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Gas, Grocers, and Grim Realities

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May 09, 2011 – Comments (4) | RELATED TICKERS: WFM , WMT

All this shocking price inflation is going to make it an interesting climate to invest in, I think. By "interesting" I suppose I mean precarious. Today on Fool.com I mulled gas, grocers, and grim realities. I'm pretty sure most of us have noticed that things can get a little stressful in the checkout line these days. A few of the facts I ran across today: we're paying 17.9% more for butter, 23.7% more for tomatoes, 10% more for ice cream (I know, say it isn't so) than we were a year ago, so the sticker shock is very real. Add in the high price of gas and it's even more difficult for many average consumers these days.

These elements make it a bad time to invest in grocers, as far as I'm concerned, but some of you probably guessed that I still like Whole Foods, even in this climate; rationale is in the article. Maybe it's a bit of a contrarian call, but I actually think Whole Foods is safer than Wal-Mart right now. Its clientele are more resilient; Wal-Mart's core customers are struggling with these factors, big time. 

4 Comments – Post Your Own

#1) On May 09, 2011 at 7:11 PM, buffalonate (94.83) wrote:

Inflation fears are highly exaggerated.  The USDA says food inflation is going up for certain items but if you look at it from the big picture it will only go up 3% this year.  The Walmart CEO says their company believes inflation is only at 5% and they are a huge part of our economy so they should know better than you.  Food inflation is not a big deal because if you follow behavioral economics you would know that if prices spike people will shift to store brands and instantly save 20% or they will just cut back on the things they buy whose prices have spiked the most. 

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#2) On May 09, 2011 at 8:49 PM, rd80 (97.08) wrote:

I don't know how or if it factors in to inflation numbers, but one thing I've noticed is fewer discounts at the supermarket. 

One anectdotal example - Progresso soups - I like soup and used to see it go on special at 10 for $10 fairly regularly.  The tagged price hasn't gone up, but it doesn' t go on sale very often and when it does the discount isn't as much.

Whole Food's PE is too steep for this value guy.  I don't follow grocery stores much, but if I was going to own one, I'd lean towards Harris Teeter parent Ruddick (RDK).   Besides having that rd thing going in the ticker, it's a much more reasonable valuation than WFM and still has pretty good growth predictions.

If gas and other prices outstrip wage growth, those resilient Whole Foods customers may well hang in there, but a lot of people are going to have to cut back and they're going to look to Walmart to stretch their dollars.

 

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#3) On May 09, 2011 at 9:56 PM, sajahmeoli (69.80) wrote:

Food inflation is most assuredly upon us. I'm sorry, but shifting to store brands to save 20% does not work when one has been buying store brands for years. I know this is an anecdote, but I have been tracking my family's grocery purchases for more than 10 years and have never seen price increases (inflation) at the percentages I'm seeing now.

Part of the problem is simple: a 200lb pallet of store brand cereal costs just as much to ship as the same weight of name brand cereal. Transportation costs are being factored into the price of products across the board. Unless and until diesel prices go down, I do not think we will see a substantial drop in food prices.

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#4) On May 09, 2011 at 10:19 PM, buffalonate (94.83) wrote:

Given that we are the fattest country in the world higher food prices are a good thing as far as I am concerned.  I think the majority of Americans could go months without eating and not have to worry about starving to death. 

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