Shop Talk
Retailers, consumers and prices
Check Out Line: Consumers beware! Rising prices even at Wal-Mart
Check out rising prices even at Wal-Mart.
Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries. Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods. Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009. While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan. Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.
Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.
However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales despite increased discounting. Also in the basket:
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Check Out Line: Frugality — Part Two?
Check out the apparent return of the frugalista.
Worries about stubbornly high U.S. unemployment and a tempermental economic recovery has shoppers reeling in spending on all but the essentials.
The 28 retailers tracked by Thomson Reuters reported an overall 2.9 percent rise in July sales at stores open at least one year, missing Wall Street forecasts of 3.1 percent. Seventeen of those retailers reported lower-than-expected sales, while nine — including Macy’s and Kohl’s — beat estimates.
“We are now in an environment where the dollars in consumers’ pockets are fewer, so the competition for those dollars has increased,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.
U.S. consumer sentiment hit its lowest level in nine months in July on bleak prospects for jobs and income, according to Thomson Reuters/University of Michigan’s Surveys of Consumers. On Thursday, the government reported that new U.S. claims for unemployment benefits unexpectedly rose in the latest week.
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Panera’s pick-what-you-pay cafe holds its own
Panera Bread’s hometown experiment in altruism appears to be working.
About eight weeks after opening Panera Cares — a nonprofit restaurant that invites customers to take what they need and pay what they can — executives say it appears to be on-track to covering its costs and becoming self-sufficient.
“It’s a fascinating test of humanity,” Panera Executive Chairman Ron Shaich told Reuters.
“On average, we’re coming in around 85 percent of the average retail price,” said Shaich, whom Panera Bread’s CEO has dubbed the “guiding light” of Panera Cares.
St. Louis-based Panera Bread provides the space to house the experimental cafe, which is run by a nonprofit group that grapples with the same labor and food costs as any other restaurant.
Shaich hopes to open two more Panera Cares cafes before the year end, likely in other Midwestern cities or potentially in the Pacific Northwest.
During his two-week stint at the first Panera Cares cafe in Clayton, Missouri, Shaich said he saw a wide range of behavior from diners — who are given a receipt with the retail value of their food and the option to leave a donation.
Check Out Line: Have a Coke and a confused looking grin
Check out the confused American consumer.
Coca-Cola Co actually saw sales volume rise in North America in the second quarter, a rare feat.
Now imagine what would happen if U.S. consumers could actually figure out if they can afford to keep spending the money on a soda, what with high unemployment and the jittery stock market.
The world’s biggest soft-drink company says it has the brands to grow in North America, the ability to spend to support those brands and other factors.
But one quarter of growth is not enough to make the folks in Atlanta jump for joy.
“The consumer is still confused in the United States,” CEO Muhtar Kent said during a conference call with analysts.
“There’s still confusion out there in terms of the consumer spend levels, but we are moving on the right path. That’s the key message here,” he said.
Check Out Line: Earnings to quench investors’ thirst
Check out the latest quarterly earnings for signs of a recovery.
Whirlpool and PepsiCo both reported better-than-expected quarterly profits and pointed to improving trends, lending hope to optimists that the economy is slowly improving.
While citing continuing macroeconomic challenges, PepsiCo, which makes Tropicana juice, Frito-Lay snacks and Quaker Oats in addition to its namesake cola, posted stronger-than-expected results and affirmed its earnings per share growth target for the fiscal year.
“We are benefiting from both the acquisition of our anchor bottlers earlier this year and from improving trends across our global business. As planned, we have stepped up incremental investments around the world to capitalize on untapped consumer demand,” Chief Financial Officer Hugh Johnston said in a statement.
Meanwhile, Whirlpool beat profit and sales estimates on strong demand in Asia and Latin America, prompting the world’s largest appliance maker to raise its outlook for the year.
Nevertheless, pessimists have their data points. Unemployment continues to weigh on consumers and U.S. homebuilder confidence fell to a 15-month low in July. Whirlpool rival Electrolux also missed earnings forecasts, sending shares in the Swedish company sliding on fears that recent growth trends have topped out.
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Check Out Line: Summer job search advice for teens
Check out tough times for job-seeking teens.
Outplacement firm Challenger, Gray & Christmas said teens looking for a summer job will need to dedicate themselves full-time to the search, meaning getting a full-time job will be a full-time job. While many employers have filled summer positions, some may need more than expected while others delayed hiring until summer business conditions became clearer, Challenger CEO John Challenger said.
“The point is, you never know if or when a job opening is going to materialize, so you want to keep pushing,” he said in a statement.
Earlier this spring, the Challenger firm predicted an improved summer hiring outlook for teens compared with last year, when employment among 16- to 19-year-olds grew by less than 1.2 million jobs from May through July.
