Grocery store sales remain elevated (KR, SFM)
Retail sales in April fell 16.4% MoM or 21.6% YoY, according to Friday's Department of Commerce report. Sales at food and liquor stores declined 13.1% MoM after surging 26.9% in March. Grocery store sales fell 13.2% MoM, but April was still the second-highest month on record. On a year-over-year basis, grocery store sales grew 13.2% in April compared to 30.9% in March. Looking at the year over year, growth is more telling due to the stockpiling of grocery items in March. As consumers shift more of their spending on food at home instead of away from home, grocery store sales are in a period of elevated spend, which has continued into May.
Conagra to the Long Bias list
Conagra announced on Friday that retail sales for the ten weeks ended May 3 had increased 37.2%. Conagra's grocery and refrigerated sales grew 53.5%, frozen goods grew 29.7%, frozen meals grew 27.1%, and retail snack sales grew by 20.4%. Conagra is different in that the entire COVID-19 period is in a single quarter instead of being split between the stockpiling and elevated spend period. When the company provided the last update at the end of March, QT trends were up 47%. Conagra's sales outperformed in both the stockpiling and elevated spend periods, and market expectations are now aligned.
We are adding Conagra to our Long Bias list. Conagra is the fifth-largest food company in the U.S. with only 10% of sales from foodservice companies. We believe there is an upside to consensus estimates driven by the calorie shift to food at home, the strength in the frozen category from COVID-19, and the accelerating growth in snacking during an extended stay at home restrictions. We also think COVID-19 will change investor's perceptions of the Pinnacle Foods acquisition. There had been some slippage during the transition, but many of the brands are getting a boost as customers are trialing or re-engaging with them. The reinvigorated growth could change investors' perception of management, the company's strategy, brand strength, and, ultimately, the company's multiple.
Hero pay coming to an end (KR)
Kroger became the first large grocer to announce an end to its $2 per hour hero bonus, which will end on May 17. Kroger's average hourly wage is $15, but with benefits, the cost is $20. Kroger said it has hired more than 100,000 new workers over the past two months, representing more than 20% growth. Walmart said it would pay a second cash bonus of $300 to full time employees payable on June 25. Part-time employees would receive $150. Walmart paid out a similar amount on April 2. The UFCW, the largest food and retail union, exhorted supermarket chains to extend emergency pay and protection. Kroger subsequently added a one time "Thank You Pay" of $400 for full time and $200 for part-time workers paid out on two installments on May 30 and June 18.
Only 25% of employers that required employees on-site offered hazard pay, according to WorldatWork. Workers employed in retail were more likely to receive additional compensation, with 46% of supermarkets offering hazard pay compared to 29% of healthcare employers. Many hospitals are in financial distress because of the drop in non-essential procedures, while grocers see record sales. Kroger warned on its Q1 earnings call that increased hiring and wages would pressure SG&A in Q2. Higher wages are not the only additional cost the company incurred during the pandemic, but the end of the hero bonus should provide more visibility in SG&A in the 2H.
