Ice cream makers try to eat high ingredient costs

By DAVID MERCER, Associated Press

CHAMPAIGN, Ill. (AP) - The cost of the milk, butter fat and sugar that are key to Jim Capannari's ice cream have spiked this year, but he hasn't passed much of the cost along to customers.

The Illinois ice cream maker and a lot of his colleagues don't feel like they can, saying customers will only pay so much in a down economy, even for high-end treats.

"The bottom line is you want to stay in business," said Capannari, who went so far as to hang a sign in his suburban Chicago shop, explaining why cones went up 10 cents.

There's no question the price increases for ice cream's raw materials have been steep -- milk prices have gone up an average 38 percent in the past year, according to the U.S. Department of Agriculture, while sugar prices are up almost 20 percent and the cost of high-fructose corn syrup rose just over 22 percent.

Yet the U.S. Bureau of Labor Statistics says the average price of a half-gallon of ice cream has increased just 7 percent in that time.

The factors behind the price increases for ice cream's base ingredients are much the same as those for food in general -- global demand, a weak dollar that makes American products more affordable overseas and the high cost of the mostly corn feed that most dairy cattle eat, according Penn State University economist Jim Dunn, an expert on the dairy business.

In this case, he said, economic growth has turned the Chinese into major consumers of dairy products, but they don't trust their own country's powdered milk after tainted milk killed a number of babies and sickened thousands more.

The relatively weak dollar makes American powdered milk a bargain in China and, as a result, the cost of a hundred pounds of milk - a standard wholesale measure - hit $22.10 last month.

"That is the highest price that we've ever seen," Dunn said.

Similarly, sugar prices have been increasing over several years of high demand and big producers like Brazil coming up short.

"That was one of those things that I never knew I would have to get into, commodities markets," joked Capannari, who said his start in the business a decade ago coincided with a roughly 400 percent increase in the cost of vanilla, something that caught him way off guard at the time.

Since then, he's gotten used to that sort of thing.

And he's gotten used to absorbing most, if not all, of the hit in his store and catering and wholesale businesses. He opens his store in Mount Prospect on St. Patrick's Day with one set of prices and keeps them there until he closes in October.

This year, with the cost of ingredients already rising, he raised the price of a cone by a dime, to $3.25. But even then, he felt he had to post an apology.

Ice cream buyers like Lana Bradley of Champaign, Ill., say he's right to be wary of price-conscious customers. She shopped recently at a Schnucks grocery store in Champaign with a list full of sale items on a clipboard. Her ice cream, a seasonal flavor she really likes, wasn't among them, but she said the price - almost $5 a half gallon - was about as much as she'd pay.

"It is quite good," the retired grandmother said, nodding toward the carton in her cart. "(But) I probably wouldn't buy it if it went up any higher than it is now."

High-end ice creams, however, have carved out a niche for themselves during the recession and now-stalled recovery, said Larry Finkel, the food and beverage research director for the market research company Packaged Facts in New York. The products represent a form of affordable luxury, a treat that stands in for more expensive indulgences, such as travel or electronic toys.

"I think of Graeter's ice cream," Finkel said, referring to the 141-year-old Cincinnati company that only recently started selling nationally. "They use premium ingredients and they charge a good healthy amount of money for a pint of ice cream -- and it becomes a good healthy kind of planned indulgence."

But even companies that charge a premium for their pints say they aren't making much money. Jeni's Splendid Ice Creams runs just shy of $10 a pint, but CEO John Lowe said much of that goes toward the ingredients.

"Grass grazed cows," Lowe said, explaining where some come from. "We direct ship in from Uganda these amazing vanilla beans."

The cost, he said, adds up. But the Columbus, Ohio-based company won't bet customers will pay more.

"We have worked hard not to raise prices and in the last year have not done so," he said, explaining that Jeni's has tried to save money elsewhere, on transportation in particular. "But the increase in commodities and fuel does impact the bottom line. We joke that we work in not a not-for-profit, but a low profit."

Back at the Schnucks grocery in Champaign, most shoppers in the ice cream aisle said they look for sales these days and buy based on price. Most said they'd probably give up ice cream if the cost went up too much.

But when pressed, a few reconsidered and said even a sharp price jump wouldn't change their habits.

"Usually every week, we usually get some vanilla or something like some mint-chocolate chip," said Randy Rowe, 53, of Champaign. He paused to think about whether he'd skip ice cream. "Probably not."

(Copyright 2011 by The Associated Press. All Rights Reserved.)

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