The 2023 Outlook for Food Retailers (KR, ACI, COST, BJ, WMT, GO, SFM)
We are hosting our 2023 outlook call for the food retailers on Tuesday, December 20 at 12:30 PM ET. Hedgeye's Macro team continues to see further evidence that 1H23 is in Quad 4. The consumer has not seen this level of food inflation in a generation. Food inflation has peaked but will stay elevated despite easing input costs. Following the USDA's lead, the consensus has penciled in food-at-home inflation of 2.5% to 3.5% for 2023. We will show how our starting point for 2023 top-line growth for food retailers is north of 3%. We will also do a deep dive into the changing tailwinds and headwinds for the sector, followed by a critical driver analysis of how each of our covered food retailers (KR, ACI, COST, BJ, WMT, GO, SFM) is impacted.
Among the topics we will dive into are:
- The outlook for food inflation
- The changing consumer behavior
- Wallet share winners and losers
- Supply chain challenges
- Competitive activity
- Implications of a Kroger-Albertsons merger
- Input cost outlook
- Soft commodity outlook
- Gross margin outlook
- Traffic trends
- Government transfer payments
Retail sales (KR)
Grocery store sales grew 8.6% in November, accelerating from 7.8% in October. On a two-year average basis, sales slowed by 30bps from October. Warehouse club and superstore sales decelerated to 3.2% YOY in October from 4.1% in September. Inflation is a substantial boost to grocery sales.
Smaller almond crop (STKL)
For the first time in 25 years, California’s almond acreage has decreased according to Land IQ. The total almond tree acreage was estimated at 1.64 million acres in August, down from 1.66 million acres a year ago. More acreage could have been removed after the harvest as drought and tight water restrictions in the state have challenged the industry. The USDA California almond forecast predicts production this year will be 2.8 billion pounds, down 4% YOY. California’s almond crop uses an estimated 17% of the total agricultural use of water in the state and 13% of the total developed water supply. It would seem to only be a matter of time before a thirsty crop in a drought stricken state reduces almond growing. Oats can be grown on more marginal land in a much larger region. Almond milk became the number one plant-based milk by default after health concerns increased for soymilk. Oat milk has numerous years of growth ahead if it is to reach the #1 share in the category, providing SunOpta with a strong secular tailwind.
