A Nation of 'Grazers'

By Berna Barshay

Thursday, July 9, 2020

Unhealthy, processed packaged snacks are a pandemic winner…

Back in June, the New York Times asked, “Has Pandemic Snacking Lured Us Back to Big Food and Bad Habits?” The answer for most Americans appears to be a definitive “yes.”

A surge in sales of processed, shelf-stable foods was to be expected at the beginning of shelter-in-place orders – when families were facing an unknown and unprecedented set of circumstances. But packaged-food demand has remained robust even after the stockpiling faded.

According to research firm Nielsen, consumer purchases of packaged sweet and salty foods have remained high since March. Families are eating down their pantry inventory and then replenishing their reserves. As the Times explains…

“There was a huge surge in sales of packaged food in mid-March as all the panic-buying played out across the country,” [Sanford C. Bernstein food analyst Alexia Howard] said. “But sales are generally still extremely strong across the board due to the collapse in food service sales to restaurants, schools, etc.”

Data from the research firm Nielsen that tracked Americans’ grocery buying from March to May bore this out. Campbell’s reaped a 93% increase in sales of its canned soup before settling back to a still-amazing 32% growth. At General Mills, breakfast cereal jumped 29% in late March, and jumped again to 37% in the third week of April. Deep into the pandemic, we were still buying 51% more frozen waffles, pancakes, and French toast from Kellogg’s. And so on.

These are huge numbers for mature, staple products. Food companies are usually ecstatic about mid-single-digit growth.

This surge in packaged-food consumption is in direct conflict with pre-pandemic food trends. As consumers became more aware of the danger of excessive sugar on long-term health, households – especially younger ones – started to abandon processed and sugary foods. Many packaged-food companies saw volumes drop, and became dependent on price increases or acquisitions to achieve any meaningful growth.

The steady growth of obesity and Type 2 Diabetes rates as well as the popularity of eating plans that de-emphasize carbohydrates and emphasize whole foods (e.g., paleo, keto, Whole 30, etc.) also led to more Americans – especially younger ones – passing on packaged foods and reaching for healthier alternatives.

Why did the pandemic cause many people to fall back into unhealthy eating habits?

The initial surge in shelf-stable pantry items like ramen noodles, Kraft macaroni and cheese, and Ritz crackers made sense. Consumers were facing the unknown… and scared about possible food shortages or the potential danger of trips to the grocery store. They understandably filled their cabinets with the same goods that you would fill a bunker with – caloric and inexpensive food with a long shelf life.

Even the healthiest eaters know that broccoli and lettuce only last so long in the fridge, and there are limits on how much meat someone can store… even with the surge in spare freezer sales.

Part of the accelerated growth can be explained by overall grocery sales being up as more people stay in, work at home, and many states continue to restrict indoor dining at restaurants.

The U.S. Census Bureau reported that grocery sales were up 14% in May. We won’t get the aggregate June numbers until next week… but based on the sales release last night from warehouse giant Costco Wholesale (COST), they should remain strong. Costco reported that packaged-food were sales up by high teens for June. Fresh food sales (i.e., meat and produce) were even stronger – up in the mid-20s year-over-year.

But with sales of cookies, chips, and canned soup up much more than overall grocery retail sales, clearly more is at play here…

Psychologists can explain why many people fell back into unhealthy eating habits…

In times of stress, people reach for comfort foods – the ones that satisfy our emotions as well as our hunger. Comfort foods aren’t just tasty, but often drenched in nostalgia or fond memories of youth. For Americans suffering from isolation, uncertainty, and worry, Oreos and mac and cheese may be soothing the stress.

Food companies know they’re selling emotions as much as calories and taste. Earlier this spring, food blog Eater examined the role of nostalgia in the marketing of packaged food generally and specifically in the case of product reintroductions.

In 2018, Kraft Heinz (KHC) brought back Planters Cheez Balls – an ’80s and ’90s after-school and dorm room staple that was discontinued in the mid-2000s. This summer, General Mills (GIS) also looks to capitalize on ’90s nostalgia by returning Dunkaroos to store shelves.

