March PPI points to margin inflection ahead (GIS)
The headline PPI was 11.4% YOY in March and 1.4% MOM. It was the highest annual increase for PPI. The PPI index for food manufacturing increased 14.6%, flat compared to February. Against steepening base effects, the PPI for food manufacturing will likely decelerate. Higher costs do not necessarily translate to higher retail prices, but manufacturers in the current environment are trying to recover their margins. Food price increases for consumers are set to continue to accelerate in the coming months. With price increases accelerating and cost increases flattening margins for the CPG manufacturers is inflecting – our investment thesis in our 1H Consumer Staples themes presentation.
Consumers looking to save (GO)
According to IRI’s recent consumer poll more than one-third of consumers said they reduced purchases of non-essentials at grocery stores in March. More than one-quarter said they are trying to purchase less overall. The most popular step consumers have taken to change their shopping behavior is to look for sales according to the survey. According to IRI, unit sales of frozen dinners decreased 10.1% in March while unit sales of frozen fruit decreased 11.5%. Retail sales were higher for both categories, driven by a 14% increase in prices for frozen and freeze dried foods according to the Bureau of Labor Statistics. 17% of consumer polled said they visited multiple retailers to get the lowest prices. Grocery Outlet’s traffic was challenged during the pandemic as consumers consolidated their shopping trips. Higher prices and tighter monthly budgets will provide a tailwind for the company’s traffic trends.
On-premise reopens (BUD)
BeerBoard’s open rate reached 95% of pre-pandemic levels for the weekend of April 7-10, up 1% from the last two surveys during the weekends of March 10-13 and 24-27. BeerBoard tracks $1B in draft beer sales nationwide. 95% is the highest it has been since the initial outbreak in March 2020. The volume of draft beer declined 3.5% for the weekend, lapping a 6.9% increase in 2021. Draft beer volumes were strongest in California, up 37.9%, due to the tighter restrictions in the state last year. Sales velocity decreased 3.9% since the last survey two weekends prior, but was up 5% YOY. Restaurants and bars that were shuttered during the pandemic continue to re-open, as do new establishments. The businesses just need the customers to return, but higher prices will be a headwind for traffic.
