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Consumers’ food consumption habits have changed due to the pandemic. Grocery stores in particular have benefited from stay at home restrictions. The market is discounting a quick return to pre-pandemic ways, but it will last longer and be altered. 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.
- Consumer are making fewer trips.
- Consumers are spending more per trip.
- Consumers are consuming more meals at home.
- Consumers are cooking more at home.
- Consumer are still stockpiling food. Not deliberately like in mid-March, but pandemic concerns have instilled the mindset of buying more than needed.
- Out of stocks have caused consumers to generally be less price sensitive and brand loyal. Stores have pulled back promotions. Consumers have trialed more new products and returned to familiar ones.
- Many consumers have reported weight gains during COVID-19 which has led to increased interest in diets and eating healthy.
- The breakfast daypart change is largely driven by work from home changes.
- The lunch daypart change is due to distance learning for school and work from home.
- The dinner daypart at restaurants is largely missing the celebratory and travel occasions.
- Restaurants are also missing the eat away from home occasion for events.
We presented our investment case for Grocery Outlet, a Best Idea Long with 30% upside. The combination of a very favorable real estate market, dislocation in the food supply chain, and a recessionary environment will drive EPS upside and multiple expansion.
In addition, we presented Albertsons as a Best Idea Long ahead of its IPO later this week. With a de-levered balance sheet, significant ramp in SSS and gross margins, and attractive valuation we think the current time is optimal for Albertsons to return to the public markets.
