Broke Bang (CELH, MNST, PEP)
VPX, the Bang energy drink manufacturer filed for Chapter 11 bankruptcy protection after a federal jury ordered it to pay Monster Beverage nearly $293M. Monster Beverage sued the energy drink rival for interfering with its customers and falsely advertising the benefits of Bang Energy drinks. VPX said its bankruptcy reorganization is being supported by $100M of additional financing from its syndicate lenders. It has been a tumultuous period for VPX with its distribution agreement with PepsiCo ending this year after two years of disagreements and rancor. Earlier this year a federal judge confirmed a $175M ruling against Bang as well as $9M in attorney fees and the possibility of a 5% royalty over trademark rights for the name “Bang.” After only six months with PepsiCo’s distribution VPX’s CEO announced “PepsiCo, you’re fired.” With the series of rulings against VPX this year it seems more likely that VPX’s experience with PepsiCo is not indicative of what Celsius will see in its distribution agreement. Bang’s share losses during this period will most likely benefit Celsius and Monster’s Reign. We recently added Monster Energy to our Best Idea Long List and Celsius Holdings to our Long Bias List. Our presentations are available on replay.
No gigging (DASH, KR, WMT)
The Labor Department’s proposal to reclassify gig workers as employees rather than independent contractors would raise the costs for grocery delivery. The White House has sided with labor activists that companies are using the contractor model to reduce costs for health care benefits, overtime pay, and organizing in unions. The proposed rule would allow the determination of whether to classify a worker as a contractor or employee on a more holistic assessment. Included in the proposal are six criteria that would determine whether a worker is an independent contractor or an employee: whether a worker controls their P&L, the extent of the worker’s investments, the work relationship’s degree of permanence, how much the employer controls a worker’s schedule, whether the work is integral to the business, and a worker’s skill level/initiative.
The proposed rule is subject to a 45-day public comment period. Uber, DoorDash and Lyft said the proposed rule reverts the standard to what was used under the Obama administration rather than the rule under the Trump administration. In 2020, voters in California approved a proposition that exempted app-based ride and delivery companies from a law requiring companies to reclassify gig workers as employees. Grocery delivery is not profitable, but many companies believe it has to be offered to be competitive. Delivery sales will decline if food retailers pass on the higher costs. Instacart has reportedly planned to go public this year. The proposed rule will complicate those plans.
Tasting room sales decelerate (NAPA, VWE)
For the 450 wineries across California, Oregon, and Washington in Community Benchmark’s index, overall DTC sales increased 7.5% YTD through August, decelerating 1% from the YTD through July. Wine club sales for the YTD ended August increased 10.2%, accelerating slightly from 9.9% sequentially. Total tasting room sales increased 12.6% YTD compared to the prior year. The number of visitors were down 0.5% YTD. That represents a deceleration sequentially from 15.6% growth in the YTD period through July with the number of visitors up 3.1%. The comparisons are becoming more difficult to lap as we lap California’s full economic reopening in June 2021. The on-premise channel is the driver of industry sales in 2022.
