CPG promotional strategies (HSY)
According to marketing firm Advantage Solutions, only 28% of CPG manufacturers polled in March were planning list price increases in the next six months. That is down from 46% in the December survey. 35% of the manufacturers said they were not planning on price increases, up from 28% in December. The manufacturers listed off-shelf merchandising (55%) and digital coupons (45%) as the top two promotional strategies. Retailers said private label would be their top promotional strategy. 73% of retailers said they plan to increase private label availability. 53% of retailers said they would require higher margins on promotions. CPG manufacturers said marketing brand quality and introducing innovation will be the top strategies to counter private label. Promotions may resemble a rolling boulder, picking up momentum as we get to the second half. There are some inflationary inputs that will buck the trend like Hershey’s chocolate candy. It is also a category with low private label share.
SNAP spending (WMT)
According to Numerator, Walmart has the largest share of SNAP spending. For the year ended in the first quarter, Walmart accounted for 25.5% of SNAP shoppers’ annual grocery spend. Kroger accounted for 8.4%, Costco accounted for 6%, and Albertsons accounted for 5.9%. In comparison, Target only accounted for 1.8%, Dollar General for 2.3%, and Dollar Tree for 1.6% as seen in the table below. Nearly every (96.9%) SNAP member purchased groceries at Walmart over the past year. The average SNAP shopper spent $2,290 in groceries at Walmart over the past year. According to Numerator’s surveys SNAP customers make 68% more grocery trips per year and spend 15% less per trip compared to non-SNAP customers. The average annual spend on groceries for SNAP shoppers is $8,751. The end of emergency SNAP payments in 32 states in March did not lead to a drop in grocery spend according to most Q1 CPG management teams. Discretionary company management teams may have unknowingly seen more of an impact.
El Nino is coming (KR)
Forecasters now estimate there is a 90% chance of El Nino this summer. NOAA said last week that “The signs of El Nino development that we saw last month have only grown stronger this month.” The eastern equatorial Pacific El Nino appears the most likely. The most recent years with similar El Nino conditions are 2015 and 1997. El Nino is often associated with historic heat globally, but in the Midwest it often brings favorable growing conditions. Since 1970 there have been 17 El Nino summers and 14 of them had trendline yields above average.
In the summer growing seasons, the El Nino weather patterns consist of normal temperatures and drier than normal conditions. The latest U.S. climate model indicates a drier June and August and near normal July for rainfall. The USDA’s May crop production forecast already incorporates positive weather developments with a national corn yield of 181.5 bushels per acre and 52 bushels per acre for soybeans. Better growing conditions look to be deflationary for food prices this year.
