Date de l'article 2020-11-19

October Grocery CPI Ticked Slightly Higher to 2.3% Due to Vegetable Inflation

Source BMO Capital Markets

Peter Sklar, CPA, CA  Retailing/Consumer
(416) 359-5188

Bottom Line:

October StatsCan grocery CPI inflation of +2.3% was slightly higher than inflation in August (+1.6%) and September (+1.3%) (see p.2), primarily due to a sudden jump in inflation in fresh vegetables. Competitive intensity remains high as indicated by the lack of inflation in the "centre-of-aisle" categories. However, with the second wave of COVID-19 prompting renewed lockdowns, consumer mobility could again be depressed and provide the grocers some relief from competitive pressure.

Key Points

We continue to note that inflation for "centre-of-aisle" categories continue to be low in October (see p.2). Bakery and Cereal inflation continues to be low at only +0.4% in October, down from inflation of +4.1% earlier in the year in April. Prices of "other food products and non-alcoholic beverages" category, which encompasses the majority of CPG items, was essentially flat at +0.1% in October (prices have been flat since August), compared with inflation of +2.5% in April. "Centre-of-aisle" inflation/deflation is a good measure of competitive intensity as CPG items are ubiquitous and grocers compete fiercely in this department in order to drive traffic. Recent months' low inflation in these CPG categories is in line with recent commentary from Loblaw, which cited high competitive intensity, especially in the discount banners, in which Loblaw had to invest in price in Q3/20.

In October, Fresh Vegetables had a sudden jump in inflation to 9.5% in October, versus inflation of less than 5% in the last 10 months. Statistics Canada partially attributed the high inflation to lettuce, which had reduced supply as a result of disease and inclement weather in growing regions.

Other categories contributing to a slightly higher inflation in October were Fresh Fruits (+4.6%), Pork (+3.4%), and Poultry (+3.2%).

Based on our flyer observations, competitive intensity appears to continue. However, a second wave of COVID-19 and resulting tightened public health restrictions such as renewed lockdowns could potentially provide some relief from competitive intensity. We are expecting grocery price inflation in November to be similar to that experienced in October.

We believe the grocers will continue to generate strong topline growth through the pandemic.

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