July Grocery store Retail Sales (KR, ACI)
The headline retail sales increased 10.3% YOY in July and were flat compared to June. Retail sales at food and beverage stores increased 8.4% YOY, accelerating from 7.8% in June. Grocery store sales increased 9.2%, accelerating 40bps from June. The CPI for food at home reached 13.1% in July while the CPI for food and beverages reached 10.5%. The differential between grocery store sales and food at home CPI continues to widen pointing to growing unit demand destruction at grocery stores.
Grocery shopping behavior (WMT, ACI, SFM)
According to the July IRI survey of shoppers, 45% said their financial situation was worse than a year ago. 43% of respondents said they had some or a lot of difficulty affording needed groceries. 8 out of ten shoppers have made changes to what they have purchased from where. 49% of shoppers said they look for sales specials, 44% said they skip non-essentials, 32% said they are purchasing more private or low-priced store brands, and 31% said they look for coupons. A smaller percentage said they cherry pick specials across retailers at 17%. 15% said they shop for some items at low-cost retailers. Consumers are changing their grocery shopping behavior, they do not have much of a choice. Walmart is gaining share with its everyday low price strategy in the current environment.
Zantac concerns strike again (PRGO)
Yesterday, a Bloomberg article stated that one of the first Zantac cases was settled a week ahead of the trial by generic drugmakers including Perrigo for more than $500,000. Perrigo was dismissed from the lawsuit with prejudice on August 4. The claims against the branded drug manufacturers were later dismissed. The article also references multi-district litigation with 1,700 cases consolidating in a Florida federal court. Perrigo was also dismissed from the multi-district lawsuit.
The Zantac lawsuits allege ranitidine contained NDMA which caused cancer. NDMA is found in certain foods as well. The FDA requested that ranitidine be pulled from the market in 2020. As a private label manufacturer, Perrigo’s defense includes the Hatch Waxman Act. The legislation created the generic drug industry in its current form and protects the manufacturers from the drug’s liabilities as long as it was bioequivalent to the brand-name drug. The Supreme Court has found that generic drug manufacturers are not liable for damages when the FDA has approved the brand-name version. The Supreme Court’s reasoning is that the FDA relies on testing data and information from brand-name manufacturers and the generic manufacturer is only making a copy. The Supreme Court has also ruled that federal law does pre-empt state law in the matter of generic drug liabilities.
As a matter of course Perrigo contests product liability lawsuits, but there are occasions when the settlement is less than the legal costs of the defense. The sell-off due to the Zantac legal concerns is a buying opportunity. Perrigo is one of our top long ideas.
