NYC DSD acquisition (UTZ)
Utz Brands announced it will acquire two existing DSD distributors, Clem Snacks and J&D Snacks. Clem has approximately 100 DSD routes in New York City and Long Island. J&D Snacks has approximately 25 DSD routes in the Bronx. Utz Brands believes that acquiring the DSD distributors will accelerate share gains in the New York City market. Under the DSD model, manufacturers ship directly to retail stores. DSD is the company’s largest distribution channel where it has been moving to more Independent Operators over time as seen in the chart below. The drivers for both Clem Snacks and J&D Snacks are both Independent Operators (IOs), they will be company IOs in the future. Utz Brands said it would use its revolver to fund the acquisition.
Grocery inflation headwind (GO)
According to IRI, just over half the growth in CPG sales from 2020 to 2021 was driven by low-income consumers. Lower-income households benefited from extended unemployment payments, larger SNAP payments, and enhanced child tax credits. Several states have increased SNAP payments (up to $157) in response to the expiration of the emergency SNAP benefits from the Coronavirus Response Act. In addition, 37 states are currently signed up to make their residents eligible for extra SNAP benefits as part of the Emergency Allotment (EA) program. Residents in those states will receive a boosted food stamp payment beginning in January. The EA benefits only apply to households that would otherwise not receive the full amount.
Inflationary pressures are also starting to impact consumers’ purchasing behavior. The grocery sales that IRI has been reporting have shown an 8% price mix change reflecting inflationary pressures for consumers. Price per volume is up 9% in recent weeks. Of the 25 categories that IRI tracks only soup, bottled water, and sports drinks have volume growth. The tailwind from the shift to food at home has been well documented, but the tailwind from government transfer payments to lower-income household on grocery spending has received less attention.
Dairy woes (STKL)
Refrigerated dairy milk sales fell 1.5% to $14.3B for the year ended November 28, 2021, according to IRI. Unit sales fell 4.6%. Refrigerated white milk sales fell 2.3% with units declining 5.6%. Dairy milk sales have seen better performance in sub-categories including flavored (+5.1%), higher protein, grass-fed, etc. Private label milk sales increased 1.0% and seven of the top ten brands had sales and unit growth. However, certain brands had significant declines including DairyPure, which declined 67%, and Trumoo, which declined 33%.
The U.S. has seen per capita fluid milk consumption decline for 70 years. The average consumption decline has been accelerating with the decline in the 2010s more than in any of the past decades. The per capita dairy milk consumption from 2017 to 2018 has decreased 42% from 2003 to 2004. Milk consumed with breakfast cereal fell 26% over that same time. Plant-based milk has not been the leading cause of the decline, but it does provide a tailwind. The decline in dairy milk volumes has been 10x greater than the growth in plant-based milk volume gains in recent years.
