Food manufacturers, retailers, and other entities here that provide food say dramatically rising costs are causing them to scramble to manage the increases and stay afloat until they get some relief.


Dan Nagy, a partner in Bar NZ Inc., a Spokane concern that operates a dozen Wendys restaurants here and in Coeur dAlene, says that companys food costs have increased 9 percent in a year.


This year, the commodity prices have skyrocketed on meat, poultry, bacon, as well as dairy products, Nagy says. He says Wendys corporate headquarters predicts another 9 percent increase yet this year on some commodities, such as chicken.


The escalating prices of dairy products, soybeans, sugar, and wheat directly affect most products found on grocery store shelves, says Jeff Philipps, president and CEO of Rosauers Supermarkets Inc., which has 21 stores in the region.


Glenn Ward, president of BumbleBar LLC, which manufactures gluten-free snack bars at its Spokane Valley plant, says, Its affecting us in a huge, profound way.


Ward says the cost of two of the companys main ingredientssesame seed and flaxseedhas more than doubled in the last four months.


Though BumbleBars sales have grown 17 percent this year, Ward expects profits to be flat in 2008 despite having hiked its prices twice this year because of increased commodities prices and overhead.


Nagy says that though Wendys outlets here havent seen a huge decrease in business, some customers who used to eat at the chains fast-food restaurants three times a week now come in only twice a week and brown bag it the rest of the time. Bar NZs Coeur dAlene-area stores, which get more of their traffic from tourists, have suffered bigger sales declines as rising gas prices have kept people closer to home.


Weve seen a decided downturn in those areas, Nagy says.


Rosauers Philipps says that what conusmers buy is changing as they begin to feel the crunch.


Weve seen a number of changes in the marketplace, Philipps says. Cereal is probably the prime one where weve seen companies reduce the size of packaging.


Still, Philipps says, breakfast cereal sales havent suffered because theyre still a good value per serving.


With the economy the way it is, I dont care what income level you live at, people are looking for value, he says.


Donations to charities such as Second Harvest Food Bank of the Inland Northwest are dropping, says Jason Clark, executive director of Second Harvests Spokane operation, even as consumers, feeling the pinch of high grocery and gas bills, need help more. He says rising costs have forced food producers to improve their processes to reduce waste, cutting down dramatically on donations to food banks of excess items such as cereal.


I can remember in the mid-90s we were turning down truckloads of cereal, Clark says. There are times now, people would go nuts if we could get one truckload of cereal donated.


A need to cut costs has changed how much BumbleBar donates to charity, Ward says.


Usually we donate between 15,000 and 25,000 bars a year to charitable organizations, and weve cut that down to 5,000 this year, he says. Now, instead of donating overweight and underweight products, BumbleBar reopens those packages, reheats the bars, and reworks them into new bars, saving about 5 percent in losses to waste, he says.


Institutions arent immune either, says Dave McKay, director of dining services at Eastern Washington University, in Cheney. Last year, the university decided to increase its food-service prices by 5 percent as it faced cost increases of more than 12 percent, he says.


Many factors boost prices


Businesses and organizations here hurt by commodity prices say there seems to be a perfect storm of factors driving up such prices. The factors include rising fuel costs, increasing use of grain for ethanol production, increasing global competition for food products, and climate change that creates unpredictable crop yields.


We have costs like a fuel surcharge now that weve never had to face, says Wendys operator Nagy.


McKay says increases in the price of corn, which is used heavily in biofuel production, has a ripple effect. For anything that has to be fed corn, the price is going up, he says, adding also that record wheat prices last year had a big effect on the cost of flour-based goods.


BumbleBars Ward says competition for grains from other countries and from food-production giants such as General Mills Inc. that are introducing lines of organic food products makes a limited supply even more scarce and drives up costs. Ward says BumbleBar paid a grower in Nicaragua $80,000 in advance for a crop of sesame seeds, only to have the crop bought out by a Guatemalan company.


In addition, this years floods in Iowa had a huge affect on flaxseed prices, Ward says. He asserts that climate change makes the commodity market less predictable.


Any commodity market depends on regularity, he says, so buyers can anticipate that when sesame seed comes to market, for example, it will arrive around a certain time and there will be a certain predictable crop yield.


With changing climate patterns, you dont have that regularity, Ward says.


Responding to the crunch


Businesses and organizations here say theyve been cutting back where they can, and ultimately are passing the higher costs on to consumers.


McKay says EWUs food services program has to cover its own costs and pay its own employee benefits. He says with only a 5 percent increase in prices to students and with enrollment up by 150 students this fall, the effects of food cost increases will be amplified, and the program has to be more efficient and continue to look for ways to keep costs down. EWU did a complete rebid of its food service contract, and keeps track of the times of day people use its various food services and is paring back some hours during times of relatively low use.


Second Harvests Clark says the food bank will seek more local donations to reduce freight costs. Also, because of waste reduction by non-perishable food producers, it expects to have to carry more perishable items, so its adding additional refrigeration and freezer capacity to store such items.


Thats where theres still an opportunity to capture excess, Clark says.


BumbleBar has hired an international brokerage company and hopes to expand its market into Europe and possibly Asia next year and is working to cut back on costs in all the ways it can to get lean.


Weve already gone through some inner staff consolidation and we do have a travel freeze and marketing freeze on, Ward says.


Ultimately though, as prices continue to rise, consumers will bear more and more of the cost increases, he says.


Nagy says Bar NZ plans to increase prices at its Wendys locations this fall. It already raised prices once last November, and reduced the size of some items slightly. For example Nagy says, it changed its 42-ounce drink to 40 ounces.


BumbleBar plans a second price hike, too, and Ward says he isnt sure what the effect will be. He says an initial price increase often would be absorbed by its customers.


Philipps says Rosauers has absorbed first-round price hikes on a number of products, taking a lower profit margin, but when prices increase further, it must pass the cost along to consumers.


Ward says a price increase can be the difference between a $2.19 BumbleBar and a $2.49 BumbleBar, and hes not sure at what price a consumer will decide not to buy the product.


So far, companies and organizations here say they havent had to reduce their staffs.


You can only cut back staffing so much. Otherwise you just affect service to an extreme, Nagy says. Bar NZ employs about 375 people here.


Philipps says Rosauers so far hasnt had to reduce its staff of 2,000 employees.


Even though its different products, the sales have stayed pretty steady, he says, adding that the company also keeps a close eye on the price of oil.


When suppliers tack on fuel surcharges, its with the intent that its a temporary situation, Philipps says. We demand those be removed as oil prices come down.


EWU will increase its focus on encouraging students to make the most of their meal points, McKay says. Students buy meal points up front and trade them at par in a retail environment at its food center, which serves on-campus resident students, beverage stands, and a small grocery store on the campus.


We will be educating our students this fall about price-conscious choices, McKay says.


He says that though the department seeks to provide good value for its students, the offerings ultimately are consumer-driven.


Ward says he foresees a positive bounce on the horizon for BumbleBar.


I think as we get more efficient and lean well come out the other side as the economy comes back around, he says.


Bar NZs Nagys says he expects it will be another year before the economy turns around, and he adds that the company has enough capital to ride it out.


Weve gone through this before, he says. You tighten your belt a bit and operate as lean as you can.


Contact Jeanne Gustafson at (509) 344-1264 or via e-mail at jeanneg@spokanejournal.com.