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DBRS Morningstar Sees Grocers Checking Out Relatively Unscathed From Short-Term Inflation Pressures

The demand for groceries is largely inelastic, which insulates the food retail business more than most other industries from the worst effects of soaring inflation. Nonetheless, consumers are not immune to price increases and, as such, above-average levels of inflation for an extended period could weigh on the financial performance of food retailers. DBRS Morningstar consumer and retail analysts note that “the food retailers in our portfolio have ample headroom within their respective rating categories to absorb the effect thereof; consequently, we do not expect to take any negative rating actions in the near term”. Rating category headroom aside, this view is further based on the expectation that the food retailers in our portfolio should generally be able to partially pass through inflation-driven cost increases, benefit from some shifts in consumer behaviour, continue to execute cost-saving and efficiency-improving initiatives, and exercise capital management in a balanced manner.