Constellation Brands moves further south (STZ)
Mexican President Andres Manuel Lopez Obrador said that Constellation Brands would construct a new brewery in the country’s southeast on Friday. He made the announcement in his regular morning news conference. The Mexican President was an outspoken opponent of the facility that was under construction in Mexicali, which was rejected in a referendum last year. The Mexican President cited the plentiful water in the southeast, which was a leading reason for the rejection in Mexicali. Being located much further than the border will add to the cost of production. The majority of the COGS for Constellation Brands is transportation and packaging. Constellation Brands did not comment on the announcement.
On-premise traffic return is steadily improving (BUD)
According to the CardFlight, Small Business report for the week of May 17-23, sales and transaction counts have remained relatively steady over the past few weeks. Food and drink category sales are up for the second consecutive week, while transaction counts have steadily improved over the past month, as seen in the charts below. The change in transaction counts in the latest week is up 60.7% compared to a baseline week in March 2020. Consumers are returning to the on-premise channel, as seen in the transactions, but the dollars spent have been more volatile.
Rising wage pressure (KR)
Last week Kroger and the UFCW Union Local 75 in Cincinnati and Dayton, Ohio, northern Kentucky, and southeastern Indiana ratified a new labor agreement. The new five-year agreement will see wages rise by $159M over the length. On average, the pay will increase by $4.78 per hour over the contract. By the end of the contract, the average hourly wage will be nearly $20 per hour, not including benefits. Kroger said it had invested more than $800M in permanent wage increases over the past three years. The Local 75 Union represents about 4% of Kroger’s employees. If Kroger’s other stores had similar contract raises, a 30% increase in wages extrapolated over the rest of Kroger’s stores would be ~$4B. Kroger faces increasing competition in grocery from online retailers while investing significant capital and expenses in its own online offering. Accelerating growth in wages is coming simultaneously as inflationary pressures and margin pressures from online shopping. Kroger is on our shortlist.
