October is shaping up to be a noisy month for retail sales and economic activity/indicators. That will render September as the last “clean read” until the second half of November at the earliest. We expect the September retail sales report (U.S. Census Bureau) to be softer than August. September is a shoulder period as we’ve passed the back-to-school period and there are no holiday events. Over the past two years, shopping has shifted closer to seasonal events which makes the shoulder period troughs broader and deeper--that’s September. The table below shows that the slowdown was across categories.
In addition to the discussed shoulder period dynamic, Walmart, Costco, and Sam’s all experienced a significant surge in visits as the result of stock-up as nervous households raced to the stores to get necessities ahead of hurricanes and concerns that the port strikes could disrupt the flow of goods to retailers (which happened ahead of Christmas 2022 and during the pandemic). Costco reported September U.S. comps of +9.3% (ex gas) with +200 bps of that due stock-up. The stocking-up benefited both ticket and traffic. Category-wise, the stock-up lifted the grocery category by about +300-400 bps. The September period for Costco ends on October 6. If we match the data to Costco’s reported five-week period, Placer shows a +7.3% increase in traffic versus the reported +7.6% (i.e., pretty close).
In terms of the categories in the table, the most severe slowdowns were the back-to-school one with the event stimulating activity in August for clothing, sporting goods, dollar, and club & superstores. As it relates to grocery, last week’s Anchor contained stories about Costco, Aldi, and packaged food. Grocery retail is losing sales to club, mass, dollar, and convenience which is pulling down basket size and units per transaction (UPTs) and diverting traffic. Additionally, promotional intensity has ramped up and prices are drifting lower for certain categories, which lower the grocers’ average unit retail (AUR) and sales. These combined are contributing to the deceleration in grocery retail.
This week, PepsiCo reported earnings and the results revealed a revenue and volume decline for Frito-Lay and Quaker Foods. This is the first revenue decline for Frito-Lay in recent history (the Frito-Lay segment includes Doritos, Lay’s, Cheetos, Sunchips, etc.) Quaker's revenue was down due to category pressures and a recall. Given these dynamics and the hurricane uncertainty, management lowered their revenue outlook for the year by about -200 basis points. Management noted that, “The cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns. After outperforming packaged food categories in previous years, salty and savory snacks have underperformed year-to-date.” (For context, snacks have increased their prices the most since 2019 per scanner data.) Channel shift was also a noted headwind for Frito-Lay, and we show this below in the deceleration for the gas & convenience channel as well as a very large decoration at Speedway (a large customer of PepsiCo’s).
In response to these, Frito-Lay intends to ramp investment in demand-driving programs (“Doritos Crash the Superbowl,” sports partnerships, limited-time promo offerings, etc.) and increase distribution in away-from-home, multi-cultural, and value-conscious channels.
What to expect for October? The month is a difficult one to forecast given the stock-up, hurricanes, and extreme heat across the country (95 degrees in San Francisco last week, for example, and unusual October temperatures from north to south in the middle of the country this week). Additionally, there is the election which is certain to keep folks fixated on the news and the like. Below, we share a couple of other dynamics that will impact October’s rate of growth and the profile of the month. The net of all of this is that as a diligent forecaster, we look forward to moving on to November.
Two factors in particular are likely to introduce noise to year-over-year comparisons:
- Exiting September 2023, there were broadening fears that the U.S. was going to enter a recession before year-end, which led to a curtailment of activity until Thanksgiving. You can see that trend in the chart below. We wrote about this last year. Happily, we did not go into a recession and Thanksgiving woke up Holiday shopping spirits / habits and retailers had a great 2023 Holiday season.
- Geopolitical events impacted U.S. consumer confidence/activity for a few weeks last October, which we show below. Several CPG brands also called out this impact when discussing early October and the Q4 trends.
