Warehouse clubs gaining grocery share (KR, ACI)
BJ’s Wholesale Club grocery comps increased 15% YOY and 36% on a three-year stack. BJ’s comp gasoline gallons increased 23% YOY in the quarter and +51% on a two-year stack basis reflecting consumers adjusting to the higher prices. BJ’s private label penetration increased 200bps to an all-time high of 24%. Gross margins contracted 30bps due to making “tactical investments in some key items” and supply chain costs. Inflation accelerated from 4% in Q4 to 7% in Q1. Management said their pricing relative to the competition has improved, “Our price gaps are better than they’ve been in a while. They’re better than last quarter, better than last year.”
We are hosting a grocery sector flash update call on Tuesday. We will do a deep dive into the consumers’ behavioral changes in response to inflationary pressures while COVID-19 concerns ebb.
Spirits-based RTD launches (SAM)
Year to date through April 2022, Alcohol and Tobacco Tax and Trade Bureau (TTB) approvals for new package labels on beverage alcohol have trended at 208 per month compared to 276 per month in 2021. Spirits-based RTDs have trended at 200 label approvals per month. Beer-based RTDs have seen label approvals decelerate below 25 approvals per month, less than half their peak in early 2021 as seen in the chart below. Wine-based label approvals are showing signs of acceleration to above 25 approvals per month. Vodka leads spirit approvals, followed by tequila and whiskey/bourbon. The entire hard seltzer, RTD, and spritzer category are driven by new product introductions and trial. Innovation in the RTD category is being driven by spirits. If the excise taxes were similar, spirits-based RTDs would take significant share from the malt-based RTDs.
Coffee’s health benefits (BRCC, RVAC)
Dr. Astrid Nehlig, research director of the French medical research institute, Inserm, said, “Coffee has often been accused of being bad for heart health. But we now have global research showing that coffee is protective against cardiovascular disease, stroke, and coronary heart disease, and decreases mortality linked to cardiovascular issues.” There is also clear evidence that coffee protects against type 2 diabetes, regardless of body fat, it’s definitely protective against Parkinson’s disease and almost certainly against cognitive decline in general. Coffee does not increase our risk of cancer. The reasons are not that clear, but coffee does contain more than 1,000 compounds.
That does not mean consumers should drink as much coffee as possible. “Research shows that adults shouldn’t go over 400mg a day, which is 4-5 small cups, and no more than 200mg in one sitting.” Dr. Nehlig said about caffeine “It’s also about the accumulation of caffeine during the day, which is related to how we metabolize caffeine – in one group of the population, caffeine builds up in the body, but the other group eliminates it very quickly.” The science is hardly settled, but a popular product being associated with health benefits can go a long way for sales. The opposite is also true as seen in sales of red wine vs. soymilk in the past decade.