Eater explores the connection between nostalgia and comfort…

“I’m tasting the Dunkaroo in my mind and it is so sweet and texturally very satisfying, and it just brings me back to the playground,” says Eve Turow Paul, a consultant and author of the upcoming book Hungry: Avocado Toast, Instagram Influencers, and Our Search for Connection and Meaning.

She sees the reboots of Dunkaroos and Cheez Balls as a way of tapping into a shared memory or identity, and finding community around that. Given the performative aspect of tweeting about Dunkaroos or “liking” a Facebook group calling for the return of a discontinued snack, a nostalgic food can take on an almost meme-like quality. It’s less about making informed food choices than indulging in an escapist pleasure. “You are essentially excusing yourself from your general adult worries in life,” she says. But memes aren’t necessarily appetizing.

The nostalgic urge is so strong, it has some Americans grabbing for food that they’ve never tried before. As food company Mondelez (MDLZ) noted on its first-quarter conference call, more than 40% of the large increase in sales for Fig Newtons and Nutter Butter cookies came from first-time buyers.

The desire to viscerally connect with a more normal place and time explains why some people are eating different things. But the surge in snack foods isn’t likely just about an increasing share of consumption… It’s also about people eating more frequently, thus ultimately consuming more food.

Staying at home is turning a lot of us into ‘grazers’…

Here’s a funny and intuitive statement for anyone who has ever shifted from working in an office to working at home…

Source: WeAretheMighty

But for those looking for proof of the obvious, Mondelez interviewed consumers to figure out why they were consuming more. CEO Dirk Van de Put shared the results during the first-quarter earnings call…

And in-home, there is more grazing, more continuous eating and snacking takes up a much bigger role, particularly biscuits [cookies]. The snacking categories that consumers tell us they are eating more is cheese, so Philadelphia is benefiting also, is fruit and veggies, is biscuits and some – and salted snacks.

A survey by market research firm YouGov back in May confirmed what consumers were saying in their interviews. More than one-third of respondents said that they’re snacking more…

Source: Forbes

The actual number is likely even higher, as guilt might preclude some respondents from answering honestly.

Speaking of guilt, here’s a scientific excuse for the propensity to snack these days…

There’s a difference between true hunger and emotional hunger. Opinion site Big Think lays it out well…

True hunger builds gradually, and any type of food you find will satisfy your appetite. Once you’ve eaten enough, you stop. There are usually no lingering feelings of shame because you’re providing your body with the energy it needs, even if the meal wasn’t so healthy.

Emotional hunger, on the other hand, is an unhealthy response to stress that causes cravings for various types of food. This kind of hunger isn’t as easy to stop and leads to over-eating, which usually makes you feel guilty.

Big Think spoke with Susan Carnell, an assistant professor in the Department of Psychiatry and Behavioral Sciences at Johns Hopkins University…

According to Carnell, dopamine likely plays a role in the boredom-hunger paradigm. Dopamine is a neurotransmitter that is crucial to our motivation levels. Dopamine is present during sex, when we fall in love, and when we’re satisfying an addiction – it’s a pleasure-reward reaction that drives our motivations to do things that give us even more dopamine.

“The release of dopamine in the brain can be so stimulating and motivating that rats will lever-press for it to the exclusion of other crucially important activities like sleeping and eating,” Carnell explained.

People who have naturally lower levels of dopamine are more likely to seek out and become addicted to dopamine-producing substances or activities like alcohol, drugs, and gambling.

Tracing this back to eating out of boredom, Carnell added that it’s very likely that when we are bored or unhappy, our dopamine neurons are inactive. When we eat due to boredom, this can be a way of “waking up” our dopamine neurons so we can feel excited again.

Carnell offers a great biological explanation of why people graze when they’re bored or sad. Big Think offers several suggestions for how to stop the urge to graze – including engaging in a craft or hobby, drinking water, making a phone call, or striking up a conversation so your mouth is busy. Since your body is craving a dopamine rush, exercising is an alternative, better way to get that. When all else fails, the article suggests setting a timer and waiting 30 minutes to eat, since boredom hunger goes away with time.

