🌭 Walmart’s hot-dog quarter

Wednesday, November 16, 2022 by Robinhood Snacks |
Seeing the cart as half full (Gilles Mingasson/Getty Images)

Seeing the cart as half full (Gilles Mingasson/Getty Images)

Seeing the cart as half full (Gilles Mingasson/Getty Images)

Seeing the cart as half full (Gilles Mingasson/Getty Images)

Yesterday’s Market Moves
Dow Jones
33,593 (+0.17%)
S&P 500
3,992 (+0.87%)
Nasdaq
11,358 (+1.45%)
Bitcoin
$16,857 (+1.61%)

Hey Snackers,

Your next footlong could come from a smart fridge. Subway’s selling premade sandwiches from AI refrigerators that can hear your voice and answer questions. Just don’t ask it for more cheese.

Stocks jumped yesterday after new inflation data showed that wholesale prices rose slower than expected last month, boosting dreams of a Fed slowdown. Meanwhile, President Biden’s handshake with Chinese leader Xi Jinping raised hopes of easing US-China relations.

PB&J

Clear aisles, full carts, can’t lose… America’s largest retailer is seeing the bright side of dark times. Walmart shares spiked 7% yesterday to a six-month high after it delivered surprisingly strong quarterly sales (up 8%) and boosted its forecast. The MVP of earnings: groceries. Kitchen staples like canned beans and hot dogs carried the quarter.

  • In the cart: Food was the fastest-growing category with double-digit sales growth as more shoppers turned to Walmart for its “everyday low prices.”
  • In the storeroom: Discretionary items like TVs, air fryers, and clothing were weak. On the plus side, Walmart unloaded some of its excess inventory piles.
  • Target, which reports today and is also a grocery go-to, could echo these trends.

$6 Hu chocolate to $1 Hershey’s… Americans are trading down. Walmart’s CFO said customers have been turning to less pricey protein sources like hot dogs, beans, and store-brand peanut butter. Tyson’s lackluster report this week confirmed that demand for premium beef and pork is dropping. But it’s not just lower-income customers trading down:

  • More high-income customers turned to Walmart last quarter for cheaper groceries. 75% of its market-share gains in food came from households making $100K+.
  • With grocery prices up 12% from a year ago, discount retailers like Dollar General and Grocery Outlet have also gained wealthier customers.
  • It’s a theme: In its latest earnings, McDonald’s said it attracted more higher-income customers who opted for fast-food over pricier sit-down restaurants.
THE TAKEAWAY

Tough times can be growth times… or an opportunity for big companies to grab a larger slice of the pie. Walmart gained US grocery market share as inflation spurred higher-income shoppers to browse its aisles. Corporate titans like Walmart, Amazon, and McDonald’s can afford to keep prices relatively low during downturns to grow their market share (McD’s did just that in ’08) while smaller or pricier players could suffer.

Cozy

Prefab(ulous) homes… coming to a lawn near you. This week Airbnb cofounder Joe Gebbia unveiled his newest venture, Samara, which plans to sell small homes for backyards. Samara’s accessory dwelling units (aka: ADUs) start at $289K for studios and $329K for one-bedrooms. Samara hopes homeowners will use its little abodes not just as rental properties but as extra space for themselves.

  • Guest-house vibes: Each ADU has a spacious bathroom, kitchen, and washer/dryer. You can even splurge $10K for solar panels.
  • FYI: The mini homes will first be available in California, where new laws have made it easier for residents to build on their lots. But Samara has plans to expand.

Back to WFMH… work from mom’s home. More Americans might start turning garages into guest houses as sky-high prices box out would-be buyers (average home sale price = $542K). As of July, more than half of young adults (age 18 to 24) were living with their parents. And last year nearly a fifth of Americans were living in multigenerational homes. As US housing affordability hits its lowest level since 2012, mini homes are gaining popularity:

  • CA issued nearly 20K ADU building permits last year, up 58% from 2019. The US tiny-home market is expected to grow at a record pace this year.
  • Mobile homes are hot too: From 2016 to 2021, the median price of trailers surged 34%.
THE TAKEAWAY

If you build it, they could come… Experts say there’s a nationwide housing shortage of up to 6M new homes. By one estimate, there’s room for 1.5M backyard homes in CA, which could help ease some of the state’s crunch. But with rising interest rates and inflation cutting into homeowner budgets, it could be a while before they become mainstream.

What else we’re Snackin’

  • Afford: Cosmetics giant EstĂ©e Lauder said it has agreed to buy Tom Ford for $2.3B in the largest luxury deal of the year. While Tom Ford is known for fashion, the deal was driven by its strong beauty and perfume biz (think: Black Orchid).
  • PrimeMed: Amazon debuted a clinic service that offers patients in 32 states virtual treatment for conditions including allergies and acne. As retailers race into healthcare, Amazon agreed to buy One Medical in July.
  • Debt: Lawyers representing collapsed crypto colossus FTX said the exchange could owe 1M people money. Meanwhile, crypto lender BlockFi (once bailed out by FTX) is reportedly considering bankruptcy as the FTX contagion spreads.
  • Vacant: As tech layoffs continue, employers like Meta, Lyft, and Salesforce are shedding office space. Investors are also demanding cost cuts at Google, which added leases during the pandemic.
  • eDollar: We’re a step closer to digi-dollars: last week the NY Fed partnered with Citi, Wells Fargo, HSBC, and Mastercard to test central-bank digital dollars for 12 weeks to see whether they speed up payments.

Snack Fact of the Day

Household debt grew at its fastest pace in 15 years last quarter as credit-card balances ballooned

Wednesday

  • Earnings expected from Nvidia, Cisco Systems, Lowe’s, TJX, Target, and Grab

Authors of this Snacks own: shares of Amazon, Google, Walmart, and Nvidia

ID: 2595911