The threat of US stagflation has investors treating supermarkets and other consumer staples companies like the high-flying tech stocks of yesteryear. The shares have trounced their consumer discretionary peers by the widest margin in two decades, and the outperformance probably has room to continue.
In a recession, staples usually retrench eventually, just not as much as other sectors. But most doomsayers think a US recession — if one comes — is more likely to occur in 2023 or 2024. Staples powered through roughly the first half of the Great Recession before fading eventually. This has not shown up much in first-quarter earnings, though Unilever, whose brands include Dove soap and Ben & Jerry’s ice-cream, did see a fall in the amount of goods. But private-label sales are starting to gain traction, according to data provider IRI. If this trend gathers momentum, it could eventually cut the sales volume of Nestlé’s Nespresso coffee capsules or P&G’s Pampers nappies.
Dollar General and Dollar Tree not only carry inexpensive wares, but their pricing schemes aid consumers on a budget. They also look a lot more like supermarkets these days than simply cheap retailers, with a broad line of food. The digital couponing trend on TikTok — essentially influencers showing consumers how to combine coupons for big savings — is also driving free advertising.
The biggest danger to investors therefore lies not in the bargain basement but the squeezed middle. Some signs of this are already playing out.
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