Restaurants
DASH/INSTACART
Instacart's CEO, Fidji Simo, believes that online grocery penetration will grow to 20-30% over the next five years from a current 10%, according to an Associated Press interview. Yes, Instacart looks to be positioning itself for an IPO soon. The company has been aggressively expanding into the advertising space, something we think DASH will pursue. She stated that if the company wants 30% of people to order groceries online, they will have to make online grocery shopping cheaper overall, likely offset by increased advertising and promotions. When asked about competitors UBER and DASH entering the market, Simo said that her company enjoyed the focus because it makes online grocery shopping more mainstream. Instacart already took on one of the major grocery retailers, WMT, and forged a partnership with Instacart after the grocery giant's online grocery delivery market share fell to 25% from 50%. KR also recently announced an alliance with Instacart, promising 30-minute delivery to customers.
Consumer Staples
Grocery SSS (VLGEA)
Village Super Market reported SSS growth of 0.1% for the quarter ended July 31. Village Super Market operates a chain of 34 supermarkets in New York, New Jersey, Maryland, and Pennsylvania under the ShopRite and Fairway banners. On a two-year stacked basis, SSS grew 7.4%. Same-store digital sales decreased 22% and on a two-year stacked basis increased 172%. Average basket sizes decreased, transaction counts increased, and same-store digital sales decreased as the company cycled against the pandemic. Food inflation and SNAP benefits were tailwinds to sales. Management said, "sales levels in Manhattan continue to be negatively impacted by residential population migration out of the city and less commuter and tourist traffic." Gross margins contracted 60bps due to lower departmental gross margins and increased warehouse assessment charges partially offset by a favorable product mix and lower promotional spending.
The Duckhorn Portfolio (NAPA)
The Duckhorn Portfolio registered 13.8 million shares (including the over-allotment) for holders to sell, representing ~$300M of shares at last night's closing price. Pure play wine companies have been missing from the U.S. public markets for a long time. Contrary to uninformed perception, the previous public wine companies did not perform poorly. The largest wine companies were acquired at premium multiples. A broader shareholder base is a positive for the sector. Perhaps a strong reception for additional shares will encourage Winc to go public.
October WASDE
The USDA WASDE October crop report indicated corn production is up 3% over last year, while soybeans are expected to increase 5%. Corn and soybeans production was higher than expectations and the previous USDA projection. Both corn and soybean prices declined ~2% after the release. The USDA raised its national corn yields by 0.2 bushels per acre from the September report. For soybeans, the USDA raised yield forecasts by 0.5 bushels per acre. The USDA pegged new corn crop ending stocks at 1.5 billion bushels, above the 1.43 billion estimates and the September government projection of 1.40 billion. The USDA pegged new-crop ending stocks at 320 million bushels, above the 300 million estimates and the September government projection of 185 million for soybeans. Wheat may have the most bullish drivers, with production forecasted to be down and ending stocks revised lower in the September report. Fertilizer prices have inflected upwards, which will likely impact corn (less) vs. soybean (more) plantings in the spring. The commodity prices have not driven food inflation, so do not expect relief from the lower prices.
Real Good Foods (RGF)
Real Good Foods filed a registration statement to go public yesterday. The company makes low-carb, high protein packaged goods and competes in the health and wellness segment of the frozen food category. The company self-manufactures about 70% of its products. Revenue was flat in 2020 but nearly doubled in the six months ended June 30, 2021. Gross margins hit 24.4% in the most recent six months compared to 12.8% in 2020. In addition, 57% of sales are to its three largest customers Walmart, Kroger, and Costco. Small food company IPOs have successfully become public, so more should be expected. The growth rates are probably at peaks, but going public is currently preferred over being acquired.
