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VIDEO: How much more pressure can the consumer stand?

Supermarket News sat down with Keith Daniels, managing partner, Carl Marks Advisors

Supermarket News sat down with several analysts to look at forward-facing food and retail trends. In a video interview with Keith Daniels, managing partner, Carl Marks Advisors, Daniels talks about the outlook for inflation, and for consumers’ ability (and tolerance) to keep spending, spending, spending. 

Take a watch or read a transcribed excerpt below.

SUPERMARKET NEWS: What do you see as some of the key trends impacting food retailing in 2024?

KEITH DANIELS: I think some of it will be a continuation of what we’ve seen in ’23. For example, there was a significant pause during the pandemic in things like merger-and-acquisition activity and transactions being done. We had seen, in the last decade, a lot of moves in that direction, and I think we’ve seen activity pick up both within retailers and on the food side of things. And as these companies look for the ability to take share, and reduce infrastructure costs, I think we’re going to continue to see that activity, particularly as revenues are starting to decline, companies are looking for opportunities for additional revenue growth.

SN: What is your outlook for inflation, and for consumers’ ability to keep spending as they have been?

KD: Well, the one good thing for food is that people need it. So, within the food category I think we’ll see the consumer continue to spend there. But as there’s pressures on pricing within food or fuel, that’s going to continue to put pressure on the pocketbook. We’re seeing a lot of talk lately about the pressure on the consumer, and student loan debt now having to be paid back. Consumer debt is at an all-time high. The consumer has really depleted those savings that they had built up during the pandemic, and I think there’s going to be softness going forward. So, we’re going to see some slowdown in growth, and I think that’s going to be an opportunity for value players to step in and have some nice growth going forward.

Inflation has leveled off, but still, compared to two or three years ago, we have much higher food prices. So, I think maybe as the economy slows down a little bit, you’ll start to see less demand for those goods, and hopefully you’ll start to see some price deflation going on. But it’s going to be slow, I think, as we move into ’24.

SN: How might the growth of the value players impact traditional food retailers?

KD: We have seen in the last five to eight years the expansion of the Aldis and Lidls in the U.S. Lidl had just come into the market I think in 2017, really trying to grab share. They’ve had some stumbles along the way, but I think they’re going to figure it out, and they’re going to look for more growth going forward. I think this economy provides opportunities for a retailer like that for growth. Aldi continues to expand its store counts, and its base, and they’re going to be able to benefit from this as well.

You have Dollar Generals in the more rural markets, and they’re getting more into food, and the largest food retailer of all, Walmart, which has become a dominant player, continuing to grow in that space. They do continue to add value, and as the consumer is going to be pinched, they’re going to be looking for value opportunities, and Walmart traditionally has been able to provide that.

So, there’s going to be more pressure I think going forward on retailers, particularly regional players that don’t have that size, and their ability to offer best pricing and value. I think where they’ll be able to help differentiate themselves to be successful is trying to figure out niches where they can really add a different sort of experience. So, you’ll see more investments, I think in indoor dining, in the cafés — that type of experience, and trying to be more efficient through checkouts, making some of those investments, as well as focusing on where the consumer is demanding things. [That includes] ethnic food offerings, plant-based foods, which I think Whole Foods is expecting to be a really big growth area for them this upcoming year. Being able to address those changing consumer needs — focusing on proteins, etc. — those are going to be big opportunities to combat that lower-end play.

SN: Any thoughts about what impact the Kroger, Albertsons merger might have?

KD: I would expect that it will go through. They’ve been working through a number of the issues, and [planning to] sell off stores to C&S Wholesale to give them the opportunity to get this deal executed at some point in the first half of ’24. They were already two large grocery chains, but this is going to give them more scale to take more market share and enable them to reduce additional back-office costs, and make them a much bigger player as they’re negotiating with vendors and trying to get price concessions and things. I think to compete with that, you’re going to see more pressure on the regional players.

You’ve got some very strong players out there — Publix and Wegmans, for example — that have carved out nice niches and loyalty among their consumers, but some of the other regional players are going to continue to be under pressure as these bigger grocery chains continue to grow and consolidate.

The other thing you will see as a result of that is the food vendors consolidating. You’ve seen a couple this year, even recently with Campbell buying Rao’s, for example, and Smucker’s buying Hostess. I think you’re going to continue to see that, because that gives them additional opportunities for revenue, but also helps with their cost structure and their scale. And again, when they’re negotiating pricing, etc., with their retailers, having more scale gives them a lot more strength at that table. So, I think you will continue to see the merger activity continue here, and transactions in general. Even recently, you had FreshDirect announce it was being sold by Ahold Delhaize. The activity is going to continue, and we’ll just have to wait and see who’s participating.

Check out our full series of forward-looking analyst videos here

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