"We expect the high inflationary environment we experienced in fiscal 2022 to continue into fiscal 2023, with levels in the low-teens off of the fiscal 2022 gross market inflation of 16%... We have communicated additional inflation-justified pricing actions to help offset these elevated costs, which we anticipate being realized during the first and second quarters of fiscal 2023." -David Marberger, Conagra CFO yesterday.
PPI decelerates (GIS, BRCC)
Food manufacturing PPI increased 11.8% YOY in June, decelerating from 13.2% in May. The PPI for food manufacturers deserves more attention than food at home CPI. Consumers have had little flexibility to avoid price increases in the current environment, and manufacturers have ramped up price increases to recapture margins.
The YOY growth rate is decelerating in large part due to the base effects. The two-year average accelerated from 8.3% in May to 11.9% in June. CPG companies continue to raise prices on top of price increases last year. We have been calling for an inflection in sector margins as cost increases decelerate while price increases accelerate.
The PPI for roasted coffee manufacturing accelerated to 14.7% YOY from 13.6% in May.
The PPI for breakfast cereal manufacturers decelerated to 11.8% YOY from 12.9% in May. The cost increase has been relatively recent, with March’s PPI only up 2.8%.
Gluten concerns fading (FLO)
According to Statista, the volume consumption of pasta was relatively flat from 2016 through 2019 as concerns over carb counting and gluten were growing. From 2019 to January 2021, pasta sales grew 26.6%, according to IRI. While sales did slow in 2021 as consumers returned to on-premise locations, sales remained 11.3% higher than in 2019. Carb counting has not gone away, but an inexpensive and easy meal to prepare at home has tailwinds in the current environment. Similar to pasta, bread offers quick, simple, inexpensive meals that are unlikely to have the volume headwinds other food items will have.
Oat milk as better for you (STKL, OTLY)
Researchers are expected to present studies and data on oat milk’s nutritional impact at IFT First later this month. Their findings could help boost the appeal of oat milk. The concentration of avenanthramides, which are phenolic compounds, in various oat milk products on the market will be presented. Researchers at the University of Minnesota will present data on protein profiling of oat milk. Other researchers at the Florida International University and Ohio State University will show data on different oat milk processing. Oat milk’s current appeal is environmental, animal welfare, lactose-free, and a choice for plant-based food. The health advantage is more of an avoidance of dairy milk than the purported benefits of oat milk. If researchers establish direct health benefits, product switching would likely accelerate further, as seen in other products like red wine or avocados.
