Restaurants
SHORT CASUAL DINING - Supply Chain ISSUES?
Last night's earnings warning from EAT was a wake-up call for investors in Casual dining names. The re-opening was always going to be a challenge for many Casual Dining companies. Managing labor costs when SSS goes from -50-60% to +50-60% is nearly impossible to do without a misstep, and this is what we have from EAT. They will not be the last company to talk about many of these challenges, nor the last to miss numbers. The SHORTS we like are DRI, CAKE, PLAY, BLMN, and BJRI.
What is new last night? The company comments about its supply chain! Did they have a supply chain problem before? As of October 5th, when they released the FY2021 annual report to shareholders, they specifically said, "We have not experienced significant supply chain disruptions during the COVID-19 pandemic." Now the company is saying, "We are responding to these COVID headwinds with an increased focus on hiring and retention efforts and working with our partners to gain further stabilization of the supply chain environment. The comments suggest that the supply chain needs stabilization. It would be nice to know what parts of the supply chain need stabilizing!
Portillos Pre-IPO Black Book replay
Portillo's, a fast-casual restaurant chain known for its Chicago-style hot dogs, announced terms for its IPO. Founded in 1963, the Oak Brook, IL-based company plans to raise $375 million by offering 20.3 million shares at a price range of $17 to $20. Portillo's is looking for a market value of $1.3 billion at the midpoint of the proposed range. Portillo's serves "iconic" Chicago street food through multichannel restaurants, serving a diverse menu that includes Chicago-style hot dogs and sausages, Italian beef sandwiches, and chopped salads, among other offerings. Nearly all of its restaurants have double-lane drive-thrus and a layout that accommodates a variety of access modes, including dine-in, carryout/curbside, delivery, and catering. Currently, Portillo owns and operates 67 restaurants across nine states, and each location served, doing about $8.4 Million in average unit volumes. Portillo's generated $496 million in sales for the 12 months ended June 2021. It plans to list on the Nasdaq under the symbol PTLO.
For a replay of our Portillo's Pre-IPO Black Book, CLICK HERE.
Consumer Staples
Global RTDs will continue to grow (SAM)
RTD alcohol volumes have grown faster than any other significant drinks category since 2018. According to IWSR, the category is expected to continue to outperform over the next five years, bringing its share to 8% in 2025 from 4% in 2020 in the top markets. IWSR projects a 15% CAGR for RTDs in Australia, Brazil, Canada, China, Germany, Japan, Mexico, South Africa, the UK, and the US. Combined, the ten countries represent 85% of RTD volumes globally. Hard seltzers lead the RTD category and are projected to account for half of global RTD volumes by 2025, up from 30% in 2020. Hard seltzer volumes outside the US are small. Brandy Rand, COO of the Americas at IWSR, said, "It's important to remember that it took a few years for hard seltzers to catch on in America, and we're still in early days in this category outside the US." IWSR research shows that there is a clear preference among consumers for spirits-based RTDs in most markets. Over the long term, it seems unlikely that hard seltzers would have a vastly different share of the US beverage alcohol market compared with other countries. State alcohol taxes and laws can explain the share between spirits-based and malt-based seltzers. Boston Beer and Mark Anthony have made small inroads in the international markets for hard seltzers; if there is one, the opportunity will likely be captured by the large beverage alcohol companies like Anheuser Busch InBev.
Reyes Beer Division acquires again (STZ)
The Reyes Beer Division announced that it would acquire Powers Distributing in Lake Orion, Michigan. The acquisition will add 5.7 million cases and 2,800 customers. Powers distributes Molson Coors, Constellation Brands, Mark Anthony Brands, Boston Beer, Heineken, and Diageo. This year, Reyes Beer Division has added 19.1 million cases in acquisitions and ships more than 260 million annually. Despite the Biden Administration's executive order calling for increased competition across several industries, including alcohol, Reyes Beer Division has continued to be acquisitive. Constellation Brands has been a beneficiary of Reyes Beer Division's consolidation as a key supplier.
Indoor tomato cultivation challenges in Europe (APPH)
Tomato cultivation is declining in Europe due to high costs and the spread of the Tomato Brown Rugose Fruit Virus (ToBRV). The higher cost of raw materials is the largest headwind. The higher gas and electricity costs are an increasing challenge in the winter season due to the additional heating costs. ToBRV has spread in several production areas leading to a sharp drop in tomato yields across Europe. Alessio Orlandi, the commercial director at FRI-EL Greenhouse, said, "By cross-referencing data between seed companies and nurseries, we estimate a prudential reduction of 50% of the seedlings ordered (but some estimates exceed 75% in Italy). In Spain, tomato cultivation is increasingly shifting to smaller premium tomatoes, while estimating a decline in the production area of more than 30%."
