Retailers to exert more pressure on CPG corporations and other suppliersWalmart shares (black) have outperformed Goal (blue) since news of a needed inventory correction in mid-2022 sent each lower. (Chart: Barchart.com Inc.)
We had rather a lot to say last week about Walmart and Goal earnings reports, however it’s also price highlighting the read-throughs for CPG corporations that sell into those retailers. Many CPGs disclosed that Walmart is their largest customer, representing about 20% of total sales. Listed below are three takeaways necessary for CPGs:
- Consumer spending held up higher than Walmart had expected originally of the quarter. The retailer is seeing this in its general merchandise category, which while still under pressure is posting moderating sales declines. The implication is that, with household incomes finally outpacing inflation rates, consumers have somewhat bit more income for the remainder of the shop after buying essentials. That implies that CPG elasticities will remain low.
- Walmart is concentrated on getting prices right down to fight inflation. Walmart earns a better margin on more discretionary general merchandise than it does on grocery items and other consumables. Many Walmart customers live paycheck to paycheck so consumable inflation comes right out of general merchandise sales. Management said that passing through lower commodity costs via promotions is “the straightforward way out” and it would like to work with CPGs on lowering on-shelf costs to reflect recent reductions in freight costs and other inputs. Expect Walmart to be more aggressive on price with suppliers.
- In-stock rates rise in importance. In-stock rates are of particular importance for Goal because the retailer addresses a demographic that overlaps heavily with Amazon’s Prime clientele and is used to the convenience of e-commerce. Goal mentioned “in stock each time” a half-dozen times on its analyst call and called it one in every of its three top priorities. Expect retailers to be much more demanding with their on-time and in-full expectations.
Consistent with recent performance, FreightWaves data shows a much bigger drop in Goal truck visits (blue) than Walmart truck visits (green). (Chart: SONAR)
Food tech corporations proceed to struggle
Shares of meat alternatives company Beyond Meat (black line) and dairy alternatives company Oatly (blue line) have trended down, roughly together up to now two years. (Chart: Barchart.com Inc.)
In contrast to most publicly traded consumer packaged goods corporations which have reported strong leads to recent quarters, there was a surge in bankruptcies amongst smaller food corporations, which analysts expect to proceed. Recent food bankruptcies include Tattooed Chef (vegetarian foods), Do Good Foods (food constructed from ingredients that might otherwise be wasted) and Bang Energy (energy drink maker, which has since been acquired by Monster Beverage). As well as, there have been quite a few bankruptcies within the vertical farming space, including AeroFarms and AppHarvest.
What most of those corporations have in common is that they’ve attempted to approach the industry from a novel angle, equivalent to through the use of unconventional ingredients or growing methods. These segments are price maintaining a tally of because they represent potential disruption to traditional food supply chains. Enterprise-backed food tech corporations have struggled to keep up financing as capital firms transition from demanding growth in any respect costs to demanding profitability — which has been hard to come back by in vertical farming, particularly. The impact on pressured food categories may also be seen in certain publicly traded corporations, equivalent to Beyond Meat — which had a one-time market cap of greater than $13 billion that’s now lower than $1 billion.
Small fleets must step up service levels to mitigate scale drawback(Photo: FWTV)
On Monday’s The Stockout show, I interviewed Guillermo Garcia, co-founder and CEO of SmartHop, a fleet management solutions company that supports very small trucking fleets. Small fleets have been under a disproportionate amount of pressure up to now 12 months and a half because of the transactional nature of their business as spot volume dried up and as spot rates remain depressed. In that tough market, Garcia has seen an uptick in bankruptcies amongst small fleets.
Carriers that depend on the spot market, which incorporates many small fleets, have been disproportionately hurt by the weak freight market the past 12 months and a half. Contract linehaul rates and spot rates, with fuel removed, are shown in white and orange, respectively. (Chart: SONAR)
To assist mitigate the dimensions benefits that enormous carriers enjoy, which include a greater ability to take part in the contract market in addition to higher purchasing, small carriers must give attention to delivering excellent service when given the chance. That not only includes on-time pickups and deliveries and notifying shippers of any unexpected delays but additionally not breaking commitments once the carrier has agreed to haul a load. Canceling on a shipper or broker to take a more lucrative load is usually not in a carrier’s best interest in the long run because maintaining relationships and a repute for reliable service are key.
See the complete interview here.
Redwood’s Leppert sees demand uptick as return to ‘traditional’ seasonality(Photo: FWTV)
On last week’s The Stockout show, I interviewed Jeff Leppert, SVP of capability solutions at Redwood Logistics. Redwood looks to optimize its clients’ supply chain efficiency, which frequently involves using modally diverse capability solutions. Leppert considers the uptick in freight demand in July and August to reflect not less than a partial return to seasonal patterns which can be more traditional as inventories at the moment are closer to being rightsized and with back-to-school and preholiday freight season upon us. Leppert expects now-defunct Yellow’s market share to be easily absorbed by the remaining less-than-truckload players and believes that maintaining carrier relationships will likely be key for shippers to secure capability for when the market eventually turns back in carriers’ favor — something we hear often and is simpler said than done. See the complete interview here.
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