The Stockout show highlights CPG and retail industry trends
On Monday, Grace Sharkey and I went through the yr’s biggest trends within the CPG and retail industries, as we saw them. The complete show could be seen here and back episodes could be seen here.
Retailers deal with convenience, speed and value
For retailers, the biggest trends are related to removing barriers to purchases and making transactions “frictionless.” Examples include Walmart’s phone-based Scan and Go checkouts and Goal’s ability to just accept curbside returns while also delivering your merchandise and even your Starbucks order at the identical time. Removing transaction barriers becomes increasingly vital amid growth in social media-driven impulse purchases.
The concept of transaction barriers was also one in every of the problems at the center of the Federal Trade Commission’s lawsuit against Amazon and the talk about whether the e-commerce giant was abusing a monopoly position. The FTC alleges that Amazon is selectively using barriers to take advantage of its monopoly. Not playing by Amazon’s rules leads to marketplace sellers not winning the “buy box,” which is usually too big of a barrier to beat. The identical goes for sellers’ inclusion in Prime, which generally requires using Amazon’s success services.
This yr, retailers also continued to up their game on fast and consistent service levels, which prompted Amazon’s shift from a national to a regional success model and Walmart’s push for the “perfect” online order — with no substitutions or delayed items. Those initiatives have increased demand for automated warehousing and success in urban locations near consumption centers and should require retailers to take care of higher inventory levels and invest more heavily in technology and logistics.
(Chart: Barchart.com Inc.)
Yet, despite the deal with convenience and speed, other retailers also won by delivering superior value. I’d argue that Costco is one in every of the least convenient places to buy. Customers trade speed and selection for lower prices on SKUs which are rarely exactly what they need. All of the while, customers are assumed to be thieves until their receipt is checked (which now seems prescient). But, it’s the proper business model amid the cost-of-living crisis, and Costco shares hit an all-time high in recent days. Similarly, private-label discounter Aldi is the fastest-growing grocery chain in the US.
CPGs clung to elevated retail prices
After rallying last yr, the shares of many CPG firms have been pressured this yr. Those include General Mills (black line) and J.M. Smucker Co. (blue line), which have posted one-year total returns of negative 23% and negative 20.1%, respectively. That could be attributed to several aspects, including investors’ greater appetite for riskier sectors and better rates of interest on corporate bonds, which offer an alternative choice to consumer staples shares known for strong dividend yields. Other bearish viewpoints on CPG cite rising consumer sensitivity to elevated prices and the impact that Ozempic and similar drugs could have on food and snack sales.
(Chart: Barchart.com Inc.)
There may be also the potential for margin contraction. As commodity prices have retreated this yr, national CPG brands have clung to elevated prices at the same time as prices of fresh foods and, to a lesser extent, private-label packaged brands have eased. National CPG firms justified the still-high prices by citing rising input costs apart from ingredients, comparable to labor and packaging costs. Now it looks like CPG prices can now not defy gravity — on each the most recent Walmart and Costco analyst calls, the retailers’ management teams suggested they’re on paths toward easing CPG prices.
Railroad analyst says service levels will probably be essentially the most critical railroad issue next yr
Last week on People Speaking Rail (PSR), I interviewed independent railroad analyst Tony Hatch. Hatch has followed the industry closely for a very long time and hosted a significant railroad conference last month (as he does every November) that included Class I railroad CEOs, Surface Transportation Board members, shippers, consultants and union representatives. This yr, it even featured a fiery exchange between the STB chairman and Union Pacific leadership. Tuesday’s show discussed whether the railroads’ “no-furlough pledge” is realistic, the “cult of the OR,” the outlook for railroad regulations and what the railroads have to do to regain share from the highway, amongst other topics. The complete show could be seen here, and compensate for past episodes of PSR here. This week on PSR, Joanna Marsh and I discussed our response to the points expressed on John Oliver’s comedic critique of the railroad industry. On my scorecard, I even have three criticisms that seemed fair and five that were either unfair or lacked needed context.
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