Wages have not kept up with cumulative inflation (WMT)
Consumer packaged goods prices are still up ~30% since the pandemic. CPG inflation has outpaced wages by a considerable amount, as seen in the charts below. Walmart is expecting deflation in the coming months. Deflation would be a revenue challenge for many CPG companies, but consumers will likely not notice much of a benefit due to the cumulative impact of inflation.
Self-checkout shrink source (WMT)
Grabandgo, a checkout technology firm, reports that self-checkout machines have a shrink loss rate of 3.5% of sales, more than 16 times higher than a staffed cashier. Shoplifting and employee theft are estimated to account for about two-thirds of a store’s shrinkage. Internal process/control errors account for most of the remainder. Partial shrink is the most common form of shoplifting, where a shopper pays for some of the purchase. The customer may pay for fewer items or scan in a lower-priced item. Grabandgo’s analysis showed that 6.7% of self-checkout transactions had at least some shrink compared to 0.3% of cashier transactions. According to the Food Industry Association, self-checkout transactions accounted for slightly less than 30% of total transactions in 2022. Shrink has more than doubled since before the pandemic for the retail industry. For Target the increase in shrink since 2019 accounted for 20% of operating profits.
Walmart is removing self-checkout at a few stores this year. Costco said that shrink increased “in part we believe due to the rollout of self-checkout.” Eliminating self-checkout would be preferable to closing the store if it is as large of a source of shrink. Reducing shrink will take more SG&A. The other option is to lose revenue with merchandise locked up.
More OTC drug reviews (PRGO, KVUE, HLN, PBH)
An FDA advisory committee said phenylephrine was ineffective as an oral decongestant three months ago. The ingredient has been used since 1938, when the regulatory review process was less stringent. Recent studies showed that phenylephrine was no more effective than a placebo at relieving congestion. The FDA will review the advisory committee’s recommendation and announce its course of action in the future. The review of phenylephrine is 16 years in the making after pharmacists submitted a petition to the FDA to review it.
A paper submitted in 2018 in the journal Allergy and Asthma Proceedings made the case that there are other OTC products where the existing evidence does not “justify their use.” “Analysis of data supported cetirizine, levocetirizine, and fexofenadine as the most effective of the OTC antihistamines. No data supported the use of oral phenylephrine as a decongestant. Neither OTC mucolytics or antitussives provided sufficient evidence to justify their use.” The FDA will likely take several months to make its recommendation for phenylephrine due to the complication of pulling medication off the shelves during the cough/cold season. Retailers will want to sell through their current inventories. Other OTC medications will likely be reviewed as well, possibly quicker than 16 years.
