Return to the office (KR)
According to Kastle Systems, its 10 cities' average occupancy rate for office buildings fell to 32.1% for the week ended Aug. 11, down 80bps from the prior week, as seen in the chart below. Kastle’s occupancy barometer reflects access swipes to the office; it provides control systems. Kastle has customers in more than 2,600 buildings in 138 cities. The largest drops in the last week were in Houston, Dallas, and Washington D.C. The Philadelphia area was the only one to see an increase in the most recent week, as seen below. Office occupancy varies by region, with the largest Texas cities recently falling below 50% and the largest California cities below 30%.
The return to the office will determine how permanent the food consumption shift is from on-premise to off-premise. Many companies have delayed plans to return to the office with the Delta variant. The return so far has been at a modest pace. The headwind for grocers is lessened currently, but it will stretch at least into late 2022.
Organic produce outpaces conventional (SFM)
A report on retail sales from the Organic Produce Network said organic produce dollars during the April through June period grew 4.1% compared with the same period last year. In comparison, conventional produce sales decreased 3.3%. Organic volumes grew 0.2%, while conventional volumes decreased 8.6%.
The Organic Produce Network estimates that organic products accounted for 12% of fresh produce sales in 2020. Berries were the highlight in organic produce with a dollar growth of 19% and volume growth of 16%. Berries overtook packaged salads as the top organic category for the first time. Citrus volumes grew 26.7%, lettuce grew 2.1%, and tomatoes grew 1.2%. The Northeast had the strongest growth in organic sales with 7.7% dollar growth and 3.6% volume growth. The West saw a 0.2% decline in organic sales and 3.9% in volume.
Indoor growth investment bubble (APPH, SV)
Greenhouses and indoor grow facilities are being built across the U.S., but there has not been a similar flurry of construction in Canada or Mexico. One reason is the cost. AppHarvest’s latest tomato indoor grow facility is expected to be $139M, slightly more than $50 psf. Bright Farms’ latest leafy greens facility costs $75 psf. Gotham Greens built a leafy greens facility in Rhode Island at the cost of $122 psf. Those costs are significantly greater than outdoor farms, necessitating a premium price to consumers.
The main reason could be investment capital. Equilibrium Capital is a leading investor in the North American indoor agricultural sector. It recently closed its second fund this past month at $1.02B. Its first fund had $336M. Equilibrium recently invested $91M to back AppHarvest’s second tomato indoor grow facility. Equilibrium provided $90M in debt and equity financing to Little Leaf Farms, which is building a lettuce and leafy greens facility in Pennsylvania and North Carolina. Equilibrium provided $110M of debt and equity financing to support Revol Greens’ lettuce and leafy greens facility in Texas. It also provided expansion capital to FINKA, a Mexican greenhouse company growing tomatoes, peppers, and cucumbers. Equilibrium’s investments have created a bubble in indoor-grown produce. Now the market needs to see a similar increase in demand.
