Robust food-at-home spending and increased inflation stand to fuel elevated sales at traditional supermarkets through 2022 as the nation works to free itself from the COVID-19 pandemic, Scott Mushkin, founder and CEO of R5 Capital, said in the 2021 Supermarket News Financial Analysts Roundtable.
“If you think about Wall Street, we’ve all been kind of wedded to the idea that the traditional supermarket business is failing, that it’s on decline. And that’s the way it's been for almost 20 years,” Mushkin said in a video interview following the roundtable. “What’s interesting now is if you look at the big three companies — Ahold [Delhaize], Albertsons and Kroger — we have a very different view than three or four years ago. We believe they’re exiting the pandemic in much better shape than they went into it.”
What has Mushkin and his team at R5 Capital more positive on the grocery sector are continued strong numbers in U.S. food-at-home spending and a recent surge in inflation, hoisting food retail sales. In the most recent data after the roundtable, the Consumer Price Index rose 6.2% year over year in October, with overall food pricing up 5.3% and food-at-home prices up by the same percentage.
“There are so many different ways you can run it from a 30,000-foot level and say, ‘OK, what are we going to get for food-at-home spending in 2022?’ In almost every number that I can come up with, it’s somewhere between $900 billion — and I think that’s low — and over a $1 trillion,” Mushkin explained. “Then if you look the market share of Albertsons, Kroger or Ahold, what starts to come through is that people were too bearish on this industry. There’s going to be more revenue than a lot of people believe, even once we ‘exit the pandemic.’ So from a macro perspective, as we think about 2022 and 2023, inflation kind of changes the discussion when you’re compounding at 4% or 5%. And, by the way, there are probably extra food-at-home meals. So we’ve got a population that grows about 50 basis points when we exit the pandemic, or learn to deal with it. And as we deal with COVID, we’re likely to have more meal-at-home occasions, plus get the inflation rate built in. So I think people have to rejigger their idea about the traditional supermarket space. Certainly we have, a lot.”
For more of Mushkin’s insights on where the food retail industry is headed in 2022, please watch video above.