With the passage of the most sweeping tax overhaul in the U.S. since 1986, achieved yesterday in a procedural House of Representatives re-vote, grocery retailers and industry associations are responding with praise, calling the Tax Cuts and Job Act a “landmark step forward,” according to the Food Marketing Institute’s chief public policy officer and SVP for government relation, Jennifer Hatcher.
“Food wholesale and retail are low margin, high tax industries that have been waiting for just this type of relief to spur investment and create jobs,” Hatcher added. “Consumers will also benefit from having more money in their pockets, thanks to a doubling of the standard deduction and lower tax rates.”
The $1.5 trillion package will cut corporate, business and individual tax rates, creating potential for improvements in technology and job growth within the grocery industry. “It does so while also preserving industry priorities like Last-In, First-Out [accounting] and the Work Opportunity Tax Credit, and does not impose a punitive Border Adjustment Tax,” according to Hatcher.
The National Grocers Association’s president and CEO, Peter J. Larkin, issued a statement applauding the bill. “Independent grocers across the country can feel more optimistic now that a once-in-a-generation tax reform bill has finally passed Congress and is on its way to the President’s desk for his signature. For years, independent supermarket operators have tried to keep pace with a rapidly-changing marketplace while operating in an industry with high effective tax rates on just 1-2% profit margins. This new weight lifted off their shoulders will allow stores to invest more in their companies, employees, and communities.”
The Kroger Co. and other retailers should benefit from the tax reform, according to Scott Mushkin, an analyst with Wolfe Research, due to the “potential for consumer spending to pick up and lead to higher sales and earnings growth over the near- to medium-term.”
Mushkin upgraded Wolfe’s ratings on both Kroger and Walmart following passage of the bill.
“Indeed, while we have forecast improved sales growth due to stronger consumer spending and a better macro tailwind, if the U.S. consumer ends up spending more or trading up to higher margin items, this could lead to stronger sales and profits for Kroger,” Mushkin said in a note to clients.
He added however, that tax benefits could be “competed away,” from Kroger in the short term.