Discover more from The Slotting Fee
Albertsons' management is probably wrong about protein inflation
In a recent investor call, Albertsons predicted that COVID-19 related shocks would generate manageable inflation in the upcoming months. “We expect the inflation to be higher as we go through the year, but we expect it still to be in the 3% to 5% range.” CEO Vivek Sankaran said. “Which, in our opinion, is extremely manageable.”
Like most COVID-19 related inflation, the shocks aren’t uniform across categories. For the overall US economy, it is estimated that used-vehicle prices have accounted for about one-third of the overall spike in cost of living. For Albertsons, management believes that spike is can be mostly attributed to rising protein costs. “You’ll see that a big part of the inflation is proteins,” Sankaran continued, “and protein inflation tends to be more cyclical.”
Except it may not be cyclical, but a policy choice.
Inflation is absolutely happening within the protein industry. According to the U.S. Consumer Price Index (CPI) almost area segments are up.
Beef is up 6.5%
Poultry is up 5.3%
Pork is up 7.8%
Similar to the dairy industry, the meatpacking industry has a massive monopoly problem. For beef specifically, four firms (Cargill, Tyson, JBS SA and National Beef Packing Co.) slaughter 85% of US beef. Matt Stoller has written extensively on the topic, but the graphic below provides a quick summary of its impacts:
Since 2014, wholesale and retail beef prices have had almost an inverse relationship. The less meatpackers pay for raw cattle, the more consumers pay for the finished good. Albertsons could of course absorb the price increase, but it has margin requirements.
What does this mean for Albertsons? Albertsons is in the business of buying goods from processors and selling to consumers at a markup. They are unfortunately at the mercy of the meatpackers. Outside of Albertsons buying a meatpacking facility, or targeting local producers who probably can’t meet their scale, things aren’t looking good for protein inflation.