Title: Track those grocery stocks

Sub-title: Industry professionals can benefit big time from tracking the stocks of major sector players


Like many other Canadians, grocery industry professionals, have been increasingly throwing their RRSP, mutual fund and other retirement account statements into the junk pile unopened. Canadian stocks are in the midst of a terrible bear market and being reminded of how much poorer they have become fills investors with dread.


For example by late October, the S&P/TSX composite index, --which is the benchmark that investors use for the Canadian market,-- was down by close to 40 percent from its peak levels earlier this year. During the previous two months alone, the index had fallen by than 30 percent. Losses of that kind are a terrible burden for anyone to bear.


But one group of investors did considerably better than the pack – those that hold mostly grocery sector stocks. During that period, the price of Loblaws shares only fell by about 9.0 percent and the price of Metro and Empire (owners of Sobeys) shares hardly budged.


The reason for this superior performance is that food stocks are defensive in nature, which means that during times of turmoil, investors often turn to them as a safe haven. People will always have to eat. But many of their other expenses are far more discretionary in nature.


More than just a safe haven

While grocery retailers’ status as a safer refuge for investments is reason enough to track the performance of their stocks, there are many others, particularly for industry stakeholders. Many grocery employees for example who work at store level or in distributions centers, are by definition cut off somewhat from the goings on at head office.


By monitoring the performance of their company’s share price, reading the earnings releases they put out and listening in on the quarterly conference calls that senior executives hold with industry analysts, branch employees can access to a lot of information that could otherwise slip by them.


The stakes are even larger for those in management who do not work at head office. Managers by definition are expected to know what is going on in the businesses they work for such as which products are hot what the latest trends are. These managers also have a strong personal interest in knowing how the company is doing: many of them own shares or stock options.


Another group with a strong interest in following the investment performance of publicly-traded grocery retailers is industry suppliers. Unlike (for example) insurance salesmen, who have many customers, each of which gives them a little bit of business, grocery industry suppliers sell in a concentrated industry made up of a few key players that account for a vast majority of purchases. With the stakes so high, it pays suppliers to know everything they can about these key customers.


Following international stocks

Not only does it make sense for industry stakeholders to track the share performance of Canadian grocery retailers, following international stocks can also pay off big time. That’s because in today’s increasingly smaller world, developments that unfold in one place eventually spill over elsewhere.


For example French grocery retailer Carrefour has been making significant efforts to get a foothold in the Chinese food retail industry. What difference does that make? Well, food retailing here is mostly a locally owned and run industry. The three major retailers: Loblaws, Metro and Sobeys are all run by Canadians. This has been the case for so long that is easy to forget that that there is no reason to think that things will continue this way forever.


For example Loblaws executives are busting their heads wondering what to do with the company’s notoriously underperforming Quebec division. However if Loblaws executives were following Carrefour’s progress in China, they just think about giving the French giant a call to see if they would be interested in also taking on some stores in Quebec, a market where most consumers speak French and whose customers are heavily influenced by French tastes in food.


After the recent market debacle, many investors will be shying away from stocks of all kings. But for grocery industry stakeholders: employees, managers, suppliers and shareholders, there is a lot to be gained from monitoring their performance.


Peter Diekmeyer (peter@peterdiekmeyer.com) is Canadian Grocer’s Quebec correspondent.




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