Consumer Note: How Inflation Is Affecting Uber, Kroger and YETI

Gone are the days of low interest rates and government-funded stimulus as the rate of inflation reached a 40-year high in May, according to the Labor Department (1). Households are buckling down as soaring gas prices inevitably affect prices in every industry and sector. 

The following three expert call transcripts on Uber and the gig economy, Kroger and the grocery market, and recreational brand YETI show how inflation is expected to affect their bottom line and strategies: 

1. Inflation is reducing the supply of delivery drivers due to rising gas prices, which could be further impacted by regulation giving contractors employee status and benefits. 
2. Inflation reduces grocery margins despite being a “recession-proof” industry as consumer’s purse strings tighten and supermarket employees seek higher wages. 
3. Inflation will reduce discretionary spending on goods from brands like YETI as consumers switch or reconsider the brand’s high-priced items. 

With inflation as the foremost concern, experts analyze how these companies may adapt in the coming months and years as consumers continue to feel financial pressure.

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UBER (Uber Technologies Inc.) – Former Competitor Thinks the Gig Economy Is Bifurcated and Faces Significant and Constant Change 

Inflation and gas prices are hitting gig economy workers and consumers who are starting to rethink if delivery services and its prices are worth it, and companies have to grapple with potential regulation in the coming years.

Key quotes:

• “However, with the proposition that passed in California probably two years ago, there’s now this third way. You don’t have to be a full-time employee, but you’re not a 1099 contractor. You get some guaranteed benefits if you are in the gig economy space in California.”
• “The other obvious thing in the gig economy that is worth noting right now is definitely related to just economics and inflation. Gas prices are up tremendously, which makes it much more expensive to drive for Uber or shop for Instacart. You have to raise wages or you see people less willing to be a worker for you.”
• “Personally, it seems to me that a lot of these gig economy spaces have really been bolstered and subsidized by the VC companies that back them, or once they’ve gone public, by just high valuation stock prices. I think it’s hard to make money in this space, especially when you have things like inflation, high gas prices. You have to have extremely effective optimization algorithms and you have to have sufficient demand in a market. Maybe New York City makes sense, but maybe small-town Ohio does not.”
• “As the VC subsidies that were really designed to drive growth in market share wear out, you see either a rising cost to consumers or a strain on the growth pay metrics on the buyers, on the company side, or both. That just really puts a stress, in my opinion, on the marketplace for gig economy last mile delivery space.”
• “As the volume of people in the metro who are willing to buy food change as inflation goes up, willing to buy food at a premium through one of these parties goes up, you all of a sudden have contractors who aren’t getting as much work. It is that supply demand balancing and how you do that effectively that I think is really the way to be successful in that space, or the biggest challenge. I think you really need scale, large volume of orders, large volume of drivers to do it effectively. I think that’s hard to do outside of major metro areas.”
• “Yes. I think regulation may be the biggest wild card. There’s just wages rising, costs rising, how are you going to sell it and be profitable is my biggest reason that in general, I’m not convinced there’s a lot of money to be made in last mile delivery anywhere. A lot of these companies feel valued at the elite tier. They’re going to be making extra small margins at best if the market ever corrects and sees their true value, in my opinion.”

 

KR (Kroger Co.) – Former Competitor Believes KR Has Redirected Capital Towards Omnichannel Capabilities Which Was Initially Lagging vs the Competition 

Supermarket chains like Kroger, which are in a “recession-proof” industry, will also see sales go down due to inflation.

Key quotes:

• “A lot of places have had to definitely increase the wage budget for a lot of areas in order to be able to hire for it. Generally, that’s, from a business perspective, maybe not the best thing, but I do think that those rises around the board are helping attract people.”
• “The supply and demand curve works and so people [have] got to eat. It is probably the most recession-proof industry on the planet but you’ll definitely see those bills go down from a total sales standpoint as well as more luxury items that may carry higher margins, they are probably going to be the first things to go if people’s pockets get really tight.”
• “You don’t see a whole lot of innovation coming from development teams at any of these companies. It’s a lot more your traditional enterprise type of shops purchasing vendors and having them integrated and being staffed by contractors versus having in-house development teams for folks to think like software companies.”

 

YETI (YETI Holdings Inc.) – Competitor Thinks YETI Wants to Own the Backyard 

Companies like YETI that rely on consumers’ discretionary spending – or camping aficionados – will likely see a dent in sales as inflation causes buyers to rethink where their money goes.

Key quotes:

• “The overall market, if you pay attention to their stock, has definitely slowed down or is in the midst of a slowdown right now, because inventories are high at retail and sell-through is lower than retailers would like to see. I would expect that they’ll see a slowdown on the wholesale side of their business.” 
• “At the end of the day, an item like a YETI, or a Hydro Flask, or really any consumer goods, it’s just disposable. It’s discretionary. Consumers don’t have to buy that. If they have a finite amount of income, which most consumers do, the trade-off might be, ‘Man, I had to buy groceries and it costs me $500. It used to be $250. I had to put gas in my tank and that was heavily expensive.’ It starts to be a trade-off.”
• “What’s made YETI successful so far to date is making something that is that much incredibly better than the rest. The example of the YETI cooler versus an Igloo cooler gets you all you need to see from a visual representation: a cooler that costs $20 or a cooler that costs you $400. They dramatically change that space.” 
• “Yep, the Hondo chair. They’ve got a couple of chairs actually but I frame that as part of the backyard. Is that camp furniture something that is a big opportunity for them? Yeah, but the market for a $300 chair is probably more finite than the market for a $300 cooler if you were just to draw a comparison. People will pay a lot more to have their beer in than they would sit.” 

 

Source

(1) U.S. Department of Labor, Bureau of Labor Statistics, News Release – June 10, 2022