The recent sell-off in U.S. consumer packaged goods companies following the Amazon deal for Whole Foods "is overdone," according to one analyst, who says the market may have misjudged just how much profit margins would get squeezed.
"Retail consolidation has not been bad for margins," Susquehanna equity analyst Pablo Zuanic wrote in a research report Wednesday.
Moreover, the analyst said there's also been "no evidence" that such retail consolidation has negatively impacted margins for some of the major food companies in "the most concentrated grocery retail markets in the world, like Australia and the U.K."
Instead, he said, what's happened is the big chains tend to "buy from fewer vendors, and leading brand and value/private label players squeeze out smaller tertiary ones."
After Friday's announcement of Amazon's $13.7 billion purchase of Whole Foods, there was a widespread sell-off of big name-brand companies such as Kraft Heinz, Campbell Soup, ConAgra, Kellogg, Hormel, Tyson, Hershey, General Mills, Post Holdings and even smaller packaged companies. Many of the stocks retreated 2 percent or more Friday on the deal news and have generally remained weak ever since.
As of Wednesday, Kellogg's stock remained down about 1.6 percent from its price before the deal was announced and Post off more than 3 percent.
Meantime, Hershey has bounced back and now is up slightly since the Amazon-Whole Foods deal was announced. The candy company also was helped by a slight gain Wednesday.
Similarly, Kraft Heinz has recouped much of its earlier selloff from the Amazon announcement and was trading slightly higher intraday on Wednesday.
Susquehanna points out that a combined Amazon and Whole Foods would have just a 4 percent share in the total U.S. grocery market, while Wal-Mart Stores has around 25 percent and Kroger 10 percent.
"So from a clout point of view (bargaining with suppliers), we do not think that is significant to concern CPG companies," said Zuanic. "Sure, that could grow, but so will others."
At the same time, the research firm expects there's a good chance other online providers of groceries might get bought by brick-and-mortar chains, similar to PetSmart's $3.35 billion deal for Chewy, an e-commerce start-up specializing in pet products.
Susquehanna also made the case that "online may help top brands. Online shopping may give the leading brands (those that can pay for features, that can advertise, that can fund auto-ship, that have clout with online companies) an edge compared with supermarkets, at least in terms of visibility and prominence."