Analyst Says Grocery Industry Facing Pressure On Profit Despite Sale Growth

A research note from Loop Capital Markets said that there is increased pressure on the profit margins of the grocery industry.

And therefore despite an increase in the growth in sales for the industry, the suggestion of taking a neutral view on the industry was made by the research firm.

Within the grocery industry of the United States, the most dominating position is grabbed by Walmart. The research firm however said that the gap with the other retailers are is getting narrower because of the gains made by rivals in same-store sales numbers.

There was a 4 per cent year on year growth in the third quarter in grocery sales according ot a note from the US Commerce Department.

While the US grocery market share is still being led by Walmart, there is narrowing of the gap between the players in the industry along with growing pressure on profits of the companies, claimed the report from Loop Capital Markets.

According to analyst Andrew Wolf, a 22 per cent market share of the US grocery industry which is worth a total $847 billion is owned by Walmart. Since 2017, the same-store sales growth of the rival supermarket chains of Walmart has been significantly lower compared to the market leader. But that gap is now getting narrower. Wolf said in a research note that grocery gross margins have worsened for Walmart also because of disinflating of the food prices.

But such pressure is not being faced by Walmart alone.

The note further said that the gross margins for Ahold and Publix have also worsened in the second quarter. For Kroger, it remained the same. And for the privately owned Albertsons, the gross margin has even improved. More of similar trends is likely to be seen in the third quarter, Wolf said the note.

According to data from the US Commerce Department, the third quarter growth in grocery sales in the US was more than the growth that was recorded by the industry in the previous quarter, which was at 2.6 per cent and more than the 2.5 per cent growth in the first quarter.

Wolf continues to hold a neutral view on the sector because of the pressure on profit margins of companies despite the sales growth of the industry.

Walmart is set to report fiscal third-quarter earnings on November 14. According to Refinitiv, earnings of $1.09 per share are being expected by analysts.

Fiscal third-quarter earning of 48 cents per share for Kroger is expected by analysts. The company last reported its earnings in September.

(Adapted from CNBC.com)

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