November CPI (HSY)
The headline CPI decelerated 10bps to 3.1% YOY in November. The CPI for food at home in November increased 1.7% YOY, decelerating 40bps from October. The two-year average slowed by 50bps sequentially to 6.8%. Food away from home’s 5.3% YOY increase outpaced food retail inflation for the ninth consecutive month. Dairy and coffee were the only food sub-categories with deflation in November.
Sugar & sweets and fats & oils were the only food sub-categories with accelerating inflation.
Extrapolating the current two-year trends suggests food at home inflation decelerate further to 1% in December. Candy and chocolate confectioneries are among the few food manufacturers looking to raise prices in 2024.
A growth channel (CASY)
Casey’s General Stores reported inside SSS increased 2.9% YOY in FQ2, with strength from prepared food and dispensed beverage SSS up 6.1%. Grocery and general merchandise SSS increased 1.7%, with “a little bit of softness… specifically [in] cigarettes.” Cigarettes were a 1% drag on grocery SSS. Chips performed well in FQ2, with national brands up 10% with 2% unit growth, but private label outperformed with 38% growth and 33% unit growth. Management also said, “What we’re seeing from a consumer standpoint is that at the lower end of the economic spectrum, you’re starting to see consumers shift heavier over to prepared foods as opposed to grocery and general merchandise. I think that’s just a function of the relative value that our prepared food represents versus some of the other snack products and packaged good products you’d see on the other side.”
Gross margins expanded 70bps YOY. The expansion was mostly driven by favorable vendor-funded promotions and volume discounts, a lower LIFO charge, and a greater private label mix, which was like FQ1. Casey’s General Stores expects higher industry fuel margins to remain with Q2 at $.42 per gallon. Five of the last six quarters have had a fuel margin north of $.40 per gallon. The C-store channel has been a growth channel for most suppliers, including snacks, energy drinks, and beer. The grocers and wholesale clubs have also enjoyed higher profits from the gasoline business for longer.
GLP-1 impact on alcohol (BUD)
A study from The University of Oklahoma and Oklahoma State University found a “significant and noteworthy decrease” in alcohol use disorder, the medical term for alcoholism. The study showed that even the lowest dose of semaglutide had a significant reduction in alcohol intake. There are two other trials currently examining the drug’s impact on alcohol intake.
The drugmakers themselves have not made researching semaglutide’s potential with alcoholism a priority. Existing drugs used to treat alcoholism are small revenue generators. Patients often have other medical issues. Only three new drugs have been approved in the past seven decades, and none in the past two decades for alcoholism treatment. The high cost of the drugs also reduces the number of researchers who have the budget to conduct a study with a large patient population. Due to semaglutide’s interaction with dopamine and cravings, the drug’s impact on alcohol consumption has been documented. The market is much more concerned about reduced food consumption, but there is likely reduced alcohol consumption as well.
