Inflation changes shopping behavior (GO)
According to IRI, 90% of consumers reported noticing higher prices at the grocery store in November. At the time 64% of consumers said they made at least one change to their grocery-shopping behavior in order to manage their spending. In February, 75% of consumers said they made at least one change in response to inflation, up from 64% in January. 63% of respondents also said they are trying to save by spending less on restaurant food and more on food at home. In February, respondents estimated that ~82% of their meals were prepared and eaten at home. Consumers said they are taking the following actions: 41% said they are focused on sale promotions, 39% said they are looking for bulk discounts, and 38% said they are trying to purchase less on each trip. 45% of consumers said they made stocking up purchases in February, one-third of whom did so to purchase before price increases.
Last week we held an update call to our 1H22 Consumer Staples Themes and focused on the topic of food inflation. To view the replay or download the materials CLICK HERE. Grocery Outlet is positioned to benefit from changes in shopping behavior as consumers cope with rising prices. We raised Grocery Outlet on our position monitor in conjunction with our update call.
Top grocery categories during the pandemic (KR)
According to Catalina grocery products that had the strongest sales growth compared to two years ago after home health testing kits were bacon (+230%), refrigerated snacks/cakes (+133%), and frozen vegetables. The products that saw large increases in the first year and decreases the next include processed cheese slices (+141%/-24%), liquid hand soaps (+174%/-57%), and personal moist towelettes (+108%/-56%). The baking and alcoholic beverages both saw large increases in the first year and declined the following year of the pandemic. Average weekly spending on groceries is up 16% from pre-pandemic levels, boosted by inflation.
Tomato imports (APPH)
The Census Bureau reported a double-digit increase in the value of imports from Mexico into Texas of tomatoes, onions, lettuce, carrots, cucumbers, bananas, citrus, and melons in 2021. The value of Mexican avocado imports through Texas increased only 2% in 2021. Shipments of tomatoes from Mexico into Texas increased 10% to $973M in 2021. Imports into Arizona decreased 5%, while imports into California increased 1%. In total Mexican tomato imports increased 3% in 2021. AppHarvest missed its production goals in 2021 so its $9M of tomato sales were insignificant compared to the nearly $2B of tomato imports from Mexico. If AppHarvest were to reach its production and sales forecasts, imports from Mexico would have to be displaced.
Modelo Extensions (STZ)
Modelo is launching several new brand extensions this week nationally and regionally. Modelo has reached the #2 best-selling beer while largely avoiding brand extensions, except for the much smaller Negra Modelo launched in 1925 and recently launched Chelada flavors. Modelo is launching Oro (targeted at Michelob Ultra), Chelada Naranja Picosa (another flavor for the Chelada drinker), Cantarito (a Jalisco inspired cocktail)), and Ranch Water. Of all the new products we are most closely watching Ranch Water. Modelo has avoided launching a hard seltzer, but Ranch Water could be the best match for the brand if the liquid is right. Based on very premature reviews we expect Ranch Water to be expanded beyond its test markets in Texas and New Mexico.
