Rising Grocery Prices Keep Us Bullish on These Two Holdings
As ground beef prices reach new highs, Hershey is poised to lift candy prices ahead of Halloween and year-end holidays.
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Consumers are poised to feel an even greater pinch associated with higher grocery costs. Grocery prices have been on the rise for most of the past five years due to supply chain bottlenecks, the war in Ukraine, and other factors, including extreme weather.
Ground beef prices across the U.S. continue to reach new highs, as TheStreet Pro's Carley Garner discusses here, driven by shrinking cattle herds, with looming import restrictions threatening to push costs even higher. According to government data released last week, the average price of a pound of 100% ground beef rose to $6.12 last month, up from $5.98 in May and $5.47 in June 2024.
Peering into the Bureau of Labor Statistics’ Producer Price Index for All Foods, we find that the food price index was up 4.7% year over year in June. While there were several categories, such as fresh vegetables, wheat flour, and refined sugar, that were down year over year, producer prices for others more than offset those declines. Coffee (31.8%), eggs (19.5%), unprocessed finfish (14.0%), confectionery materials (12.5%), fresh fruit (11.1%), poultry (9.6%), beef and veal (9.3%), and pork (6.0%) stood above their June 2024 levels.
That 12.5% gain in confectionery materials is poised to lead to higher prices. Hershey HSY said that it will be implementing a roughly double-digit price increase that will come in the form of higher list prices and shrinkflation that will reduce the weight and number of candies in a bag. While some may jump to think “tariffs,” Hershey points out that it is making this move in response to rising ingredient costs, including that for cocoa. Talk about a not-fun trick ahead of Halloween and the year-end holidays.
All of this keeps us bullish on our shares of Costco COST and reaffirms our recent decision to add to the Pro Portfolio’s position in TJX Companies TJX. As we see it, incremental food inflation takes a bit out of disposable income, leading folks to trade down or look for other ways to stretch their remaining spending dollars.
The combination of the above price increases explains why we’re not enamored with the bulk of restaurant stocks these days. We continue to favor shares of Dutch Bros BROS given its west-to-east expansion story that remains intact, and the fact that coffee is less than 10% of its overall cost structure. We could also see a second-half 2025 price increase that could blunt the impact of coffee’s move higher, but that could also translate into a margin expander when coffee prices normalize.
