The world has been through a very unusual period due to the coronavirus pandemic. Work from home and social distancing were giant changes to the normal social trends that had a rollover effect on companies, particularly those that serve people directly. Hormel (HRL +1.39%) and Domino's Pizza (DPZ +0.83%) are two examples here, and they are both starting to get back on a more normal path. Here's what's going on and why it matters.
The coronavirus shut the world down
It seems like ages ago at this point, but it has only been a few years. When the coronavirus started to spread in 2020, governments around the globe effectively shut their economies down. People were asked to socially distance themselves. People were told to work from home. Stores deemed non-essential were forced to close their doors. All of this was done with the hope of slowing the spread of what was, at the time, a new and poorly understood health threat.
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There were real-world implications, some of which are still with us. For example, office-focused real estate investment trusts (REITs) continue to struggle with properties that are being underutilized. The fear is that work from home will remain a permanent part of the landscape, leading to less demand for office space.
It is still unclear what will happen here, given that more and more companies are trying to get workers back into the office and workers are trying to stay remote. That said, other sectors are further along in the return to more normal business operations.
Hormel is no longer playing catch-up
For example, food maker Hormel has finally had the chance to get back on track. Before the pandemic, the company was working to streamline its business in an effort to cut costs. A key piece of that was remaking its supply chain as it looked to reduce volatility in its meat-based commodity exposure. Then the pandemic hit, and the supply chain plan had to be pared back because there were two competing problems to deal with that were both more important.
NYSE: HRL
Key Data Points
First, consumer demand increased because people were eating more at home. Second, access to ingredients was hard to predict because of the coronavirus' effect on working situations. Hormel was basically left trying to put out "fires" in its supply chain so it could keep producing enough food to keep grocery store shelves full. The company is finally past this point and is, again, working on streamlining its supply chain.
Hormel hasn't been doing as good a job as peers in pushing its rising costs through to customers. So squeezing costs out of the company's supply chain will help to protect its margins and is a key piece of management's current turnaround plan.
Domino's is leaning into innovation again
Takeout pizza restaurant Domino's is in a slightly different position. During the pandemic's height, it saw a spike in demand for relatively low-cost meals that people don't have to cook themselves. That was very good news for the company, but it also meant that Domino's didn't have to use its typical toolbox of tricks to attract customers. They were coming more often of their own accord.
NASDAQ: DPZ
Key Data Points
With the world getting back to a more normal mode of operation, however, Domino's has to start thinking about how it competes with other alternatives, from eating at home to dining out. This year it has introduced two new product launches, something it hasn't done since 2011. When it comes to attracting the attention of customers, two of the most important words are "new" and "improved." After a period where just making the same old pizza was enough, Domino's is again having to innovate to grow.
Finally, things are getting back to normal
Domino's and Hormel are just two examples of businesses that are starting to get back to normal. That will likely have material effects on each of their businesses, but that's not the real takeaway here. What's important for investors to note is that an increasing number of companies are, indeed, getting back to a more normal business flow. That can have both good and bad implications for your portfolio. Make sure you update your investment thesis accordingly.
