California Grape Crush (NAPA, STZ)
The California Agricultural Statistics Service said the grape crush increased by 8% to 3.668 million tons in 2023. The larger crop followed three years of below-average harvests, but was still less than some industry analysts expected. The tonnage amount only includes grapes that were picked. Soft demand and disease pressure led to nearly 10% of the acres not being picked by some estimates. Tonnage in Napa increased by 30%.
Pricing was steady in the report, with a reduction in last-minute spot deals. The biggest increases in prices were seen in Merlot, Cabernet Sauvignon, Syrah, and Zinfandel grapes. Sauvignon Blanc had a 24% increase in tonnage, and prices fell by 1% YOY. The price difference between the average grape prices in Napa compared to Sonoma widened to nearly 140%, highlighting the premium placed on Napa County despite the close proximity. Sales of wine by volume have declined in the U.S. for the past three years. The 2023 harvest is better to be a buyer than a grower, as the market has now moved into excess supply. Margins will be at a better starting place, but growing demand is the focus for the wine companies.
Food spending shift (WMT)
Food is the most frequent purchase for Americans. Households, on average, make more transactions at restaurants and bars, grocery stores, and gasoline stations than in other retail spending categories, as seen in the bar chart below. As the most frequent purchase, consumers are much more aware of the inflation in the food categories. Gasoline prices have fallen, and food at-home prices have largely disinflated which may have led to improving consumer sentiment. The food away from home category is notable for continued elevated inflationary trends.
According to Bank of America, consumer spending weakened in January, with total card spending per household declining 0.2% YOY after increasing 0.2% in December. Will a widening gap in the pace of inflation between at-home and away-from-home food spending lead to better trends in the former? Walmart’s sales growth has benefited from higher-income households visiting the retailer more frequently. Bank of America’s aggregated consumer deposit data shows that higher-income households’ real after-tax incomes have lagged.
Big Lots beneficiary (GO)
Big Lots shares have been under pressure after reports the company has been seeking new financing due to liquidity challenges. The ~1,400 store close-out retailer has seen SSS decline for ten consecutive quarters as the company has struggled to regain consumer relevance. In 2022, 13.5% of sales were in the food category, and 11.5% were in the consumables category. Grocery Outlet could benefit by gaining close-out shoppers and, to a lesser extent, food manufacturers having fewer options to sell large amounts of discounted goods. Big Lots has 110 stores in California.
