Labels of shame (WMT)
Carrefour has put labels on products that have shrunk in size to increase the price by amount. The company is putting pressure on the manufacturers ahead of negotiations. In June, the French Finance Minister brought the heads of 75 large retailers and consumer groups to urge them to lower prices. The Finance Minister called out Unilever, Nestle, and PepsiCo for not lowering prices. 26 products in Carrefour’s stores had a label that said, “This product has seen its volume or weight fall and the effective price by the supplier rise.” It seems like an extreme measure to push back on the manufacturers. Walmart has not taken to publicly shaming its suppliers, but it is no less accepting of price increases than Carrefour. New price increases will be much more rare in CPG.
Grocery store sales (KR)
Grocery store sales increased 2.1% YOY in August and were flat sequentially. Gasoline station sales decreased 10.3% YOY, improving from a 20.9% decrease in July. Food away from home continued to gain share of total food spending, with August increasing to 51.7%, up 10bps sequentially. Grocery store sales have continued to decelerate on a two-year basis since the expiration of the emergency SNAP payments in March.
August PPI (HSY)
The PPI for food manufacturing decreased 0.8% YOY in August, up from -1.2% sequentially. August was the third consecutive month of decline in the wholesale price index. It will be difficult for the industry to raise prices in the 2H, with some competitors seeing lower manufacturing costs while the consumer’s budget is under more strain.
The PPI for chocolate manufacturers increased 6.8% YOY, even with July. The inflationary pressures in chocolate will keep the manufacturers raising prices in the 2H of the year in contrast to other food manufacturers. Hershey also has volume growth driven in part by additional capacity.
The PPI for frozen potato manufacturing increased 35.2% YOY, decelerating from 38.3% in July. Driven largely by higher prices for potatoes, the price of frozen French fries has surged in the past year. The manufacturers are raising prices for the following year to pass on the higher input costs. French fries will be one of the categories, adding new price increases in the year's second half. Lamb Weston’s margins will expand despite decelerating price increases due to less pressure on other input costs.
BioSteel goes belly up (STZ, CGC)
Canopy Growth said it would seek bankruptcy protection for its BioSteel segment. BioSteel accounted for some 60% of its loss last quarter. The bankruptcy will eliminate a significant cash burn for the company. Canopy, which owns 90% of BioSteel, and an affiliate have invested $271M in BioSteel. The sports drink company was burning $11M each month. Canopy had been running a sale process but found no bids. Canopy paid $37.5M in 2019 to acquire a 72% stake in the company. The bankruptcy will end a cash drain on Canopy. Constellation’s record of terrible acquisitions also extended to the investments of its acquisitions.
