Food Manufacturing PPI (LW, WMT)
The headline PPI for November was flat MOM and up 0.9% YOY. The PPI for food manufacturing decreased 1.4% YOY in November, reversing from a 0.6% increase in October. The two-year average slowed by 60bps to 5.1% from October.
Lower wholesale costs would be a margin relief for the food manufacturers that cannot raise price prices in 2024. Lower costs would also fund additional price investments and make deflation more likely in 2024. Walmart’s expectation for deflation in 2024 is more likely after the November PPI report.
Frozen potato manufacturing PPI increased 22.4% in November, decelerating from 27.1% in October. The higher frozen potato prices reflect a smaller crop last year and higher contracted prices with farmers. This year’s harvest was better than expected in most areas of the U.S. and Canada, but the manufacturers contract prices with their farmers and customers. Frozen potato product prices will be up again in 2024 but at a smaller percentage increase than this past year.
Coffee PPI (BRCC, WEST, SJM)
The PPI for roasted coffee manufacturing rose 6.5% YOY in November, decelerating from 7.3% in October. The CPI for coffee in November inflected to a slight YOY decrease. Coffee prices have been volatile this year and have increased 30% since early October. The price of the beans is only a small percentage of COGS, and there is little relief from the other components. J.M. Smucker is passing on its lower bean costs through lower list prices for its retail coffee brands, which in turn are deflationary for the retail brands.
Sales of coffee at grocery stores fell to below-pandemic levels in the year ended September, reflecting gains in e-commerce, coffee pods, and espresso. Overall packaged coffee sales fell 3.7%, the third consecutive annual decrease. Coffee prices per unit increased 9.3% in the past year, on top of a 12% increase in the prior year. Ground coffee sales decreased 5.6%, with units down 3.3%. Coffee pod sales decreased 1.4%. Private label coffee sales increased by 8.4%, with a unit decline of 0.6%. Espresso has been a category leader, with national brand sales up 25% and units up 14.6%. According to NIQ, national brand espresso pods increased 35% in dollars and 33.2% in units in the year ended September 30. We know coffee sales aren’t declining; they are just changing channels and packaging forms.
SNAP strain Eases (WMT)
According to Propel's latest survey, food insecurity trends eased in October, the first month of the annual COLA adjustment. Most households received an average increase of 12.5% in the benefit amount. Propel has a free app that over five million EBT recipients use. The share of respondents that ate less fell from 54% in October to 45% in November.
Walmart has the largest number of customers that receive SNAP benefits. Walmart continues to see higher-income households trading down, which has more than offset weakness among lower-income households.
