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How Do Disaster-Prep Stock-Ups Affect Supermarket Sales?

By Motley Fool Staff - Jan 28, 2016 at 1:22PM

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A big-picture look at what mass stockpiling for blizzards and hurricanes does to retailers.

With every incoming hurricane or blizzard, thousands of people stock up on food, water, and supplies, just in case -- leaving supermarket shelves depleted, if not empty. Is this big business for retailers, or just a blip on the radar?

In this clip, Sean O'Reilly and Vincent Shen explain how these events measure up for companies both in the short and long term. Also, listen in to hear how Wal-Mart (WMT 0.99%) predicts what sells more during natural disasters.

A full transcript follows the video.

 

This podcast was recorded on Jan. 26, 2016.

Sean O'Reilly: I saw an interesting story this morning and it pertains to Whole Foods (WFM) but it applies to literally every retailer out there. I'm sure you went shopping right before the blizzard. I went shopping before the blizzard. I bought four gallons of water just on the off case that ... I'm such an idiot. Anyway.

Vincent Shen: Yeah, keeping in mind that you live in a high-rise apartment building.

O'Reilly: You don't know. Anyway, I've got a baby to think about.

Shen: Of course.

O'Reilly: Basically, everybody's stockpiling food and supplies and you hear about this every time a hurricane comes and all this stuff. Bottom line, is this big business for stores? Does it matter?

Shen: You actually brought up a really good point when we were coming down to the studio. This is something that came up as well for me personally last night. We went to our nearby Giant in our neighborhood, and there was very little fresh produce, no eggs whatsoever.

O'Reilly: It looked like the Apocalypse.

Shen: Very little milk -- the bread aisle was ravaged, essentially.

O'Reilly: In order to check out, you had to go through the Thunder Dome.

Shen: Gina had asked me, "This one week, essentially a boon in sales all over the Northeast, huge population center, does that end up having an impact for a company like Kroger, Whole Foods Market, things along those lines?" I started to look into it, but I realized it's such a short-term blip on the radar. Sure, it was a big storm, 20-plus inches.

O'Reilly: Right. They definitely sell things they wouldn't normally buy. I don't usually buy four jugs of water.

Shen: Exactly, so there's definitely a lift, and you could even argue that stores that sell salt for sidewalks and shovels would benefit. It's such a small blip; it's seasonal.

O'Reilly: It is not a consistent cash flow thing.

Shen: Snow is going to fall every year, so it's not something that I would consider to be even close to the basis for like, "Oh, wow. I want to buy Whole Foods."

O'Reilly: It might even be playing catch-up because I remember a month ago, it was basically when Macy's and Nordstrom were reporting and they were like, "Yeah, our quarters have stunk so far because it's been really warm."

Shen: Yes.

O'Reilly: One of the highest-margin things they sell is winter coats, because you got to have one and they can charge full price and ... people were putting it off. We had several 50-, 60-degree days in December here. I rode my bike a couple of weeks ago for the heck of it.

Shen: You bring up a really good point. On the one hand, the retailers have argued that the extended warm weather during the winter hurt them. In this case with all the snow falling suddenly people have this stark realization like, "OK."

O'Reilly: I have to think that a few winter coats were sold last week before the storm arrived.

Shen: Yeah, exactly. Will that help some of the apparel retailers bounce back a little bit for when they report this first quarter of the year? We'll see what happens.

O'Reilly: Maybe.

Shen: Again, it's going to be probably more of a minimal effect more than anything else, but it's interesting to think about and how there's economics to these blizzards.

O'Reilly: Yeah. I'll never forget, and then we'll move on, this is like 10 years ago, and CNBC did this special on the age of Wal-Mart. I don't know if our listeners are aware, but Wal-Mart, they basically have supercomputers, like Deep Blue-type crazy, awesome computers. They have all this data on what sells when and all this stuff. They gave this example of how people right before a hurricane in Florida and the Carolinas and stuff, they are 26% more likely to buy strawberry Pop Tarts with an impending hurricane than they are at any other time. Right before the hurricane hits, Wal-Marts down there stock their shelves with about 20%-30% extra strawberry Pop Tarts.

Shen: Maybe put it right front and center for when people walk in.

O'Reilly: What in the human brain says, "Hurricane. Strawberry Pop Tart"?

Shen: Days at home, breakfast. I don't know.

O'Reilly: Yeah, I don't know. Non-perishable for a certain period of time.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. The Motley Fool recommends Nordstrom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Whole Foods Market, Inc. Stock Quote
Whole Foods Market, Inc.
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