Food Price Inflation Accelerates in April; Wal-Mart (WMT) Still Wins

Credit Suisse’s monthly Pricing Survey of Food & Drug Retailing/Mass Merchants had three major takeaways: (1) Shelf prices continue to rise, (2) consumers continue to trade down to cheaper products, and (3) Wal-Mart still wins.

Shelf prices continue to rise:

Balancing the combination of high inflation and a weak consumer remains a challenge for most food retailers. While most companies have managed through this issue, the headwinds remain. Food at home CPI rose 5.9% in April after two consecutive months of deceleration. Our survey indicates that food inflation increased 8.1% y/y in April (vs. 4.8% in March) in Chicago and 10.8% in Dallas (vs. 9.2% in March).

Trading down becomes more evident:

Safeway recently stated that private label sales are gaining 4-6 times faster than branded sales. Wal-Mart indicated that it began to see wide spread trading down in April. We expect this trend to continue although it should not penalise earnings given that private label product generally contributes higher gross profit dollars.

Wal-Mart still wins:

Relatively higher inflationary pressures among supermarkets stave off the competition for Wal-Mart this month. During Wal- Mart’s 1Q08 earnings call, Wal-Mart stated that it continues to see inflation in food and consumables due to rising energy costs. The statement is supported by the results of our survey. Wal-Mart has not seen an improvement in inflation with y/y total basket inflation remaining flat to slightly above last month’s inflation rate. Its competitors, however, are faring much




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