The Fastest Growing Ecommerce Segment

Even More Room for Growth

Online grocery shopping is one of the fastest growing segments of ecommerce. The number of customers buying groceries online has surged during the pandemic and there is still an enormous amount of room for growth. Recent data shows that online grocery sales will account for 4% of overall grocery sales this year, which represents a 60% year-over-year increase.

The grocery industry in the US is worth $900 billion. Analysts noted that the vast scope of the industry, and the fact that it has so much runway space for gains, could mean that there is space in the market for numerous companies to benefit from the online grocery shopping boom.

An Expanding Customer Base

As of May 2020, about half of US consumers had done some form of online grocery shopping. 43% of those people did so for the first time during the pandemic. It is expected that many of these people will grow accustomed to the convenience of online grocery shopping and will stick to habits formed during this period even after the pandemic subsides.

Before the pandemic, many analysts did not think of baby boomers and members of the silent generation as potential ecommerce customers. However, because this population is particularly vulnerable to COVID-19, 28% of them have done online grocery shopping during the pandemic, adding a new, somewhat unexpected customer base.

Companies to Watch

Companies are well aware of the huge potential for online grocery gains and are vying for customer loyalty. On September 15, Walmart (WMT) launched Walmart+, a competitor to Amazon’s (AMZN) Amazon Prime. About 55% of Walmart’s sales already come from groceries and the company hopes that its new membership service will build customer loyalty. Target (TGT) is also ramping up its ecommerce operations and added 10 million new digital customers during the first half of the year.

Some food brands are also launching direct-to-consumer platforms for people to buy their products online. For example, PepsiCo (PEP) launched Pantry.com, a service offering bundles of the company’s products like SunChips and Gatorade.

More traditional grocery stores like Kroger (KR) and local grocers are having an easier time offering online sales because the market for these services is growing, which brings the cost per online order down for grocers. Investors have already been closely following the online grocery boom and they will be eager to see if the industry continues its rapid growth.

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CME and Nasdaq Create Water Futures Contract

Betting on the Price of H20

Water is arguably the most important commodity in the world, and a new market will soon allow farmers, manufacturers, speculators, and others to bet on its price. Investors have long wagered on the price of materials like crude oil, soybeans, and copper, and soon they will be able to do the same with water.

CME (CME) and Nasdaq (NDAQ) are launching a water futures contract later this year, which will be the first of its kind. Water futures will be able to help industries that use large amounts of water to hedge against price changes.

How Water Futures Will Be Structured

The water futures will be tied to the price of water in California. The state has a large population and a robust agriculture industry, both of which use large amounts of water.

Water futures contracts will be priced in terms of dollars per acre-foot. This is equivalent to about 325,851 gallons, or the amount of water needed to cover an acre with water one foot deep. Last week, the price of an acre-foot of water was $526.40.

Looking Ahead

Water scarcity is a growing risk for agriculture and other industries. By some estimates, almost two-thirds of the world’s population will experience water shortages by 2025.

CME and Nasdaq’s water futures will be launched toward the end of the year’s fourth quarter after a regulatory review. Hopefully, the new initiative will help align supply and demand of a critically important resource.

Tea Prices Are Heating Up

Demand For Tea is Rising

Tea is the most popular beverage in the world after water. Each day, about 3.7 billion cups of tea are consumed worldwide. On any given day, roughly half of people in the US drink the beverage either hot or cold.

Though the pandemic has reduced demand for tea from cafes and restaurants, tea consumption at home has surged as people work remotely and seek out ways to destress. This trend, combined with tea production conditions, has led the price of tea leaves to spike.

Tea Producers Face Challenges

Most tea grows in mountainous regions with tropical or subtropical climates. China, India, Kenya, and Sri Lanka lead the world in tea production, though Argentina supplies much of the tea sold in the US.

Sri Lanka, the third-largest tea exporter, experienced a severe drought earlier this year, which caused its tea production to drop by 15% during the first seven months of the year compared to a year earlier. In India, tea production fell by 22% during the same period as the country battled COVID-19. Tea production has mostly recovered in Sri Lanka and has stayed strong in Kenya and other countries, but the shortage has impacted tea prices significantly.

Tea Prices Rise

Due to the combination of supply chain strain and rising demand, the price of wholesale tea leaves has gone up by 50% since March. When the pandemic first set in, supply chain issues and oversupply caused prices to drop to their lowest levels in over 10 years. Since then, they have picked up steam and reached $3.16 per kilogram, or $1.44 per pound—levels last seen in November 2017.

The rise in the price of tea leaves caused the price of liquid tea, which is usually sold as a bottled concentrate, to rise 9.6% from a year earlier. The price of packaged tea, sold in tea bags, is up 1.7%. As much of the world looks ahead toward cooler weather, demand for tea could become even stronger. Investors will be watching closely to see how this, and other factors, impact the price of tea.