Last week, we wrote about how the how the high rate of inflation for national branded packaged food was driving a large diversion of shopper traffic into value grocers from traditional and small-format specialty grocers, which followed our previous analysis about how thrift stores were back in style. This week, Pepsi reported Frito Lay profits were +38% above 2019’s level, or +$1.8B annualized, whereas volume was up only +6%. As such, a Reuters news story this past week about historic traffic increases to food banks caught our attention especially as the expiration of COVID-era supplements to SNAP. That story reads:
"Food banks have been around for 50 years, but this is the first time we are seeing unprecedented high food demand combined with historically low unemployment rates,” said Vince Hall, chief government relations officer for Feeding America, which supports 60,000 food pantries…11.4 million households collected free groceries in early April, up 15% from a year ago, according to data from the Census Bureau. [And] The fact that we have a lot of first-time users who are no longer concerned about the stigma of going to a food pantry – and actually see value in it because they can no longer afford retail food – is a reasonable proxy for the health of the economy and consumers.”
We’d expect these overall macro dynamics to be a continued tailwind for the dollar stores allowing them to compound on last year’s gains.