Rising fuel costs have caused distributors to raise prices and impose fees. And higher costs for just about everything are looming, manufacturers warn.
United Natural Foods Inc. imposed a $10 per delivery surcharge in May, and Tree of Life Inc. adjusted its wholesale prices to cover fuel price increases that cost the company an additional $2.3 million in 2004.
"It's up over 70 percent over the last two years," said UNFI Chief Executive Steve Townsend. "We're running tractor trailers that get 5.8 miles per gallon."
Wall Street sent UNFI stock from $28 to $32 after the May announcement. Retailers are coping the best they can.
"Just about every company has raised their prices," said Sherry Brouillette, co-owner of two Nutrition Plus Health & Supply stores in Minnesota. "Most say it's because of the cost of fuel."
Road prices for diesel fuel rose to a U.S. average of $2.34 per gallon at the end of June from $1.72 a year ago, the U.S. Department of Energy said. West Texas crude oil rose from $40 a barrel in January to $60 in July.
"The rippling effect that has on packaging, on products, on ingredients coming in, is just tremendous," said Irwin Simon, chief executive officer of The Hain Celestial Group. "A lot of times it's hard to budget."
Hain's managers have cut the mileage goods travel by shipping directly from co-packers. But prices have risen on everything from electricity to airline tickets, Simon said.
UNFI opted for the flat $10 surcharge out of fairness, Townsend said. "A $700 order costs the same to deliver as a $7,000 pallet drop at a warehouse—sometimes cheaper." When crude oil costs drop back to the $35 to $37 range, UNFI will drop the surcharge, he said.
Tree of Life Chief Executive Alec Covington told customers that the distributor will stick with "the standard industry practice of building actual freight costs into the cost of goods." Price changes implemented the week of July 4 will "best protect our customer's gross profit margins," he said.
Natural Foods Merchandiser volume XXVI/number 8/p. 10