Stress is Building

The government, the FED, and the media are all telling us, all is well, in fact it is going so well that they will need to raise interest rates soon.  I am here to tell you that they are lying to you.  Things are not well.  I cut and pasted some excerpts from what is hitting the news today, and when food companies start struggling, even with commodities starting to fall, you must pay attention.

In addition, I have an investment in a small Mexican grocery store, that is extremely well managed, and this summer they is starting to see sales falling off.  They serve the mid to lower mid market.

Ralphs, which is owned by Kroger, walked away from a prime location as sales were not justifying the rents (which I think is part of the problem), and the new store that went in is like visiting a mausoleum.  It is an ethnic store that caters to the Middle, Near East and South Asia (very affluent folks from those parts live in my area), the offerings are superb, and prices are low.

Haggen's rolled into our area last year, and they are a dud.  They are a Whole Foods kind of place without the panache.  They are laying off workers.

Back East, A & P is bankrupt again, and will likely be liquidated this time.

A little secret of the grocery business is the profit centers are along the walls and edges; bakery, deli, drinks, hot food, and Organics, no money anywhere else.  People cannot afford the up-sells from these areas anymore.

My view is grocery stores give us a good window into many parts of the economy, and what is affecting them is structural, and are inelastic problems that force breaks; such as,

• Union pension and healthcare costs, 
• Consumers new healthcare tax that is showing double digit increases, 
• Commercial REIT's that are formula driven with automatic price increases to the tenants, 
• Zero income growth on consumers who also are seeing formulaic rent increases by Apartment REIT's. 

There will be no voluntary reduction in these costs, it will be imposed on them.

 It is all coming to a head, right now.

http://www.bloomberg.com/news/articles/2015-07-21/united-natural-foods-plunges-after-albertsons-contract-canceled?cmpid=yhoo

http://finance.yahoo.com/news/p-files-ch-11-bankruptcy-2nd-time-five-130301584--finance.html

http://www.latimes.com/business/la-fi-haggen-albertsons-lawsuit-20150720-story.html

As an aside, sales are slipping with Apple and Chipolte (reported tonight), the Millennial's churches. They're broke too. We killed them with Healthcare costs they don't need, want or can afford, and overpriced College degrees that don't give them the return on their investment.



Be careful out there.