Analyst Day Review (STKL)
On Thursday at 12:30 PM ET we are hosting a review of SunOpta's analyst day. Temporary supply chain issues disrupted the company's production for two quarters. The issues are behind it, 90% of inflationary cost pressures are being passed through to the customer, and the outlook for oat milk has not dimmed.
SunOpta is a best idea long. We will outline our investment case for the shares to double from here even in a recession or Quad 4 environment.
The battle over the milk label (OTLY, STKL)
In March, the FDA submitted a draft policy on the labeling of plant-based milk alternatives to the Office of Management and Budget which must approve rule changes. The draft was not made public. Since the FDA would likely not have submitted the documents unless it was seeking change, it is expected to not allow the plant-based industry to use the term milk. In April, FDA Commissioner Robert Califf said in testimony before the Senate about changing the use of the milk label by non-dairy drinks, “We’re moving along quickly and it’s a priority to get this done, so I can assure you it will get done.” Removing “milk” from the packaging of the plant-based competitors has been a top priority for the dairy industry.
Years ago in Sweden the dairy industry lobbied the government to not allow Oatly to label its product as oat milk. Oatly marketed the ruling as the bidding of the dairy industry and put “oat drink” on its packaging. The Swedish marketing campaign helped propel Oatly’s sales and it has not looked back. In the U.S. Oatly has said, “Oatly would be placed at a serious disadvantage if we were no longer allowed to use terms that instantly and accurately convey what’s inside the carton.” Changing the label now is akin to closing the proverbial barn door after the horse has bolted. Using the label “dairy alternative” will be effective. What matters more for sales is the retailers stocking the plant-based alternatives next to dairy milk.
Texas on-premise alcohol beverage tax receipts exceed pre-pandemic (TAP)
Texas reports its alcoholic beverages sales tax receipts monthly. In May, alcoholic beverage receipts increased 21.6% YOY. Compared to April, receipts increased 1.2% month over month. April and May both significantly exceeded pre-pandemic months. In Texas, bars were shut down in mid-March and allowed to re-open on May 22. In late June, bars were shut down again, then re-open again in October 2020 by county. According to CGA two out of three consumers have visited restaurants and/or bars for food-led occasions in the past two weeks, up 3% since April. Two in five consumers have visited for drink-led occasions, up 1% since April. Despite the higher prices consumers are looking to resume their pre-pandemic lifestyles. Higher prices for food, drinks, and gasoline will have an impact on how they spend once they are at the on-premise locations.
Spirits-based RTDs gain (BUD, NAPA)
Drizly reported that RTDs outsold hard seltzer over the Memorial Day weekend at 4.8% vs. 4.4%. Three of the top five spirits-based RTDs were tequila-based. Spirits-based hard seltzers are the only product category within RTDs in the off-premise channel to see growth. In the week ended May 22 spirits-based hard seltzer sales increased by 80.9%. YOY sales growth for the previous four weeks were +111%, 80%, 78%, and 105%. High Noon was the top growth brand with sales up 95%. The overall RTD category declined 2.4% for the week ended May 22. Wine-based seltzers decreased by 41% while malt-based seltzers decreased by 14%. Anheuser-Busch InBev spirits-based seltzer sales increased by 35% driven by Cutwater Spirits. It’s not just in the off-premise channel where spirits-based RTDs are seeing growth. With labor challenges, spirits-based RTDs are seeing on-premise adoption. According to marketplace data from Provi, which has a largely on-premise customer base, pre-mixed cocktails have grown to 31% share of all RTDs compared to 21% in the previous 12 months. Pernod Ricard expects the RTD category to double by 2025, reaching 100 million cases.
Last week The Duckhorn Portfolio took an inventory charge for the exit of wine-based seltzers. Spirits-based seltzers have a taste and variety advantage over malt-based seltzers, but the much higher excise tax rate is a significant disadvantage.
