Grocery Black Book
Consumers’ food consumption habits have changed due to the pandemic, and we will show how. Grocery stores are the end market for nearly all consumer staples, and therefore demand changes impact the entire supply chain. The pandemic has created new winners and losers in consumer staples. We will present our investment case for Grocery Outlet, a Best Idea Long, as well as an analysis of Albertsons ahead of its IPO later this week.
Adding ACI to our Best Idea Long list
We are adding Albertsons to our Best Idea Long list. Food retailers do not typically outperform in Quad 3, which our Macro team expects in Q3, especially without unit growth to offset stagflation. However, Albertsons is benefiting from a significant change in the industry driven by consumers shifting food consumption to at home. At the indicated price range, the shares are trading at a discount to Kroger that we do not think is warranted. We do not expect this valuation gap to be long in duration, so this is likely a shorter-term call.
Performance Food Group (PFGC) sales improve from the beginning of June
Ahead of a conference today, the company released its investor presentation yesterday. One slide disclosed that in the week ended June 20, sales only declined by 10.1%. We believe that Performance Food Group has the best management team in the sector as well as a better business mix. However, the share price did not seem to reflect that recently. The steady improvement, especially over the two most recent weeks, is encouraging, and we would like to understand the drivers better. The company’s slide included below presents weekly sales, not a like for like customer comparison or case volumes. Inflation, especially in beef, would benefit sales without benefiting the bottom line. With this sales improvement compared to the restaurant industry’s recovery and current market capitalization, we are removing the company from our short bias list.
