Restaurants
Toast pre-IPO Black Book date change
We moved our Toast pre-IPO black book to Tuesday September 21st at 2PM ET.
Toast, a restaurant software startup, seeks to raise $825M in its IPO next week. Toast grew from having its technology in 6,000 restaurant locations in 2017 to 33,129 as of June 2020, adding 14,813 locations through June 2021 for a total of 47,942 sites. The company's revenue grew 105% YoY from $344 million to $704 million during the six months ended June 2021. Two acquisitions have supplemented toast's organic growth. In June, it acquired xtraChef, which offers back-office technology for restaurants, two years after acquiring HR and payroll software provider StratEx.
The pandemic has challenged the restaurant industry, from moving to all take-out/delivery to welcoming guests back inside. The pandemic forced an industry that was slow to adopt technology to implement it in multiple facets for survival. Menus, orders, and payments shifted digitally. Toast offers software to help the industry's new host of challenges. With the labor shortage, the software has filled in for numerous employees. Toast processed over $38 billion in gross payment volume in the trailing 12 months. Industry growth will be driven by incremental spending on restaurant technology to increase as more operators add tools to help their operations. According to the filing, 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.
Our key investment points:
Consumer Staples
Methane reductions (OTLY)
On Friday the U.S. and European Union announced a pledge to reduce methane emissions by at least 30% by 2030. Methane is a greenhouse gas that is considered to be the biggest contributor to climate change after CO2. Methane is less prevalent, but more effective at trapping heat. The U.S. and EU are targeting two dozen other countries to join the pledge. Oil and gas companies will likely be the most impacted, but farming and waste management will also be part of the focus. Cattle are the largest agricultural source of greenhouse gases globally. In the U.S. cattle are said to account for 4% of greenhouse gases. Part of Oatly’s marketing is that oats are better for the environment than dairy milk due to the latter’s greenhouse gas emissions.
Truck rates rise in August (UTZ)
The DAT Truckload Volume Index increased 2% in August compared to July and increased 17% YOY. The index is an aggregate of dry van, refrigerated, and flatbed loads moved by truckload carriers. The national average rate for van loads on DAT’s network rose three cents to $2.76 per mile in August. The monthly average spot van rate has increased 17% since January and 35% YOY. The number of loads posted to the DAT network increased 11.9% in August while available trucks increased 1.5%. There were 6.5 loads to every truck in August, up from 5.8 loads in July. Contract rates for all three equipment types increased month over month. The national average contract van rate increased 1.8% from July. The national average price of on-highway diesel was $3.35 per gallon in August, the highest since October 2018. The average fuel surcharge was 35 cents per mile, up 15 cents YOY. Higher freight rates are a margin headwind for nearly every consumer staples company.
Home meal preparation (KR)
Since January the share of meals prepared at home has decreased slightly each month. However, in August meals prepared at home inflected up to nearly 80% from 76.6% in July according to IRI. Fresh produce sales increased 1% YOY in August and was up 12% compared to August 2019. More children are attending school in-person this year. According to IRI 11% of children between 6 and 12 and 14% of teenagers are attending virtually, 4% of children between 6 and 12 and 5% of teenagers are in hybrid, and 79% of children between 6 and 12 and 37% of teenagers are in-person across the country. Last August 58% of children were attending virtually and 16% attended in-person.
The percentage of people eating on-premise at restaurants fell from the July high of 50% to 48% in August. The share of people purchasing takeout from restaurants was 53% while 20% had restaurant food delivered in the past few weeks. The share of people working from home five days of week was 28% in August compared to 34% last August, which may have a larger impact for restaurant sales than grocery sales.
