KANSAS CITY — Supermarket retailers worried more about stocking shelves than falling stock prices amid increasing concern over the coronavirus (COVID-19) outbreak. Other changes came in the form of hiring more workers, bumping up pay and changing hours of operation to provide more time to clean stores and restock shelves.
The Dow Jones Industrial Average closed down more than 6% at 19,898.92 on March 18, but the same day stock prices rose for Walmart Corp., the Kroger Co. and Amazon, which owns Whole Foods Market, as people sought essentials like toilet paper and canned goods.
Demand for supermarket items might be short-lived, however, according to a report issued March 16 by Barclays. Food retailers will benefit near term from stockpiling, and excess demand will lead to food inflation, according to the report. Once the demand surge abates, Barclays expects to see meaningful food deflation, meaning excess supply and declining demand.
“While grocers are considered safe for now, this could prove very short-lived, meaning the grocery sector is benefiting on the front end of this cycle but will be meaningfully challenged on the back end,” the report said.
Barclays said it is not inclined to make wholesale ratings changes at this time because it believes and hopes changes in behavior related to COVID-19 are transitory.
Barclays gave a scenario of three months of school closures and the restriction of public activities and travel due to the COVID-19 outbreak. If this scenario happens, a shift between $61 billion to $118 billion in sales could move to food at home from food away from home, which would represent an increase of 32% to 62% to food at home. Suppliers will increase production, but when the situation normalizes, food deflation could occur.
“When this lifts, cabin fever will kick in; excess supply could quickly lead to deflation for the grocery store,” the report said.
The S&P 500 on March 18 closed at 2,398.10, down 5% for the day and down 28% from a close of 3,337.75 on Feb. 21, when the COVID-19 outbreak began to affect many stock prices negatively.
The stock price for Amazon on the Nasdaq closed at $1,830.00 per share on March 18, which was up 1.2% for the day but down 13% from $2,095.97 per share on Feb. 21.
Seattle-based Amazon on March 16 said it planned to create 100,000 new full-time and part-time positions across the United States in fulfillment centers and delivery networks to meet the surge in demand. In addition, the company is increasing its pay to workers through the end of April. US workers will receive an additional $2 per hour from the current rate of $15 per hour or more, depending on the region. Other hourly pay increases are C$2 in Canada, £2 per hour in the United Kingdom and about €2 per hour in many European Union countries. The pay increases represent an investment of over $350 million in increased compensation.
The Amazon pay increases apply to Whole Foods Market, Austin, Texas, which on March 16 announced several changes in its stores due to the COVID-19 outbreak. The changes at stores in the United States, Canada and the United Kingdom include temporary closure of hot bars, salad bars, soup bars and self-serve pizza; the closing of seated restaurant venues and taprooms for in-store dining as only takeout will be offered; and making indoor and outdoor cafe seating temporarily unavailable.
Whole Foods Market stores in the United States and Canada on March 18 began allowing people age 60 and older to shop for one hour before opening for the general public. Starting on March 19, all Whole Foods Market stores in the United Kingdom were to allow customers who are 70 and older to shop one hour before opening to the general public. The action was designed to help people who have been identified by national health authorities as among the among the most vulnerable to COVID-19.
The stock price for the Kroger Co., Cincinnati, on the New York Stock Exchange closed at $36.23 per share on March 18, up 10% for the day and up 20% from the Feb. 21 close of $30.31 per share.
The stock price for Walmart Corp., Bentonville, Ark., on the Nasdaq closed at $122.58 per share on March 18, which was up 2.8% for the day and up 3.4% from a close of $118.58 on Feb. 21. Walmart stores and Neighborhood Markets beginning March 15 were open from 6 a.m. to 11 p.m. until further notice. The hours will allow workers to stock products and clean and sanitize stores.
The stock price of Sprouts Farmers Market, Inc., Phoenix, closed at $17.69 per share on March 18, which was down 7% for the day and down 1.7% from a close of $17.99 per share on Feb. 21.
COVID-19 has parallels to 9/11 and the recession of 2008-09, according to the Barclays report. The average share price of food companies, although down 8% overall from Jan. 21 to March 13 this year, was up 10% from the S&P 500, which was down 18% over that time.
After 9/11, food average was up 2.2% from Sept. 17, 2001, to Sept. 30, 2002, and the performance was 24% better than the S&P 500, which was down 21%. During the recession of 2008-09, food average was down 9% from Sept. 29, 2008, to March 31, 2009, but it did 20% better than the S&P 500, which was down 28%. The difference leveled off in the period of Sept. 29, 2008, to Dec. 31, 2009. The food average was up 4.9% in the period and up 4.1% from the S&P 500, which was up 0.8%.
“As we look to post-9/11 and ‘08/’09 as a guide, we are certainly seeing the same nesting/staples stockpiling (both perishables and non-perishables) elements today that we saw after the 9/11 attacks, perhaps in even more pronounced fashion given the quarantining many are preparing for/undertaking,” the Barclays report said.