down and wait it out, there might be a pot of gold at the end of the rainbow. But for those who can’t, expect casualties.