- Shares of grocers, including Kroger, Albertsons and Costco, rose as energy and airlines stocks plummeted on Monday.
- Brian Yarbrough, a retail analyst for Edward Jones, said some investors are flocking back to tried-and-true pandemic names as they get spooked by rising Covid-19 cases and the return of the mask mandate in Los Angeles.
- The rise of the delta variant of Covid has complicated predictions about when people will return to pre-pandemic levels of dining out.
As U.S. stocks plummeted Monday, investors bet on a familiar category that could grow if Covid-19 cases continue to rise: Grocery stores.
Those stocks were among the rare bright spots on Wall Street, as the Dow Jones Industrial average appears headed for its biggest drop of the year. Several other stay-at-home stocks, including Clorox and Peloton, were also in the green.
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Grocers have been some of the biggest pandemic beneficiaries over the past year, as restaurants temporarily shut and shoppers stocked up on pantry staples and cooked at home.
The retailers face tough comparisons in the coming quarters, as they go up against unusually high sales growth numbers. Investors and companies have been trying to figure out when — and to what extent — consumers will return to their dining out habits, as more people are fully vaccinated and restrictions ease. In recent weeks, however, the rise of the delta variant of Covid-19 — particularly in parts of the country with low vaccination rates — has complicated those predictions.
Brian Yarbrough, a retail analyst for Edward Jones, said investors are getting spooked by news of the delta variant and the rollback of the reopening in some parts of the country — such as the return of indoor mask mandates in Los Angeles. He said that is causing some to flock back to tried-and-true pandemic names.
"You have seen a flight to more safety," he said. "If this plays out and Covid starts to rear it's head again and things start to shut down, you'd see grocery benefit from that."
Michael Baker, a retail analyst for D.A. Davidson, said grocers' pop on the market is "the reverse of what you're seeing with airline stocks." As of midday Monday, airlines and cruises were among the hardest hit sectors as investors worried travel trends may slow or reverse.
Grocery sales are still above pre-pandemic levels, according to data from IRI, which tracks sales patterns across supermarkets, big-box retailers and convenience stores. Total demand for consumer packaged goods was about the same as year-ago levels for the week ending July 4, though sales of perishables and total non-edible items fell slightly.
Baker said some people have formed new habits over the past year, as they cooked more. Plus, he said a shortage of labor has dinged the customer service at some restaurants, giving customers another reason to eat at home instead.
"The American public maybe learned eating at home is nice," he said. "You spend a lot of time at home with your family and it's more economical."
He said recent data backs up the stickiness of food at home patterns, too. Receipts at food and beverage stores rose by 0.6% in June versus the prior month, according to data from the Commerce Department. On the other hand, restaurant dining is still down 8% in July compared with a year ago, based on OpenTable reservations that track seated diners from online, phone and walk-in reservations.
Yarbrough chalked that up to Walmart selling general merchandise and discretionary items, rather than being a pure-play grocer. And, he said, investors may anticipate retailers that fare better during the delta variant's spread could look different as the government takes different measures. Instead of shutting down non-essential retailers, for instance, local officials may bring back mask mandates and consumers may decide on their own to skip or reduce outings to restaurants. That would mean less dramatic sales gains for home improvement retailers, which were able to stay open during lockdowns as essential retailers, he said.
Yarbrough said he remains convinced that dining out will return at the expense of grocery sales. Yet he said that may take longer to play out — and could be interrupted by spikes in Covid cases.
"With the delta variant being out there, that may cause some scare among people to say 'You know what, I'm going to start staying at home. We started going back out to dinner, but we're going to start eating at home for awhile until this passes,'" he said.