Food Inflation May Help Kroger, Dollar Stores: Chart of the Day

Food prices have begun to rise at a faster pace in the U.S. and some retailers are poised to profit from the acceleration, according to John Heinbockel, an analyst at Guggenheim Partners LLC.

The CHART OF THE DAY tracks two indicators of food inflation that Heinbockel mentioned in a Dec. 14 report. One reflects price tags on grocery shelves, and the other is based on what foodmakers charge for finished items. Both of them rose in the past two months, as the chart highlights.

“Reflation has begun,” the New York-based analyst wrote. He estimated the supermarket-based consumer price index will be 2.4 percent higher next year, exceeding November’s 1.3 percent gain from a year earlier. He predicted the producer gauge will climb 3.3 percent in 2013, up from 2.6 percent last month.

Retailers will be able to raise prices about 3 percent without a meaningful decline in demand, Heinbockel wrote. This will pave the way for faster sales growth, lower expenses as a percentage of revenue, and higher earnings before interest and taxes, the report said.

Kroger Co. (KR), the country’s largest owner of supermarkets, will be “a clear beneficiary” because sales are already on the rise, Heinbockel wrote. Fourth-quarter sales will increase as much as 3.5 percent at stores open more than a year, the Cincinnati-based company said last week in a filing.

Dollar General Corp. (DG) and Family Dollar Stores Inc. (FDO) may benefit as well because of the value that shoppers associate with them, the analyst wrote. He recommends buying shares of Dollar General, based in Goodlettsville, Tennessee, and Family Dollar, based in Matthews, North Carolina, as well as Kroger.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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