For Immediate Release
Chicago, IL - January 26, 2017 - Today, Zacks Equity Research discusses the Consumer Staples, part 3, including Kroger Co. (NYSE: KR - Free Report ), Whole Foods Market, Inc. (NASDAQ: WFM - Free Report ), SuperValu, Inc. (NYSE: SVU - Free Report ), Sprouts Farmers Market (NASDAQ: SFM - Free Report ) and United Natural Foods, Inc. (NASDAQ: UNFI - Free Report ).
Industry: Consumer Staples, part 3
The consumer staples sector doesn't seem to be the perfect choice for investors right now as it is often viewed as more attractive when economic growth is sluggish. Further, if growth picks up too quickly in 2017, the Fed will have to become more aggressive with the pace of interest rate hikes. Higher U.S. interest rates will likely lead to a stronger U.S. dollar, which would pressure overseas profits and create a headwind for emerging market economies.
In fact, there are some disruptive trends that will likely continue in 2017 and beyond, which may influence investors' approaches. Last month, Organization of Petroleum Exporting Countries (or OPEC) decided to cut oil production in order to put a floor to the falling oil prices . The surge in oil prices in the coming months might significantly increase the commodity prices of staples stocks, thus increasing margin pressure. Headwinds like unfavorable currency, food deflation, potential price wars, a competitive environment and slowdown in international markets are also hindering growth.
Hence, investors should carefully select stocks for their portfolio as certain headwinds are likely to prevail in the coming months.
Food Deflation and Price Wars
The grocery/supermarket business is grappling with food deflation, stiff competition, aggressive promotional environment, and waning store traffic. These headwinds have severely impacted major food grocers like The Kroger Co. (NYSE: KR - Free Report ), Whole Foods Market, Inc. (NASDAQ: WFM - Free Report ), SuperValu, Inc. (NYSE: SVU - Free Report ), Sprouts Farmers Market (NASDAQ: SFM - Free Report ) and United Natural Foods, Inc. (NASDAQ: UNFI - Free Report ).
An oversupply in some types of food - particularly meat, poultry and dairy - has dragged prices lower and forced grocery stores into more aggressive promotions. Cheaper groceries have also hurt the restaurant business, with more people opting to save money and eat at home.
Oversupply of beef, glut in poultry and egg, and a stronger dollar along with general weaker demand for dairy in Asia led to a resultant drop in commodity prices.
Analysts believe the price wars between companies will erode profits, leading to declining margins in the near term.
Slowdown in Emerging Markets
The majority of the global population lives in emerging economies. Due to a slowdown in income and consumption growth, affordability is low. Though there remains huge opportunity for sales growth in these markets, currently the state of affairs remains volatile. Apart from China, which is struggling since the past few quarters, developing countries like Brazil and Mexico are facing economic slowdown. The Middle East, Russia and Ukraine are witnessing continued political and civil unrest resulting in challenging operating conditions. Some developed markets are also facing weakness due to sluggish consumer demand.
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