Post-pandemic grocery delivery (KR, GO)
With the additional fees and the cost of tips, grocery delivery is more expensive than shopping in-store. With pandemic behavior receding grocery delivery companies are looking to expand their customer base. In the last week Instacart has announced the expansion of a 70 store test with Grocery Outlet to 400 stores. Instacart also announced last week that it is partnering with Wegmans to accept EBT and SNAP payments across 106 stores. Monthly Active Users (MAUs) of Instacart increased 15.6% in March YOY, accelerating 130bps from February. MAUs were down from the peak in December during the Omicron outbreak by 15.6% as seen in the chart below.
Kroger’s app MAUs decreased 7.4% in March, compared to the 11.7% decline in February.
Buyk, Zero Grocery, and Fridge No More, three 15-minute grocery delivery services, shut down operations in March. Instacart said it cut its valuation by nearly 40% at the end of March. There are still plenty of VC backed competitors in grocery delivery. A higher priced grocery model is a difficult proposition during an unprecedented surge in food costs and the comparisons are to a pandemic.
Growth in wine at the upper end (STZ, VWE, NAPA)
Most of the growth in wine has been in the higher price tiers, but most of the volume is in the lower price tiers. The lowest three price tiers for wine, which are all below $11 per bottle, represent nearly 75% of the volume. The lowest three tiers had double-digit declines in the year ended February 2021 as seen in the chart below. The fourth of seven tiers ($11-14.99) was flattish, followed by 9.9% in the fifth ($15-24.99), 13.1% in the sixth ($25-49.99), and 35.4% in the highest tier (>$50). Collectively the highest three tiers represent 11.4% of the market. The higher end of the wine industry where Constellation Brands, Vintage Wine Estates, and The Duckhorn Portfolio are positioned is more fragmented. The public companies can better utilize their scale and cost of capital advantages while the higher-priced tiers continue their secular growth.
Tax suspensions (ACI)
Thirteen states currently have sales taxes on groceries, but only three tax groceries at the ordinary rate without an offsetting credit. Many of the states are contemplating suspending the tax in response to the surge in food inflation. At the end of March, Tennessee suspended the 4% grocery tax for a month. Oklahoma and Alabama are considering suspending it for years. Illinois suspended the 1% sales tax on groceries for the rest of the fiscal year. There are currently proposals to limit fuel taxes in more than 20 states. Four states have already suspended the tax on fuel. The fuel tax suspension is a minor expense for states flush with cash. New York’s suspension would save the average driver $28 based on the average number of miles driven, or two peak hour crossings of the George Washington Bridge. The average household in Tennessee would save $16.50 on groceries each month. Consumers must be feeling some pain if politicians are trying to do something about it.
