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Why Grocery Stock Prices Fell after Telsey’s Action on SuperValu

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Oct. 19 2017, Updated 8:08 a.m. ET

Telsey’s target price revision for SuperValu

As we discussed in the previous part, Telsey Advisory lowered SuperValu’s (SVU) target price from $29 to $24, which is ~17% lower.

In response, all of the major supermarkets’ stock prices fell. SuperValu fell 6.9% to $18.75 on October 16, 2017. However, Telsey maintained its “buy” rating on SuperValu.

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Why did grocery stock prices fall?

The fall in grocery stock prices reflects the rising pessimism in food retail. While supermarket stocks have been in the red throughout 2017, the pressure increased four-fold after Amazon (AMZN) entered the food retail space.

Amazon acquired Whole Foods Market in mid-June. Immediately after completing the acquisition, Amazon slashed the prices of several key products at Whole Foods. It put pressure on other companies.

What does Amazon’s entry mean for the food retail space?

Amazon is known for disrupting the business models of all the industries that it enters.

Talking about concerns regarding Amazon, Barclays Capital analyst Karen Short said, “The Amazon fear is so pervasive that even decent near-term results may not be enough.” She said, “The narrative simply shifts from, ‘Amazon is destroying grocery’ to ‘Amazon just hasn’t destroyed grocery yet.”

She also said, “Amazon’s acquisition of Whole Foods will dramatically alter the food retail landscape – conventional, specialty, natural and organic – [and] no retailer selling food will be unscathed, in our view. Amazon will endeavor to dominate the e-commerce segment of food at home, and alternate formats will continue to take share.”

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