2011 Supermarket Trends: Good for Food Manufacturers and Retailers, Tough for Consumers

Rick Shea submits:The supermarket industry continues to provide a very tough competitive environment. Consumer pressure to drive value, quality, taste and nutrition in our food offerings requires strong companies with strong management teams to drive successful results. The consumer is calling the shots and voting with their grocery purchases.

Rick Shea submits:Food prices at the grocery store continue to rise as food manufacturers pass on commodity price increases. Corn continues to climb while wheat and other grains have stabilized near record highs. Political unrest in the Ivory Coast continues to threaten cocoa prices and coffee commodity costs have driven coffee producers to take one increase after another. Sugar prices (like corn) appear to be benefitting from potential diversion to ethanol use.

Rick Shea submits:Americans love their coffee, and despite rising prices, the love affair continues. Americans consume over $45 billion worth of coffee every year. Retail coffee shops like Starbucks (SBUX) drive most consumption, but foodservice locations (offices, hotels, schools, restaurants) and the supermarket and grocery channel also drive strong sales.

Morningstar submits: By Michelle Chang Although economic conditions improved throughout 2009, domestic grocery store operators have not benefited due to food deflation, a heavy promotional environment, and labor costs. According to U.S. Census data, grocery stores are expected to generate roughly flat growth in 2009 from the prior year, after generating a compound annual growth rate of 4% from 2002 to 2008.

Alex B. Gray submits:Regional supermarkets have been hurt recently by several factors.

Rick Shea submits:Q1 2010 earnings are in for many of the top food companies and earnings results continue to be strong despite a tough competitive environment. Food companies are using a combination of lower commodity prices and increased productivity to driving average earnings growth of 20%+. While not as sexy as real unit growth, improved productivity can drive lasting earnings growth.

Soos Global Capital submits:I wrote an article back in February entitled “If you like consumer staples now, you’ll like them more down the road”. In it, I noted that higher commodity prices would likely put pressure on margins especially at some of the consumer staple companies where soaring agricultural prices were a key input.