How US stocks plummeted As of Monday, investors are betting on a familiar category that could grow if Covid-19 cases continue to rise: grocery stores.
These stocks were a rare ray of hope on Wall Street, according to Dow Jones Industrial seems to be heading for the biggest decline of the year. Several other stay-at-home stocks, including Clorox and Peloton, were also in the green.
Grocers were some of the biggest beneficiaries of the pandemic over the past year as restaurants temporarily closed and shoppers stocked up on basic groceries from the pantry and cooked at home.
Dealers face tough comparisons in the quarters ahead as they face unusually high sales growth numbers. Investors and companies have been trying to figure out when – and to what extent – consumers will return to their eating habits as more people are fully vaccinated and restrictions wear off. In the last few weeks, however the rise of the Delta variant of Covid-19 – especially in parts of the country with low vaccination rates – made these predictions difficult.
Brian Yarbrough, an Edward Jones retail analyst, said investors were shocked by news of the Delta variant and the withdrawal of reopening in some parts of the country – like the return of indoor mask mandates in Los Angeles. He said this is causing some to revert to tried and tested pandemic names.
“You saw a flight to be safer,” he said. “If that happens and Covid comes back up and things shut down, you would see the grocery store taking advantage of it.”
Michael Baker, retail analyst at DA Davidson, said the grocer pop in the market is “the opposite of what you see in airline stocks”. From Monday noon, Airlines and cruises were among the hardest hit sectors as investors feared travel trends could slow or reverse.
Grocery sales are still above pre-pandemic levels, according to IRI, which tracks sales patterns in supermarkets, large retailers and convenience stores. Overall demand for packaged consumer goods in the week ending July 4 was roughly the same as last year, although sales of perishable and non-edible items declined slightly overall.
Baker said some people developed new habits over the past year from cooking more. Besides, he said a labor shortage has impacted customer service in some restaurants, giving customers another reason to eat at home instead.
“The American public may have learned that it is good to eat at home,” he said. “You spend a lot of time at home with your family and that’s more economical.”
He said the latest data also corroborates the stickiness of foods at home. Receipts in grocery and beverage stores rose in June compared to the previous month by 0.6%, according to the Ministry of Commerce. On the flip side, restaurant food was still down 8% year over year in July based on OpenTable reservations tracking seating through online, phone, and walk-in reservations.
Yarbrough attributed this to Walmart, which sold general merchandise and discretionary items instead of being a pure grocer. And, he said, investors might assume that retailers that do better during the delta variant’s proliferation might look different as the government takes different action. For example, instead of shutting down non-essential retailers, local officials can bring back masking requirements and consumers can choose to skip or cut down on trips to restaurants. That would mean less dramatic sales increases for home improvement retailers who were able to stay open as key retailers during the lockdown, he said.
Yarbrough said he remains convinced dining out will return at the expense of selling groceries. However, he said this could take longer – and could be interrupted by spikes in Covid cases.
“Since there is the Delta variant, it can make people afraid of saying, ‘You know what, I’m going to start staying home for a while until this is over,'” he said.