Event reminder (STKL & GO)
We are hosting a Research Roundup today at 2 PM ET. We will revisit our investment thesis for SunOpta and Grocery Outlet. SunOpta (STKL) and Grocery Outlet (GO) are both on our long list. Both company's share prices have underperformed this year, with SunOpta down nearly 40% and Grocery Outlet down nearly 30%. We will review what happened during the year, what went wrong, and what went right. 2021 was still primarily driven by macro factors for the consumer staples sector, with more elements out of the control of management than what they can be held accountable for. We will also hold ourselves accountable and assess what thesis creep is or what part of the investment thesis remains the same.
More importantly, we will look out to 2022 and project what could improve or worsen the companies. We will examine the headwinds and tailwinds. Both companies are positioned to outperform in 2022 from a competitive as well macro perspective. The valuation of both companies also sets them up well to outperform when the headwinds subside.
Grocery Outlet is a grocery discounter that should have benefited from the shift to at-home meal consumption but not in 2021. The company's Q3 results show the light at the end of the COVID tunnel. Grocery Outlet remains one of the consumer sector's best square footage growth concepts in the digital era. We are raising Grocery Outlet one spot higher on our long list.
SunOpta is one of the largest suppliers of plant-based beverages, one of the best secular growth categories in how we will consume in the future. The company should have benefited from the growth of plant-based foods and the high-profile IPO of Oatly, a competitor, but the opposite happened. SunOpta's topline and margin visibility is not reflected in the current valuation.
Fast fail funding -The Naked Market (HSY)
The Naked Market raised $27.5M in a Series A funding round last week. The Naked Market is a next-generation consumer products company creating a portfolio of food and beverage brands. The platform creates and launches health-oriented brands/products across a wide variety of categories. The idea can hit the market in three months as the platform enables end-to-end operations. The platform utilizes AI and a "fast fail" strategy to end unsuccessful tests quickly. The company calls itself a CPG for millennials by millennials. The company's current portfolio consists of brands like Flock, rotisserie chicken chips, and Avocrazy, avocado puffs. Management said they would use the new capital to roll out new products, further develop its data gathering, scale existing brands, and look for acquisitions. The snack food market was valued at $427B in 2020, and the better-for-you segment has received a lot of capital and interest. Last week Hershey announced the acquisition of Dots for $1.2B.
The promotional intensity remains subdued (ACI)
Promotional intensity for overall CPG in the grocery channel was flat week over week in the week ended October 24 at -4%. Since the end of July, the promotional intensity has been lower YOY, as seen in the chart below. Promotional intensity is lowest in the frozen and beverages categories. Non-edible promotions have remained higher YOY but have decelerated. The edible categories have been more promotional while out of stocks have been higher in edible categories than non-edible categories. There is less reason to be promotional when you are short of product. Lower promotions have continued to benefit the grocers during the pandemic.
