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If you thought food stocks were safe bets during cost of living crises…think again!
Nick Sundich, May 30, 2023
As inflation rises, investors are looking for companies that’ll be immune from falls in consumer demand and you’d be forgiven for thinking food stocks were up there. But you might be wrong, at least in respect to some of them.
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People won’t pay a premium
Yes people need food. But they are keen for a bargain. Recent research from the Australia Bureau of Statistics found that even a 1% increase in certain food prices can lead to a 4-7% fall in demand, dependant on the good. Conversely, in the study’s own words,’ when a price is discounted, expenditure increases by many, many factors from its typical level’.
And some food stocks may suffer
Maggie Beer (ASX:MBH) is one of those food stocks that expects its consumers to pay a premium. This company unveiled a trading update in which it revealed revenues and earnings would decline due to macroeconomic factors (read: cost of living) as well as higher costs. Indeed, it admitted that sales on Mother’s Day (typically a busy period) were disappointing.
It is anticipating $70-$75m group revenue compared to $75.2m in FY22. And EBITDA would be $3.5-$4.5m compared to $11.3m the year before. Ouch. The share declined more than 3% on the news.
But not all food stocks will suffer
It was a rosier picture for Pure Foods Tasmania (ASX:PFT). It sells premium food, but a frozen range that is stocked in Woolworths and Coles.
Without being specific, it told shareholders sales were growing weekly and that the Daly Potato Co. range would be in 800 stores by 1Q FY24. As a result, it anticipated 50% higher revenues in FY24 compared to FY23. The shares jumped 20% on the back of this news!
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