Shrinkflation in the grocery store (UTZ)
Whether it is a Gatorade bottle with four fewer ounces, 2.5 fewer ounces of Honey Bunches of Oats in the same size box, or five fewer tissues in a small box of Kleenex, consumers are seeing inflation in more ways than just price increases. The term “shrinkflation” is becoming more popular in the media as consumers have noticed package sizes shrinking. Product downsizing or weight out are useful methods manufacturers can use to avoid raising prices. However, consumers do not like feeling deceived. In a 2012 Nielsen survey, only 12% of consumers prefer smaller package sizes to pass on higher costs. 38% of respondents said they preferred a larger economy size with a lower unit price. Manufacturers of products without well established sizes have another lever to offset inflationary pressures. Beer or wine manufacturers would receive more pushback for changing the size of a beer can or wine bottle than snack manufacturers.
California ends independent trucking in the state
The Supreme Court decided not to hear the California Trucking Association’s case against Assembly Bill 5 (AB5). AB5, better known as the “gig worker bill,” will end the owner-operator model in the trucking industry in the state. There are 70,000 owner-operators in the state. AB5 will have an impact on the entire industry even though it is not a federal regulation due to California’s outsized presence in the logistics industry. Unions are proponents of the bill because they expect to unionize the new employees.
The full impact of the bill is uncertain. AB5’s immediate impact will be on owner-operators that work exclusively for one carrier, but it may be applied more broadly. Owner-operators own their own trucks and have chosen to be small business owners rather than employees. In response, independent operators may pivot to become freight forwarders or simply not carry outbound freight from the state. Any reduction in the supply of truckers will lead to upward pressure on rates.
Position Monitor Changes (PRGO, ACI, KAL)
We made some adjustments to our position monitor. We raised Perrigo higher on the long list and Albertsons and Kalera on the short list. With traffic to drugstores remaining relatively steady despite higher gasoline prices and the company’s store brand products providing an attractive savings for consumers our conviction level has increased for Perrigo. After the Supreme Court abortion ruling the political environment has improved for OTC birth control which would be a source of upside if/when it is approved. Albertsons’ lockup extension gives us more confidence that the strategic review was a defensive measure rather than an offensive one. Kalera has de-SPACed and is now listed on the NASDAQ just in time for a turn in the credit markets that will make financing for vertical grow farms more expensive and difficult to obtain.
