Restaurants
IPO index turns positive (TOAST)
The Renaissance IPO Index is up 3.2% this year, lagging the 20.1% return for the S&P 500 through August 27. There have been 277 IPOs priced this year so far, up 150% from last year. Filing activity continues, but roadshows appear to be waiting for after Labor day. In our verticals, Dutch Bros Coffee, Toast, and Sovos filed their S-1 registration statements recently.
TOAST IPO
Toast is a cloud-based, end-to-end technology solution for restaurants providing a suite of SaaS products and financial technology solutions, including integrated payment processing, restaurant hardware, and an ecosystem of third-party partners. Last Friday the company filed with the SEC to raise to $100 million in an initial public offering. This number looks low, given in February 2020, Toast raised $400 million at a valuation of $4.9 billion. Two months later, it responded to the pandemic by cutting half its staff. Toast's business has recovered as restaurants retooled for takeout boosting its valuation to $8 billion, according to CNBC. Other reports of a $20 billion valuation seem too rich. The company served over 48,000 restaurant locations across roughly 29,000 customers and processed over $38 billion of gross payment volume for the 12 months ended June 30, 2021. The Boston, MA-based company was founded in 2011 and booked $1.2 billion in sales for the 12 months ended June 30, 2021. It plans to list on the NYSE under the symbol TOST. Goldman Sachs, Morgan Stanley, J.P. Morgan, KeyBanc Capital Markets, William Blair, and Piper Sandler are the joint bookrunners on the deal. Beyond pandemic disruption, the company grew from having its technology in 6,000 restaurant locations in 2017 to 33,129 as of June 30, 2020, gaining an additional 14,813 locations through June 30, 2021, when it reached 47,942 sites, according to the S-1 filing. In addition, the company's revenue grew 105% from $344 million to $704 million during the six months ended June 30, 2021, versus a year ago.
While it has continually innovated its products, Toast has also grown through acquisitions. In June, it acquired xtraChef, which offers back-office technology for restaurants, two years after it acquired H.R. and payroll software provider StratEx. The pandemic, however, shifted Toast's focus slightly as more companies eyed contactless and digital ordering platforms. Following the onset of the pandemic, 25,000 restaurant locations added Toast's contactless technologies, according to a press release.
"As a result of the COVID-19 pandemic, we've seen a big shift in dining behavior and an acceleration in technology adoption," the company said in its S-1 filing. "Many restaurant operators have rebuilt their businesses to meet new guest expectations for ordering online, contactless payments, and digital hospitality. Through new Toast product offerings like contactless Order & Pay for indoor dining, curbside notifications for takeout, and flat-fee delivery via Toast Delivery Services, we've supported our customers through this transition." In April, Toast updated its Order & Pay program, adding pre-authorization tabs to let diners start a tab, pre-authorize a credit card from their device, and order individually or for group orders. The company also recently launched Toast Now, a digital-only platform for restaurants to quickly activate online ordering, delivery, gift card, and email marketing capabilities. Toast also expects spending on restaurant technology to increase as more operators add tools to help their operations. According to the company, restaurants in the U.S. spent about $25 billion on technology in 2019, making up less than 3% of the restaurant industry's total sales. The company expects technology spend to increase to $55 billion by 2024.
Toast plans to continue growing by selling additional products to its existing customers and investing in research and development to expand the functionality of its current platform. The company will also broaden its services and financial technology solutions and expand internationally. "When restaurants grow, Toast grows through higher payments volume and increased adoption of our full platform."
WEN
WEN is a LONG
Wendy's will change its fry recipe for the first time in over ten years to keep the fries fresh while being delivered. "We had to make sure that our fries stood up to the delivery experience, so they have the same fry texture and crispiness," noted Emily Kessler, Wendy's senior specialist of culinary and innovation. The new fries will be coated in a new type of batter designed to hold crispness longer. They'll be available nationwide starting September. The move is a sign of the changing times. During the pandemic, Wendy's worked with delivery service companies to deliver food to customers who were no longer commuting to work, and demand for delivery doesn't appear to be slowing.
Consumer Staples
Snacking growth is across types (UTZ)
Americans had been increasing their snack occasions for years before the pandemic. During the pandemic, snacking growth accelerated. Increased snacking and alcohol consumption during the pandemic have been blamed for increased weight gain during the pandemic. There are plenty of articles about healthier snacking and eating trends as a result of the pandemic. The reality is that the growth in snacking was broad-based across healthy, indulgent, and treats, as seen below.
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Grocery e-commerce trends slow (KR)
According to Numerator, grocery e-commerce sales slowed in week 30 to down 10% YOY, decelerating from +8% in the prior week, as seen in the following chart. The decline appears to be comparison-related. Compared to 2019, e-commerce grocery spend was up 44% for the week, decelerating from +99% in the prior week. Trips per household were still up 3% YOY but decelerated 2% points from the prior week. The decline was in the number of households decelerating to – 14% from +3% in the prior week.
Financing shortfall (SV)
Spring Valley Acquisition (SV) shareholders approved the merger with AeroFarms (ARFM pending). Due to redemptions, the minimum cash requirement in the merger agreement has not been met. The companies are seeking additional capital. The press release stated that AeroFarms insiders are expected to provide a significant portion of the additional capital. If conditions are met, the merger is expected to take place on or before September 24th. Is it the first time the sector so flush with early-stage investment capital has run into financing shortfalls? It will not be the last time. Spring Valley Acquisition is on our shortlist.
