“The rate of inflation in food pulled more dollars away from general merchandise than we expected as customers needed to pay for the inflation in food.”– Walmart 5/17/22
Walmart gains in grocery (KR, ACI)
Walmart said it gained share in grocery in the U.S. in FQ1 with an overall higher category mix in food and consumables as food comps were up low double digits compared to 3% overall ex. fuel. E-commerce sales grew 1%. The average ticket grew. Sam’s Club had its 9th consecutive quarter of double-digit comp growth with SSS up 10.6% driven by a 10% increase in transactions. Management said, “We remain very bullish on our food and consumables business. Consumers are feeling inflation pressures, as evidenced by an increase in grocery private brand penetration.” Categories including deli, lunch meat, bacon, and dairy have seen customers trading from brands to private brands. Walmart’s U.S. gross margins contracted 38bps with more than ¾ of the decline due to higher than expected supply chain, fuel, and e-commerce fulfillment costs. Management said food inflation is double-digits and they are concerned it will continue to increase. Management believes they still have room to improve on providing the right value to consumers in grocery.
Walmart’s challenges were not in the grocery category, but the seasonal and general merchandise categories. That is also where the excess inventory remains and where the rollbacks are. Walmart noted the changes it has seen in consumer behavior are reducing spending in non-food categories and switching to private label within food. Those are unlikely to be the only behavioral changes.
Return to the Office (KR)
According to Kastle Office Systems, the average office occupancy rate of its top ten cities in the U.S. was 43.4%, up 20bps from the prior week. Door swipes are at the highest level since the pandemic began. There continues to be a wide range from Austin at 59.5% occupancy to San Jose at 33.7%. Apple had planned for employees to return to the office three days a week starting Monday but kept the requirement to two days yesterday. Apple is requiring employees to wear masks in common areas. The Texas cities likely reflect what the new ceiling is for returning to the office for the other major cities early in the post-pandemic recovery.
Lowering spirits-BASED RTD excise taxes (SAM)
Vermont advanced a bill that would lower taxes and give greater market access to spirits-based RTDs. The bill would go into effect on July 1 if signed by the Governor. It would lower excise taxes on spirits-based RTDs from $7.68 a gallon to $1.10 a gallon. The excise tax for beer is $.26 a gallon. It would also allow beer and wine retailers to sell spirits-based RTDs. Currently, Vermont is a control state and only the ~80 state-operated liquor stores can sell spirits. In the year ended April 23, RTDs sales grew 44% to $1.15B.
Michigan and Nebraska have already lowered their tax rate on spirits-based RTDs. Similar bills have been introduced in at least a dozen states, but have shown little signs of progress. Vermont is known for its craft beer industry, so it is surprising but small for the industry. If more states lowered the excise taxes on spirits-based RTDs it would have a significant impact on hard seltzers, but it seems unlikely in the foreseeable future.
