Home grocery delivery (KR)
The pandemic accelerated customer adoption of grocery e-commerce. Ultrafast grocery delivery companies raised nearly $4 billion last year as startups focused on the accelerating growth in the niche. Funding has largely dried up in 2022 except in India, which has resulted in consolidation and cost cutting.
Kroger’s and Albertsons’ net margins are ~2% and EBIT margins are only 2-4% when the customer is putting their own items in the shopping basket. Adding the cost of picking and delivering the items, online grocery is not profitable as seen in the McKinsey analysis below. Some consumers have shown a willingness to pay additional fees for grocery delivery. However, the number willing to pay a sufficient fee is not enough to generate the volume needed to staff the online offering. Quick fulfillment requires an even higher level of volumes to efficiently utilize higher levels of staffing. Venture funding drying up for grocery e-commerce benefits the grocers as the category will be more rational, but adoption will be slower.
Wine DTC sales (VWE, NAPA)
According to Community Benchmark, overall year-to-date wine DTC sales are up 13.1% through May. 440 wineries across Amador, Central Coast, Lake County, Lodi, Mendocino, Napa, Oregon, Sonoma, Temecula, and Walla Walla participate in Community Benchmark’s wine index. YTD visitations to the wineries were up 12.9% while tasting room sales were up 29.1% YOY. YTD wine club sales were up 11.9% YOY. Napa County tasting room sales were up 62.9% YTD while in Sonoma County tasting room sales were up 39.9% YTD. Off-premise wine sales have difficult comparisons as consumers return to on-premise locations. Wineries are benefiting this year from the full reopening of tasting rooms and events. The growth in wine club sales this year reflects the strength in tasting rooms as well as some channel shifts as a result of the pandemic. Vintage Wine Estates’ sales mix benefits from the strength in DTC as well as new programs in the B2B channel.
food inflation Blame (KR)
In a survey of 1,000 American adults conducted by Consumer Brands/Ipsos conducted in mid-June, 72% of respondents said increased grocery prices were having a very (34%) or somewhat significant (38%) impact on their household budgets. 27% of respondents said the supply chain was responsible for the increased prices up from 21% in February. 19% of respondents said the pandemic was the cause, down from 30% in February. President Joe Biden’s policies were the top cause for 29% of respondents, up 2% from February. Consumers’ view of what is responsible for food inflation is important if voters or consumers hold them accountable in the future. Price elasticity has been lower than what most management teams expected. Not being seen as the cause of the inflation helps food and beverage manufacturers and retailers avoid unforeseen responses to the price increases.
