Thursday, May 29, 2008

To Laugh or Cry - Spam is Hot

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Sigh. The pooring of America has taken a very dark form - the return of Spam.

I somewhat joked about this in a few previous entries, one regarding the measure of inflation by the government (i.e. substitution effect) [Apr 8: Now on to Airline Inflation]

Now the way the government reports inflation they have a cute thing called "substitution" - when something gets too expensive (beef) their measurements assume you move down (substitute) to a lower value item (say... spam) - so hence your inflation is flat or maybe even goes down. That's the magic of government reporting.

And just a few weeks ago in one our earnings roundups I mentioned how we will trade down to Hormel's jewel of a product

Dicks Sporting Goods (DKS) - while this is a Wall Street favorite this is exactly the type of product that a poorer America will have to cut back spending on. So instead of going out and playing golf or sports that actually require exhaling at a fast rate, we will continue to sit on our behinds and play video games from Gamespot (GME). And instead of eating healthy, we'll be eating cheap - such as SPAM from our friends at Hormel (HRL).

So it is here folks; the substitution effect is in full force. This means as Americans have moved from steak (2004, paid for by home equity) to hamburgers (2006, hmm my home went down in value and my wages are not keeping up with gas prices) to... spam (2008, recession? what recession - government reports say everything is rosy!), the government can now say inflation is negative. Because as you move down the (ahem) food chain, they consider that a cost savings to you and hence you are paying LESS for food. And as I've outlined multiple times, the real rise in meat products has YET to come [Update on Corn and Livestock]. Heck, there is even Spam inflation! (7% year over year). No shelter in the storm. Please make sure you eat your breakfast before you move forward to the details below....
  • Sales of Spam — that much maligned meat — are rising as consumers are turning more to lunch meats and other lower-cost foods to extend their already stretched food budgets
  • The price of Spam is up too, with the average 12 oz. can costing about $2.62. That's an increase of 17 cents, or nearly 7 percent, from the same time last year. But it's not stopping sales, as the pork meat in a can seems like a good alternative to consumers.
  • Kimberly Quan, a stay-at-home mom of three who lives just outside San Francisco, has been feeding her family more Spam in the last six months as she tries to make her food budget go further. She cooks meals like Spam fried rice (cringe!) and Spam sandwiches two or three times a month, up from once a month previously.
  • Spam's maker, Hormel Foods Corp., reported last week that it saw strong sales of Spam in the second quarter, helping push up its profits 14 percent.
  • Spam sales were up 10.6 percent in the 12-week period ending May 3, compared to last year. Also helping sales, executives said in an earnings conference call, was the fact that people looking to save money are skipping restaurant meals and eating more at home.
  • Quan just bought a couple more cans of Spam on sale and some ramen, the instant noodle dish long a staple on college campuses. Her food and gas budgets are together, so she's had to cut back on food spending while the cost of gas increases. Her favorite Spam meal? Spam and macaroni and cheese. (cringe!)
  • Other companies are seeing similar boosts in their lunch meats. Kraft Foods Inc. reported last month that subsidiary Oscar Mayer, which makes hot dogs, bacon and cold cuts, saw double-digit revenue growth in the previous quarter in its Deli Fresh cold cuts. The company, based in Madison, Wis., has recently introduced new products including family sized deli-meat packs and deli carved, which offers thicker slices of meat.
The pooring of America continues - and yet another reason to bet against all forms of discretionary spending that focuses on the lower 2/3rds of America, especially [Stuff I've been Negative on Since Last Fall]. Even the bottom portions of the top third are going to be slowly forced away from the Whole Foods Market (WFMI) they hold near and dear [May 14: Whole Food Markets at a Loss of Why Sales are Slowing] They're heading for Spam-a-lot. While sad to see, they still have it a lot better than many in the developing world which would kill for.... Spam.

And just think. We're not even in a technical recession! Gosh, what's going to happen when (if) we ever enter one (not that government reports will show it). Anyhow, onward and upward to that 2nd half recovery - July 1, 2008; only weeks ago. Spam & Kool Aid! Yummy!

Long Spam

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