Promotional Intensity Is Back (KR, MKC)
The promotional intensity in the grocery channel increased 1% YOY for the week ended August 28 according to IRI as seen in the chart below. It was only the second week promotional intensity was above the prior year in 2022. The previous week in 2022 was due to the timing difference of Easter. Edible and non-edible departments both had similar promotional intensity as the prior year. Non-alcoholic beverages were the only department with a notable increase in promotional intensity at +7%. Although promotions are back to year-ago levels, they are still considerably lower than before the pandemic.
Appearing at an investor conference this week McCormick said, “Broad pressure on consumers’ cost of living from inflation has resulted in higher price elasticity than expected, although still below historical levels.” With more pressure on consumer spending and in-stock levels returning to normal at retailers, promotional intensity and price elasticity should rise.
What fuel headwind? (CASY, STZ, BJ)
Casey’s General Stores reported inside SSS of 6.3%. The company cited alcoholic and non-alcoholic beverages. Same-store grocery and general merchandise sales were up 5.5%, while same-store prepared food and dispensed beverage inside sales were up 8.4%. Inflation was 6.5% in grocery and general merchandise and 14% in prepared food. Same-store gallons decreased 2.3% while the average price increased 52%. Fuel margins are expected to normalize after reaching $.45 per gallon in the quarter.
“We’ve also seen some trade down in pack sizes from larger pack sizes to smaller particularly in the beer category where people aren’t switching out of super premium and imports to cheaper types of beer. They’re just trading down from larger pack sizes into smaller pack sizes within the beer category which is also margin accretive for us.”
Warehouse clubs gained share in fuel when prices spiked earlier in the summer. Despite a 50%+ increase in the price of fuel transactions were flattish at the C-store. Casey’s customers would rather purchase less beer than switch beer brands.
DTC Grocery Merger (GO)
Misfits Market, a DTC online grocery platform for organic and sustainably sourced food, announced it will acquire Imperfect Foods, an online grocer. The acquisition accelerates the scale both companies are looking for. The companies said the acquisition puts the combined company on track to reach $1B in sales and profitability by 2024.
Imperfect Foods, sources food that would otherwise go to waste whether for cosmetic reasons, irregular sizes or surplus. Consumers sign up for weekly or bi-weekly shipments. They can edit a box of goods that has been selected for them. Misfits Market also ships boxes of food to consumers that can save customers as much as 40%. Misfits Market has raised more than $525M in funding to date.
There is some overlap in the type of food that the DTC companies source and Grocery Outlet. The environmental benefit of redirecting food that would otherwise go to waste is the key selling point for the DTC companies while cheaper food is the key selling point for Grocery Outlet. The different selling point for consumers is why there is probably more overlap in sourcing than revenue. DTC shipping of groceries requires an efficient network, scale, and considerable last mile transportation costs. We are not going to debate the environmental footprint of shipping directly to consumers’ homes.
