November 14, 2017 / 8:01 PM / a year ago

Short-seller Chanos sees supermarkets becoming a 'group of pain'

NEW YORK (Reuters) - The prominent short-seller Jim Chanos on Tuesday said he has bet on a decline in the share prices of supermarket chains, calling the sector “probably the next major industry group of pain.”

James Chanos, Founder and President of Kynikos Associates LP, speaks during the Reuters Global Investment Outlook Summit in New York, U.S., November 14, 2017. REUTERS/Mike Segar

Speaking at the Reuters Global Investment 2018 Outlook Summit, Chanos said traditional supermarket chains are burdened by excess square footage, low margins and competition from rivals such as Inc (AMZN.O), Wal-Mart Stores Inc (WMT.N) and low-price German retailers Aldi and Lidl.

“Pretty much I wouldn’t want to be long any of them,” said Chanos, the founder and president of Kynikos Associates LP in New York. He predicted “forced consolidation and layoffs, and it’s not going to be pretty.”

Known for correctly betting against Enron Corp long before the energy company’s 2001 bankruptcy, Chanos declined to identify which supermarket chains he is shorting, but said one is a non-U.S. company with operations in the United States.

Publicly traded grocery chains include Kroger Co (KR.N) and Supervalu Inc SVU.N, whose share prices are down more than one-third this year, and United Natural Foods Inc (UNFI.O), which is down by nearly one-fifth.

Among others are also Sprouts Farmers Market Inc (SFM.O) and Koninklijke Ahold Delhaize NV (AD.AS), parent company of Food Lion and Stop & Shop.

Chanos is not alone in projecting rough sledding for the sector.

Short interest in Kroger, Sprouts, Supervalu and United Natural rose after Amazon agreed in June to pay $13.7 billion for Whole Foods Markets Inc. The short interest in Kroger represents 8.3 percent of shares, while for United Natural it stands at 17.3 percent.

Chanos said that while Amazon’s move would pressure supermarket chains, Aldi and Lidl could be bigger disrupters.

“You have the advent of these two German competitors who are ruthless, putting up boxes with enormous amounts of decent private-label selections at low prices, in a format people seem to like,” he said. “They’re coming into pretty much every decent market and obliterating the business.

Aldi said in June it planned to invest $3.4 billion to expand its U.S. base to 2,500 stores by 2022. Lidl opened its first U.S. stores this year.

Chanos said overcapacity will further pressure an industry that operates on margins of only 1 or 2 percent.

“We were not short the department stores,” Chanos said of another traditional retailing sector that is retrenching quickly. “We missed it. Supermarkets are probably the next major industry group of pain, not just because Amazon has gotten into it.”

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Reporting by Jonathan Stempel in New York; Editing by Leslie Adler

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