Zevia IPO (ZVIA)
On their conference call yesterday, Coca-Cola’s management team said that only some of the growth of Coke Zero is coming from the cannibalization of Coke Light or Diet Coke. Instead, Coke Zero is “a net accretion to the Coke franchise.” Coke Zero may grow despite secular headwinds for regular Coke and Diet Coke, but could Coke Zero grow if the company launched a Coke Zero sweetened by Stevia? Will previous decisions prevent Coca-Cola and PepsiCo from utilizing Stevia in the future? We provided our answers to those questions in our Zevia pre-IPO black book.
CLICK HERE for the replay and materials.
Zevia is expected to start trading today. The company is seeing strong results from new product lines in teas, kids’ drinks, and mixers. Energy drinks, in particular, may become a strong category for Zevia with its differentiated, no-sugar, no-calorie, naturally sweetened product. Amy Taylor, a 20-year veteran of Red Bull and former Chief Marketing Officer, has key insights into the category to plot their strategy.
Grocery inflation (GO)
According to a consumer survey from Numerator in June and July, four in five consumers have noticed price increases on their most frequently purchased groceries and household goods. Two-thirds expect prices to go higher over the next six months. 54% are moderately or significantly concerned about paying higher prices. 90% of respondents said they plan to change shopping behaviors with price increases, and more than half say they already have. 49% said they would switch to lower-priced brands, and 60% say they will when prices increase further. Switching food retailers will be another option for consumers looking to cope with rising prices.
Inflationary pressures should be a tailwind for Grocery Outlet. The chain did not benefit as much as the conventional grocers due to the reduced traffic and restrictions during the pandemic. However, with consumers more concerned about stretching their dollars in the grocery aisle, Grocery Outlet is a beneficiary with prices 40-70% below other grocers.
Anti-competitive executive order for the alcohol industry (STZ)
The Biden administration released on July 9th a new executive order directing all federal agencies to “address overconcentration, monopolization, and unfair competition in the American economy.” The executive order has 72 separate initiatives, two of which apply to the alcohol industry. The first provision says that within 120 days, the Treasury Department should submit a joint report with the FTC and Justice Department on “patterns of consolidation in production, distribution of retail beer wine, and spirits markets.” The second provision reads, “reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.” The alcohol industry is fairly competitive, but distributors have considerable power. Smaller brands, in particular, are beholden to the distributors. It is too early to know the executive order's impact, but a good place to monitor for clues will be acquisitions, especially among distributors.
Reyes Beer Division announced the acquisition of Greenco Beverage Co. in Greenville, S.C. earlier this week. Reyes is the largest beer distributor in the country, with more than 228 million cases distributed last year. The acquisition will add 2.8 million cases to Reyes’ existing 5 million cases business in the state. Greenco distributes Molson Coors, Constellation Brands, Yuengling, Heineken, Diageo, Boston Beer, and Mark Anthony. In recent years, Reyes has had a dominant presence in California and has been a key partner of Constellation Brands, ensuring that higher velocity led to better shelf placement.
