Uncrustables to go (SJM)
JM Smucker is confident it can grow its Uncrustables to a $1B brand. The company’s new plant will increase production in 2025. In the most recent quarter, sales of the line grew 11% to $180M due to double-digit volume/mix growth. Management sees household penetration for its peanut butter and fruit spread products as nearly three times greater than Uncrustables as the opportunity. Late in FQ1, Uncrustables distribution was expanded in the C-store and grab-and-go markets. The expanded distribution is expected to drive over 20% growth in the away from home channel for Uncrustables. JM Smucker reformulated the product for refrigerated shelf life and introduced a display case to boost sales in the channel, as seen below. The success of Uncrustables has attracted competitive offerings, but they have yet to make any headway. The Hostess acquisition will also add distribution synergies in the away from home channel for Uncrustables. The brand’s first national TV ads will run this year. Portability, convenience, variety of flavors, wide daypart appeal, distribution opportunity, household penetration opportunity, and higher margins all point to future success for Uncrustables. We have our concerns about the company, but they do not include Uncrustables.
Food Insecurity (WMT)
The USDA said 12.8% of U.S. households (17M households) struggled to get enough food in 2022, up 10.2% from 2021. Nearly seven million households faced very low food security, meaning normal eating patterns were disrupted. According to a Census Bureau survey conducted between September 20 and October 2, 27.6M Americans reported experiencing food scarcity, up 9.5% from the beginning of the year.
The USDA maintained its forecasts for food prices for 2023 from the prior month. Food at home prices are projected to increase 5.1%, within a range between 4.5% to 5.5%. Food away from home prices is projected to increase by 7.1%, within a range between 6.9% to 7.3%. For 2024, the USDA is projecting food at home prices to increase 1.0%, within a range of -5.5% to +7.8%, up from -1.6% last month. Food away from home prices are projected to increase by 4.4%, within a range of 2.2% to 6.7%, up from 2.3% last month. There is more strain at the low end, with food prices continuing to rise and less assistance from food stamp programs this year. It seems obvious that price elasticity would reflect the tighter food budgets.
Traffic trends portend promotions (KR, SFM, GO, ACI)
Traffic to the grocery stores slowed in the week ending October 22. Traffic trends for the grocery stores have generally been slowing since the beginning of September.
- Traffic to Kroger stores fell 9.6% YOY, slowing further from -7.3% the previous week.
- Traffic to Sprouts Farmers Market stores fell 17.6% YOY, slowing further from -17.3% the previous week.
- Traffic to Grocery Outlet stores fell 3.3% YOY, slowing further from -0.1% the previous week.
- Traffic to Albertsons stores fell 7.8% YOY, slowing further from -6.9% the previous week.
With food prices disinflating the industry will need basket size to increase to grow sales with these traffic trends. Promotions have been the tool to drive basket size.
