Strength in Salty snacks (PEP, UTZ)
Salty snack sales in the convenience store channel grew 12.1% in the 52 week period ended December 26, 2021, according to IRI. Potato chips, the largest salty snack product sub-category, kept pace with growth of 11.7%. 76% of consumers report consuming salty snacks at least weekly. Salty snacks are a secular growth category as Americans increase their snacking occasions. The convenience store channel benefited for half of 2021 from easy pandemic comparisons when consumers avoided traveling. To offset inflationary headwinds the snack companies have increased prices. There is no standard size for salty snack packages in general which allows the companies to offset higher costs by reducing the amount of product in a package (known in the industry as “weight out”). Smaller packages could be a headwind to nominal sales growth, but most packaging does not look to reduce the ring at the register. Frito Lay (PEP) is the 800-pound gorilla in the category while Utz has an attractive growth strategy through geographic, distribution, and product expansion drivers.
Container rates roll over (PRGO)
Shenzhen reopened after a week-long lockdown on Monday with most businesses and factories resuming work, but part of the central business district remains closed. Shenzhen is China’s second-highest port in foreign trade by volume. Container prices have fallen 8% in the past two weeks as China locked down several cities in order to contain COVID-19 outbreaks. In the last week of February, the rate to transport containers from Asia to the West Coast was 179% higher YOY according to Freightos. Rates are four times greater than historical averages reaching $14,000 to $16,000 per container. Port delays, backlogs, and supply chain tie-ups all contributed to increased use of the spot market for truck shipments. Rates soared in 2021, but not because volumes increased significantly. 2021 showed how interconnected the supply chain is and how problems in one industry could lead to problems in other unrelated industries. The rollover in shipping rates could indicate improving conditions for other parts of the supply chain. Perrigo is one of the few companies on our position monitor that directly imports goods carried on container ships.
Eat Just (BYND, VITL)
Eat Just broke ground on its new manufacturing facility in Singapore. The $120 million plant is expected to be completed in two years. The company has similar-sized facilities in North America and Germany. Eat Just makes Just Egg, a mung bean-based whole egg substitute. Last week Eat Just’s SVP of sales said, “We’re growing at 40% plus, we’re not seeing any downturn and we have so much more potential in terms of household penetration and product proliferation. We’re aiming to double our revenue again over the prior year.” The company did not reach profitability in 2021, but it has brought the cost of the product down from $8 to $4. The company started out selling egg-free Just Mayo, but now sells predominantly Just Egg while in Singapore it has launched cell-cultured meat. Just Egg is vegan, claims it is better for the environment, and does not have cholesterol. Those attributes are enough to get shelf space at retail. Eat Just had a $267M funding round in 2021, the largest for a cultivated meat company.
Bored Bessie
CattleProof is looking to create NFTs for cattle. The company is using blockchain to verify cattle’s provenance, age, genetics, ranch, and more. Inspectors would be able to store certifications to the NFTs. The NFT could also record collateralization, movement, and expedite the sale of the animal. The technology sounds appealing for the ranchers, but collapsing the meatpacking spread is probably a higher priority. The company did not say if there could be some Bored Bessie NFTs to trade.
