Supply and demand is always a key factor for commodities be they food, energy, metals or another kind. While oil supply-demand has been the big driver of commodity talk and companies from Kroger (KR) to Sprouts Farmers Market (SFM) are talking food deflation, all may not be well in the candy aisles this Halloween season given the current cocoa crunch. One has to wonder if candy shoppers will shift to non-chocolate varieties or try to once again reformulate their offerings. Good news for other parts of candy portfolios from The Hershey Company (HSY) and Tootsie Roll (TR), but not good for chocolate bars. Was that a collective sigh we just heard from half the US population?
A lack of beans and lower quality has limited grindings in producing countries and caused the price of cocoa butter, which accounts for about 20 percent of the weight of a chocolate bar, to spike ahead of the peak demand period, when chocolate makers are preparing for Halloween and Christmas. The cost of cocoa butter relative to bean futures, the so-called ratio, climbed 24 percent this year, according to KnowledgeCharts, a unit of Commodities Risk Analysis.
Source: Cargill Sees Cocoa Crunch Lasting Until Surplus Crop in 2017 – Bloomberg
Cash-strapped consumers are feeling some extra change in their pockets following continued price declines at “food-at-home” prices over the last several months. Leave it to the government to come up with such a mouthful of a term. This lower cost alternative to eating out helps explain the horrible restaurant traffic and sales results over the last few months. With minimum wage pressures and healthcare costs, it’s hard to see restaurants ranging from McDonald’s (MCD) to any of Darden’s (DRI) restaurant chains cutting actual prices as it would mean sacrificing margins. Talk about a tough pickle!
According to the Bureau of Labor Statistics, food-at-home prices declined by 1.6 percent overall during the month, compared with a 1.3 percent decrease in June — the seventh sequential decline over the last nine months, the Bureau said.
Over the last 12 months, the food-at-home index has decreased by 1.6 percent, with indexes for meats, poultry, fish, and eggs falling 5.6 percent over that span. The dairy and related products index fell 3.1 percent, and the indexes for cereals and bakery products, and for nonalcoholic beverages, also declined. Those figures have increased pressure on restaurant chains at a time when many are facing margin pressure because of higher labor costs.
As the price gap between food at home and food away from home has widened into a gulf this year, restaurant industry same-store sales have taken a hit. Restaurant traffic fell 3.9 percent in July, according to Black Box Intelligence. And restaurant industry same-store sales slowed by nearly 2 percentage points in the second quarter, according to Nation’s Restaurant News research.
Source: Grocery prices drop, widening gap with restaurant prices