This week, several retailers presented at Jeffries’ annual investor conference. Following Kroger’s commentary about the bifurcation in consumer behavior among its more-affluent and value-oriented consumers, we were most interested in hearing what these retailers had to say on the same topic. The key message was that trends apparent in April and May have largely remained on track. In other words, there haven't been any large inflections in spending overall or between categories. There were, however, some subtle signs of changing consumer behavior:
- Walmart is gaining market share and new customers. Pressure on general merchandise persists, meaning that markdown rates and inventory levels continue to rise. The labor issues that Walmart experienced in 1Q22 have been isolated and are abating. In addition, supply chain flow and fill rates are also improving, setting up Walmart and the retail industry for a better 2H22. Walmart is also seeing new customers–especially middle-income customers–which is evidence of a more value seeking consumer. Looking at YoY visitation data for Walmart relative to grocery stores and other superstores (which includes Target), this certainly seems to be the case.
- Given Walmart’s comments, it wasn’t surprising to hear Dollar General discuss how it is leaning into the moment with a focus on DG Fresh. Aside from lowering product costs and improving in-stock levels for fresh items, DG Fresh enables the expansion of produce, which makes General a more tenable all-around shop, especially in urban food deserts and rural markets. Dollar General continues to add cooler doors across the store base (more than 17,000 added in 1Q22), further supporting the company's expectation to install 65,000+ cooler doors in 2022. Similar to Kroger’s comments about its less-affluent households, General observed that it is witnessing smaller basket sizes, more frequent trips (below), and a shift to private label.
