How to Profit from Food: Read the Labels
Earlier this week, I explained where consumers are buying their groceries nowadays.
Today, I’ll show you exactly what they’re putting into their carts…
And I’ll tell how to play their shopping habits to put money into your pocket.
For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.
How to Profit from Food: Read the Labels
Welcome to Part 2 of our look into the shift taking place in consumer-spending right now. (For Part 1, click here.)
If you recall, food inflation means consumers are avoiding the fancy stores, and favoring the stores that are more budget-friendly.
But what items are shoppers buying the most?
How long will this trend last?
And how can we profit from all this?
That’s what we’ll focus on today.
Typically, This Chart is Boring. But Not Today
To set the stage here, let’s go back in time. Here’s a three-year snapshot of the price of fertilizer:
Typically, this chart is boring. Fertilizer prices rarely move up or down.
But starting late last year, prices jumped. Then they soared. How come?
Fertilizer is made using a process that relies heavily on natural gas. And natural-gas prices skyrocketed this year.
Additionally, Russia invaded Ukraine. And Russia, Ukraine, and Belarus make fifty percent of the world’s fertilizer.
Simply put, there’s a terrible shortage of fertilizer…
And because it’s used to produce much of the food we eat, food prices soared, too.
Take a look…
Your Grocery Bills Went Up
As you can see, food inflation hit nearly twelve percent recently. Sure, it’s come down recently to around ten percent, but make no mistake…
Because fertilizer prices are so high today — and will remain high as long as the war in Ukraine lasts — food prices will remain high, too.
That means consumers will continue to look for ways to stretch their food budgets. (Keep in mind, during a recession, this stretching becomes an even higher priority.)
Of course, any time there’s a shift in consumer spending, certain companies are poised to benefit…
Which Companies Are in Prime Position?
For example, look at food companies like General Mills (NYSE: GIS) and Kraft Heinz (Nasdaq: KHC).
To start, they’re set up nicely because, for the most part, people eat in during recessions rather than dine out.
Furthermore, they’ve expanded their product offerings to focus more on budget-conscious consumers.
Then there’s the shift toward private-labels goods. As it turns out, this is the key to separating the food-industry winners from the losers. Let me explain…
All About Private Labeling
Private labeling is when a company outsources the production of a product, and then sells it under its own name.
For example, Whole Foods sells many private-label products using its “365” brand. And Costco offers products under its Kirkland brand. But Whole Foods and Costco don’t make these products themselves — the products are made by a company like Kraft or ConAgra.
Typically, private-label products are cheaper to produce and have low marketing costs. That’s why they’re lower-priced and thus more affordable for the customer.
And the lower prices is why I believe companies that focus on private-label products will win.
But not every company has gotten the private-label memo.
For example, take a look at hiring activity for Campbell Soup Company (NYSE: CPB).
As you can see, it’s down, down, down. That’s because Campbell’s has taken an “elitist” attitude. It’s convinced that, because it dominates the soup market, it doesn’t need to change course and pivot to private labeling.
But the fact is, more and more private-label soups are appearing on grocery-store shelves, and consumers are buying them. Campbell’s bottom line is going to suffer.
Another brand, Kraft-Heinz, hasn’t fully embraced private-label products, either. And as you can see, its hiring has slowed, too:
The Private-Label Winners
Meanwhile, General Mills has greatly adopted private labeling. And while its hiring isn’t booming, it’s certainly staying steady.
This company isn’t obsessed with selling products exclusively under its General Mills brand. As it knows, as long as consumers are buying what it’s selling, it can keep operations running.
Then there’s a company called TreeHouse Foods (NYSE: THS). This company strictly does private labeling. It doesn’t have its own brand at all.
And guess who its top customer is — Walmart. And if you recall, who’s picking up a lot of grocery business these days? That’s right: Walmart!
Clearly, companies focused on affordable, private-label groceries are in excellent position for success.
And this is where you should be investing right now.
Hungry for profits? Check out my pick for “Pro” subscribers below!
In the meantime, we’re in it to win it. Zatlin out.
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