“It is unlikely that summer employment gains among teens will reach pre-recession levels, but we should definitely see increased hiring compared to 2008 and 2009, which experienced the weakest summer teen job growth since the 1950s,” Challenger said.
The Challenger firm said federal data showed that summer employment among teens last year grew by 1.16 million, slightly better than the 1.15 million added in 2008 between May and July, the fewest since 1954. In 1999, at the height of the dot.com job boom, summer employment for teens grew by almost 2.02 million.
Making matters worse for teens, they are competing with recent college graduates and job seekers who have two or more years of on-the-job experience and are willing to take almost any job to get a steady paycheck, Challenger said.
As downturn takes toll, food bank volunteers become clients
The longest recession since the Great Depression has taken an exacting toll on Americans and their ability to put food on the table. Families who once considered themselves solidly middle class are now signing up for food stamps or turning to food banks to feed themselves in the face of lost jobs or cut wages.
“These are our neighbors, our friends, the people we go to church with,” said Margaret McKenna, president of the Walmart Foundation, of the number of Americans who are going hungry. “This is not like this is the other, people we don’t know. These are people we do know.”
Food stamp enrollment has reached record numbers, while a survey by Feeding America, the nation’s largest domestic hunger relief organization, found that 99 percent of participating food banks reported a surge in demand for emergency food assistance in the past year. Ninety-eight percent of food banks said that demand is being driven by first time users.
Jean Osborn, 61, who lives in Bluffton, Indiana with her 76-year-old husband, knows what it means to lose her footing in this economy. Osborn can no longer work due to health issues and her husband supports them with a factory job that pays $33,000 a year — an income level that means the couple does not qualify for many government benefits.
So Osborn, who used to volunteer at food banks to help the needy, now relies on them to feed herself and her husband. She tries to extend the hand-outs of bread, peanut butter or meat as long as possible.
“If you’re creative, you can make chili and live on it for three days,” she said.
But between paying a $540 mortgage, medical bills and living expenses, Osborn said she can still barely make ends meet.
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Check Out Line: Jobs still hard to come by
Check out the rise in the number of U.S. workers filing new claims for jobless benefits.
Hurt by layoffs in seasonal industries, the initial claims for state unemployment insurance rose 17,000 to a seasonally adjusted 474,000 in the week ended Dec. 5 from 457,000 in the prior week, the Labor Department said.
Analysts polled by Reuters had forecast claims climbing but only to 460,000.
The data that came in after five straight weeks of declining claims suggest that many casualties of the worst financial crisis since the Great Depression are still having a difficult time finding jobs.
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Check Out Line: Upset tummies in the food sector?
Check out sluggish results in the U.S. food sector.
Fast food giant McDonald’s and Kroger, the largest U.S. grocery chain, saw shares decline 2.5 percent and 10 percent, respectively, after reporting weak results.
McDonald’s said same-store sales at its U.S. restaurants slipped 0.6 percent in November, marking the second straight monthly decline. Following Yum Brands’ recent weaker-than-expected sales, it was the latest sign that the fast-food sector that had performed well through most of the recession was weakening.
Rising unemployment has begun to take a noticeable bite out of sales, particularly at breakfast — where McDonald’s leads the industry.
Kroger reported a much lower-than-expected quarterly profit and cut its full-year forecast as it feels pressure from falling food prices and stepped up competition.
Not everything was dark at the dinner table.
Chicken producer Sanderson Farms posted a quarterly profit compared with a year-ago loss as it benefited from higher poultry prices and lower feed costs. To wash that news down, alcoholic beverage maker Brown-Forman posted a higher quarterly profit and raised its outlook for the current fiscal year.
Check Out Line: Which way is up with the U.S. economy?
Check out the mixed messages about the U.S. economy from the various consumer earnings.
Like any other earning day nowadays, it’s pick your poison on whether you want to focus on the good news or the bad news when it comes to whether the economy is improving.
Watchmaker Fossil reported a stronger-than-expected third-quarter profit and raised its profit forecast for the fourth quarter, sending shares up. And clothing retailer American Apparel also posted a profit above analysts’ expectations and said it saw signs of momentum in sales.
Meanwhile, InterContinental Hotels, the world’s biggest hotelier, said it was too early to forecast a recovery as room rates continued to fall due to cutbacks by business travelers. The group, whose brands include InterContinental, Crowne Plaza and Holiday Inn, and which earns 70 percent of its profit in the United States, said occupancy is stabilizing but room rates are under pressure across the board.
For what it’s worth, top forecasters are growing more confident the U.S. economy has embarked on a sustainable recovery, according to a survey. However, a report last week showed the jobless rate jumped to a 26-1/2 year high of 10.2 percent in October.
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