Shoppers are shirking the center aisles of the grocery store as they shift in ever-growing numbers to fresh meats, dairy and produce.
The trend toward healthier grub, which is being helped by falling prices for these fresher foods, is bad news for food makers General Mills, J.M. Smucker, Kellogg, Campbell Soup and ConAgra Brands, all of which were downgraded late Monday by Bernstein to underperform from"market perform.
Recent sales data from vendors such as Nielsen showed steep declines, which prompted concerns that something was wrong with the information. But after consulting with Nielsen and the companies themselves, "the downturn is indeed a reflection of ongoing consumer behavior favoring fresher foods in the perimeter of the store," Bernstein analyst Alexia Howard said in a research note Monday.
With deteriorating revenue, the likelihood for buyouts in the food sector at a lofty premium is diminishing, swinging "the risk/reward profile of investing in these names to the negative," Howard said.
"Takeover premiums are unlikely to be particularly high, and activist investors are unlikely to step in while valuations remain at these elevated levels," she said.
Making matters worse, the food retailers like Wal-Mart will be exerting pressure to keep prices sharp, and cost cutting by manufacturers is unlikely to provide enough relief.
"Walmart has spoken about plans to reinvest in price this year for the past 18 months, and now that the moment is finally upon us, this dynamics is likely to make for a very tough year as they and other retailers try to share the pain with their suppliers," Howard wrote.
General Mills declined to comment. CNBC has reached out to the other food manufacturers, but none of the companies have responded.