Grocery traffic continues (KR)
The supermarket sector continues to see traffic growth despite lapping the pandemic’s restrictions last year. For the week ended December 6 traffic increased 7.6% YOY, up 10bps from the previous week as seen in the chart below. The Omicron outbreak will likely cause another uptick in traffic in the final weeks of the year.
Truck rates continue to climb (DOLE, FDP)
The USDA reported that average refrigerated truck rates for the week ended December 21 increased 51.3% YOY, accelerating from 50.2% the previous week. Sequentially the rate increased 2.5% week over week. For many growers and produce distributors, the higher freight costs are the largest driver of inflation and cost similar to the produce itself. Joel Fierman of Joseph Fierman and Sons said, “It’s really a pity when your cost for transportation pretty much is as high as your cost of goods.” Filindo Colace of Ryeco said high freight costs are 90% of the cause of inflation. Some trucking companies project double-digit growth in contract rates for 2022. At this point 2022 appears to be more of the same for trucking rate increases. Companies that experienced lower rates in 2021 will likely see accelerating increases in 2022 as longer term contracts renew while companies with more exposure to spot rates in 2021 should see further increases but at decelerating rates.
Set up for 2022 (STKL, GO)
There are two companies on our long list that had disappointing share price performance in 2021 that we believe set up for outperformance in 2022. Like the year before 2021 was still largely driven by macro factors for the consumer staples sector, with more elements out of the control of management than what they can really be held accountable for. Grocery Outlet shares have declined 27% in 2021 while SunOpta shares have declined 42%. In our Reserach Roundup we looked out to 2022 and projected what could go better or worse for the companies. We examined the headwinds and tailwinds. Both companies are positioned to outperform in 2022 from a competitive as well macro perspective. The valuation of both companies also sets them up well to outperform when the headwinds subside.
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Our investment themes for Grocery Outlet:
Our investment themes for SunOpta:
