As consumers tighten their wallets, they’re not eating out as much. This sucks for restaurants, but it’s good news for companies like Heinz (HNZ), General Mills (GIS), and ConAgra (CAG) that sell products you can eat at home. Citi likes the trend:
Weakening consumer conditions are also driving a trade out of restaurants and into the grocery store as evidenced by declining same-store growth rates for restaurants. This bodes well for volumes across the entire grocery and should help mitigate the impacts to the branded food manufacturers from a trade down to private label.
Citi notes that Heinz and General Mills have been able to fend off the private label challenge, even as they raise prices:
Private label market share gains have not come at the expense of Heinz and General Mills as both companies are growing unit volumes well in excess of the growth rates posted by private label across their respective categories. Further, volume growth has come alongside strong pricing growth, leading to industry leading retail sales growth for Heinz and General Mills of +9.9% and +7.2% over the 12 wk period ended 5/17/08.
Accelerating pricing growth is highlighted by ConAgra, as the company’s late March mid single digit pricing increase appears fully implemented with ave. unit pricing at retail for the firm up +6.2% over the latest 12 k period ended 5/17/08.
We continue to believe that earnings across the branded food group will remain largely unaffected by a US economic slowdown…We continue to believe that the branded food sector’s dynamics remain favourable and highlight ConAgra, General Mills, and Heinz as our favourite stocks.