Off-premise alcohol traffic (NAPA)
Traffic has slowed in the most recent months to packaged goods stores as seen in the chart below. The slowdown occurred in March, slightly ahead of the weakness seen at many retailers from higher gasoline prices. Traffic remains much higher than it was before the pandemic.
The return to the on-premise channel is a headwind for off-premise purchases. States like California which had on-premise restrictions longer than the majority of other states, are seeing better traffic trends this year, but that gap has started to narrow with the reduced traffic in recent months as seen in the following chart. Constellation Brands is the only beer manufacturer we are currently positive about. In wine, Vintage Wine Estates is on our Long list, in part due to the lower packaged goods store sales mix and visibility in new store brand launches.
Canadian beer sales decline (TAP)
Beer sales in Canada decreased 2.6% YOY in May, improving slightly from the 3.5% decrease in April. Domestic beer sales decreased 4.8% in May, weakening slightly from the 4.4% decline in April. Domestic beer sales have declined every month this year as consumers return to the on-premise channel. The province of Quebec’s 17.7% decrease accounted for nearly all the decline in domestic beer from the prior year. Last year the Montreal Canadiens played in the Stanley Cup finals. Imported beer sales increased 15.7% in May, accelerating from 9.0% in April. Montreal loves their Canadiens.
California plastics bill (PG)
California passed legislation last week that seeks to increase plastics recycling and reduce single-use packaging. Plastic manufacturers will be required to collect $500M annually to fund the recycling program. Under the bill, plastic producers would have to reduce the plastic in single-use products by 10% by 2027, increasing to 25% by 2032. At that point, plastic will have to be recycled at a rate of 65% compared to less than 5% now. The bill also addresses numerous hurdles to recycling, including exporting plastic waste and limiting the items that can feature the resin identification code (the small number circled by arrows on the bottom of plastic products). The authors of the bill understood that many plastics can be feasibly recycled, but in reality, rarely are. Plastic beverage bottles have their own recycling rules and were not included. Styrofoam food packaging is not banned, but it will be required to be recycled at a 30% rate by 2028. Since Styrofoam is very difficult to recycle it could end up as a de facto ban. California’s law will impact more than just the state. Expect manufacturers to switch to other materials like cardboard, aluminum, and glass or to make their products refillable (like laundry detergent). Plastic is ubiquitous for several reasons, including being the lowest cost. The bill will add to future packaging costs.
