More avocados from Mexico (AVO)
Hass avocado prices are at a ten-year high for the second week in a row. The U.S. market is currently reliant on Mexico for supply at this time of year. Avocados From Mexico, the largest marketer of avocados in the U.S., recently added the Jalisco region to the import market for the U.S. beginning in June 2022. Previously all avocado imports from Mexico came from the Michoacan region, which accounts for 80% of production. Jalisco is the second-largest producing state in Mexico. Jalisco will increase the available supply, especially in the summer months. The avocado forecast continues to call for higher prices throughout the end of the year. Avocado sales increased 3.4% in the four weeks ended October 3, the first YOY increase since the four-week period ended February 21. In November avocado sales accelerated to 9.2% YOY growth. The Mexican government is planning to add two other states to the approved export list to the U.S. because growing supply, not demand is the bigger concern.
Pharmacy traffic benefit (PRGO)
Since the rollout of the COVID-19 vaccines pharmacies have seen a surge in foot traffic. The delta variant drove a recent spike in traffic in August as seen in the following chart. The spread of the omicron variant has driven another surge in demand for vaccines and COVID-19 tests. Albertsons said the COVID-19 vaccines also benefited gross margins. Demand has also risen for health and wellness products in pharmacies. Perrigo is positioned to benefit from the easy cold and flu season last year as well as greater traffic to grocery and pharmacy aisles. About 2/3 of Perrigo’s sales are store brands that benefit from the side-by-side comparison on a retailer’s shelf.
Oregon strike (KR)
A strike by ten thousand workers at Kroger’s banners Fred Meyer and QFC ended after less than one day in Oregon over the weekend. The workers were striking to protest hazard pay cuts implemented almost 18 months ago. The UFCW membership will vote on the tentative deal, with details of the proposed contract to be released after members are able to review it. Kroger’s latest contract proposal for Oregon grocery workers was a 50 cent per hour raise over the next two years and a 40 cent per hour raise in the third year of the contract. That amounts to $36M in higher wages, $30M in healthcare contributions, and $5M in pension investment for more than 5,000 employees. A tight labor market has shifted the negotiating strength of labor and unions. Higher wages are the inevitable outcome.
