Inflation-adjusted grocery (KR, ACI)
One question that enters into nearly every grocery conversation that we have had in the past week is the timing of Kroger’s bid for Albertsons. The DOJ’s recent losing streak in the courts and Albertsons extended strategic review are often mentioned. The decline in inflation-adjusted grocery sales (shown below) receives less attention, but it was probably top of mind for both companies. The surge in at-home food inflation has improved sales visibility as the pandemic restrictions on away-from-home consumption were being lapped. Kroger and Albertsons both project inflation to slow in the 2H.
Last week we held a call to review the merger and the regulatory review it will undergo. We were joined on the call with our Senior Policy Analyst Paul Glenchur, who focuses on regulatory and competition policy issues involving the Justice Department and the FTC.
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CLICK HERE for the webcast replay and materials. |
One with traffic growth (GO)
Traffic growth to food retailers has been more difficult with inflationary pressures on household budgets, particularly from gasoline, food and rent. The challenges have been a tailwind to Grocery Outlet as a discount grocer. Grocery Outlet’s traffic has been tracking up double digits YOY since May according to Placer.ai traffic data. While the data tracks visits and not transactions, directionally the visits have been a good signal. Grocery Outlet also has a high level of margin visibility due to its franchised store model, so SSS are arguably more important for the P&L than other grocers.
THE RURAL MAINSTREET INDEX FALLS (WMT)
The Rural Mainstreet Index from Creighton University fell for the sixth time in seven months. For October the index fell to 44.2 from 46.3 in September. October was the fifth consecutive month the reading has been below neutral growth. 25% of the bankers surveyed said the economy was already in a recession while 75% of bankers expect a recession to begin in 2023. Despite the higher crop prices a slowing economy, high energy prices, higher interest rates, and raised agricultural inputs have driven the business confidence index to 30.8 in October from 40.7 in September. October had the lowest business confidence since May 2020. The farm equipment sales index fell below neutral growth to 47.8 in October from 58 in September. Agriculture is such a large component of the rural economy, but high agricultural prices are not the only factor that matters.
