Adding Albertsons (ACI) to the Long Bias list
Consumers’ food consumption habits have changed due to the pandemic, and we will show how. The pandemic has created new winners and losers in consumer staples. We have two Best Idea Longs to present, as well as an analysis of Albertsons ahead of its IPO later this week. We have too much to present in one Black Book, so we will split our thoughts on the grocery industry and four tickers (GO, SFM, KR, and ACI) into two presentations. On Wednesday, we will present our grocery industry analysis, our investment case for Grocery Outlet, and a pre-IPO analysis of Albertsons. Then we will follow up the next week with our investment case for Sprouts Farmers Market and why we kept Kroger on our long bias list as inflation trends pick up in Q3.
We are adding Albertsons to our Long Bias list today. At the current indicated price range, we find Albertsons shares attractively valued. Albertsons will continue to benefit from the changes in consumer behavior as a result of COVID-19. Similar to the other grocers, Albertsons has entered a period of upward estimate revisions driven by elevated sales and a temporary reduction in competitive price intensity. Also, over the longer term, the company has delivered considerably and has extensive asset value giving it future B/S optionality.
For GO & ACI webcast and materials: CLICK HERE
Frozen foods continue to lead the grocery store (CAG)
Total grocery sales increased ~10% in the week ended June 7, three months into the pandemic. Center-store edible growth outperformed with a growth of 13.7% driven by meat and produce while deli and bakery were offsets. The fresh food perimeter of the store grew 11.2%, outperforming the entire store. Frozen food growth of 20.4% continued to lead center stores and fresh foods. This is despite the continued out of stocks in frozen foods. According to IRI, assortment variety was down 7.7% in frozen food. The assortment availability was worst in frozen pizza -19.8%, followed by frozen fruit -9.5%, prepared vegetables -15.9%, and frozen entrees -13.4%.
The outperformance of frozen food continues to point to consumers still in stocking up when it comes to grocery purchases. Frozen and refrigerated foods are roughly 40% of Conagra’s sales.
Grocery inflation led by meat (TSN)
Price increases for CPG products have risen during the pandemic. While this is related to increased demand for food at home and supply shortages, prices have increased in non-edible categories as well. Meat has been one of the most inflationary categories, but all major edible categories have seen more significant prices increases during the pandemic.
Meat sales were up 29.3% for the week ended June 7. According to IRI, meat dollar sales were 15% higher than volume gains during the week of June 7, pointing to price increases. Beef volumes were negative for the third week in a row, with supplies still impacted by plant production. Pork volumes were up slightly, recovering from a small decline the previous week. Year to date through June 7, meat department sales were up 24.2% with volumes up 16.1%.
The fresh beef average price per volume was up 32.7% for the week ended June 7 and up 25.1% for the four weeks ended June 7. The fresh chicken average price per volume was up 7.6% for the same week and up 6.4% for the four weeks. The fresh pork average price per volume was up 17.2% for the same week and up 17.6% for the four weeks.
