Why Have Food Stocks Been Toast? Amazon, What Else?

Grocery investors are well aware of the overnight impact that Amazon.com, Inc. AMZN made in the market when it announced a buyout of Whole Foods Market, Inc. WFM back in June. However, Amazon’s intrusion into the food business has been weighing on the food industry for much longer than a few weeks.

News that Amazon will be directly competing with grocery stores hit stocks such as Kroger Co KR SUPERVALU INC. SVU and Costco Wholesale Corporation COST like a sledge hammer. Costco shares are down 14.7 percent in the past month, Supervalu shares are down 20.0 percent and Kroger has tumbled 24.1 percent.

But while grocery investors may just now be wising up to the threat that Amazon poses, other food investors have felt Amazon's sting for a while now. Amazon first debuted its private-label grocery business back in June 2016 when it launched its own brand of coffee, baby food, nuts, spices, tea, vitamins and other household items.

Related Link: Where Do Restaurant Stocks Stand In A World Dominated By Amazon?

Even if Amazon is yet to compete head-to-head with food giants such as Kellogg Company K, Tyson Foods, Inc. TSN, General Mills, Inc. GIS and Mondelez International Inc MDLZ, investors may see the writing on the wall. The S&P 500 is up 16.7 percent since Amazon’s private label launch last year, but shares of each of these food stocks are down between 4 and 25 percent in that time. Not surprisingly, Amazon shares soared 39.5 percent in that period.

A number of analysts and investors have predicted that Amazon’s Whole Foods purchase will accelerate a food pricing war that could weigh on margins for food producers, grocery stores and even restaurants.

“It’s becoming clearer that the deflationary headwinds are fundamentally impacted by competitive pricing pressures at this stage of the cycle,” Pivotal Research analyst Ajay Jain wrote following Kroger’s most recent earnings report, adding that investors betting on food reflation will likely be “disappointed.”

A decade ago, it may have seemed unfathomable that Amazon and other online competitors could bring U.S. retail stalwarts like Sears Holdings Corp SHLD, J C Penney Company Inc JCP and Macy’s Inc M to their knees. It’s now up to investors to decide whether the recent weakness in all the food stocks mentioned above is simply a bump in the road or if it is the early stages of a similar long-term secular decline in some of the biggest names in the food business.