Not grocery, not yet (VLGEA, KR)
Village Super Market operates a chain of 34 supermarkets in New Jersey, New York, Maryland, and Pennsylvania under the ShopRite, Fairway, and Gourmet Garage banners. The company is the second largest member of the Wakefern Food Corporation, the largest retailer-owned food cooperative, and owner of the ShopRite, Fairway, and Gourmet Garage banners. SSS for the quarter ended April increased by 3.4%. Same store digital sales grew by 4.8%. The center store sales increased 6.6% while fresh foods increased 3.6%. Gross margins expanded 36bps YOY due to increased departmental gross margins, and a smaller LIFO charge, partially offset by increased warehouse assessment charges. Operating and administrative expenses leveraged 43bps due to lower labor and fringe benefits and decreased supply spending partially offset by increased facility costs. Target and the dollar stores were the latest to disappoint in the Q1 earnings season. The companies cited weakness in consumer spending due in part to lower tax refunds and SNAP benefit reductions impacting non-consumable and discretionary purchases. Grocery spending decelerated nearly across the board among food retailers in Q1, but disinflation was the cause. Student loan repayments are the next headwind for consumer spending.
Produce deflation (ACI, SFM)
ProduceIQ’s market index of fresh produce prices decreased 14.5% YOY for the week ended June 9. The index comprises 40 high-volume produce items. Fresh produce prices have been lower for most of 2023. The dry vegetable category was down 2.5% YOY. Vegetables are a good indicator of at-home meal preparation while produce is more discretionary. Food price deflation in the grocery store will be led by the perimeter departments.
Corn and beans (TSN)
Old crop corn prices have been rangebound between $6 and $6.10 per bushel. New crop corn prices have ranged between $5.20-5.45 recently. In the June WASDE report, the USDA raised old corn and soybean ending stocks and new corn, soybean, and wheat ending stocks. The Drought Monitor shows more drought conditions spreading across corn acres as seen in the maps below. The USDA estimates 45% of the corn production area is in drought, up 11% from the prior week.
The USDA’s June 30th Acreage & Stocks report is one of the most influential of the year. The concern from South America is a large Brazilian crop weighing on U.S. exports. Drought conditions are nothing like 2012, but it could pull down the high yields currently projected.