But for most people, all the strategies in the world probably can’t hold off the marketing power of Big Food. Despite the best intentions, the increase in packaged-food sales is probably here to stay… at least if COVID-19 is around. Pantry-filling and grazing probably are just another set of pandemic habits that won’t go away, at least not until we’re all back to our normal routines. Food companies know this, and they’re taking advantage of the opportunity that temporary lifestyle changes present.

In today’s mailbag, one Facebook (FB) fan and one critic, plus revisiting the reaction some readers had to my recommendation of McDonald’s (MCD) last week…

Has the pandemic changed your eating habits, either for the better or the worse? Are you grazing more? Have you had any weird cravings for packaged foods that you wouldn’t normally touch? Share your thoughts at [email protected].

“Thank you, Facebook, for standing up for decency and free speech. The anti groups are acting in a manner that they propose to oppose. Some of the groups mentioned obtain blackmail money from large corporations who acquiesce in fear of being labelled bigots, which they are not. It is good that someone stands up against the ‘1984’ attempts to stifle free speech. Anything remotely out of their vocabulary or train of thought is often being labelled as hate speech. So who are the fascists really? I will buy more Facebook stock tomorrow. Thanks.” – George C.

“Current politicians will not try to force Facebook to do the right thing. Zuckerberg lies again and again and gets by with it. Facebook makes sure it knows who any would-be whistleblowers are. They hire ex-CIA people to make this possible. Zuckerberg and his ilk do not give a damn for America or democracy. What they really understand is power and money and how to largely control their image. Facebook is a monopoly like Amazon. They do not have to worry about ‘capitalism’, which is supposed to imply competition. They are the Standard Oils of this era. I will never do Facebook or other ‘legal’ data accumulators. They need regulation but the anti-regulation people have the day.” – John J.

“Dear Berna, McDonalds and other grab n’ goes are the ‘winners’ in the new dystopia. Are we not in this mess partly from the processed food industry dispensing food-like substances and saying how happy you should be about our meal? (Yes, I know investors love these addictive stocks.)

“Co-morbidities abound in the actual death rates of not just the current ‘scare’ but in the voluminous numbers of deaths and suffering from heart disease, type 2 diabetes, cancer and iatrogenic deaths which far surpass anything that this current situation can monger up.

Putting people immediately out of business after 20, 30 or even 40 years of their own hard work, expertise and, invariably, passion for what they do only causes great boatloads of ‘distress’ leading to chronic stress and the up regulating of steroid hormones like cortisol which leads to a … wait for it … lowered immune system.

“Has anyone on mainstream media mentioned anything about the importance of the gut microbiome in immunity or the role the mitochondria play in the immune response.? How about epigenetics? Naw, why bother, let’s go pick up a Happy meal!

“I appreciate your work and thank you for bringing these things up.” – Susan A.

“Berna- We have been doing our best to patronize non-chain local restaurants that offer curbside pickup and/or delivery, including restaurants in or close to our subdivision. This includes those that were focused on take out prior to the pandemic, such as our local non-chain Chinese and pizza restaurants. The only chain restaurants we have been patronizing, because we like their food, are Mission BBQ and McAlister’s Deli.

We have done some dining-in recently, but this may not continue, as we live in one of the FL hot spots. We have NO desire to patronize the run-of-the-mill high-fat chains serving their burgers, fried chicken, subs, etc. If that’s all that’s eventually left to us, we’ll eat almost exclusively at home, and use such ‘restaurants’ only if time-pressured, or outside our home area. Of course, in terms of equity investments, they are obviously the best choices, for now.” – Otto K.

Berna comment: Otto, you hit on something important when investing in consumer companies: not extrapolating from your own preferences. A focus group of one will not serve the research process well.

Like you, I don’t eat frequently at chains, except Starbucks (SBUX). I’ll make a few visits each annually to McDonald’s and Popeyes, but that’s about it. My stock selections are decidedly separate from my personal habits… Although I’ll never order from Domino’s Pizza (DPZ), I wish I had owned the stock – it’s up more than 70% since last August!


Berna Barshay
July 9, 2020

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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