October retail sales (GO)
The Commerce Department reported that total retail sales grew 1.3% month over month in October, decelerating 30bps to 8.3% YOY. Grocery store sales increased 8.0% in October, accelerating from 7.4% in September. The two-year average accelerated 100bps sequentially to 8.3% YOY in October. California began distributing stimulus checks of up to $1,050 in October. 23 million taxpayers are expected to receive the payments by direct deposit or debit card based on their filing in 2020. The payments are expected to be received by the middle of January. About a third of Sprouts Farmers Markets are in California while Grocery Outlet has nearly 60% of its stores in the state.
Online grocery spending falls (KR)
Total U.S. online grocery sales decreased by 3% YOY in October and were flat compared to September. Spending per transaction decreased by 5% in October, slowing in all three segments (pickup, delivery, and ship-to-home). Order frequency decreased by 7%. Ship-to-home MAUs decreased by 12%, pickup MAUs decreased by 7%, and delivery was flat. The overall base of online grocery MAUs increased by 10% YOY. Total spending on groceries per household increased 15% YOY due to higher prices, while the share spent online fell 50bps to 11.6%. The MAUs grew much faster for the mass channel than for the grocery channel. Grocers have invested significant sums in online grocery since the pandemic, but the mass retailers are winning online. One of the synergies between Kroger and Albertsons is to roll out Kroger’s superior e-commerce offering to Albertsons stores.
Being measured (L.CN)
Loblaw reported Q3 EPS of C$2.01, above consensus expectations of C$1.96. Loblaw SSS were up 6.9% YOY while Shoppers Drug Mart SSS were up 7.7%. In food retail the discount banners outperformed. Gross margins in food retail were flat with private label growth offset by promotions to offer customers value. In drug retail beauty, cough and cold were strong categories. Management said, "Now we're running at record levels of cough and cold that we've never seen before." Gross margins expanded by 10bps due to a higher mix of cosmetics and OTC categories. SG&A leveraged 20bps due to sales growth. Management guided EPS growth for the year to be in the high teens% while consensus is at 20%. Food retail like most retail in Canada is less competitive than in the U.S. Loblaw has also maintained value with customers with stable gross margins during the elevated food at-home consumption.
Plant-based crypto (TTCF, STKL)
Tattooed Chef reported a 6.7% revenue decline in Q3 after sales to a large retailer declined significantly. In Q2 with growth of 140%, the company was recognized by SPINS as being the fastest-growing brand in the conventional food channel YTD in the grocery frozen and refrigerated categories. Gross margins were a negative 7.2%. The company’s net loss widened to -$38.5M from -$8.2M in the prior year. Revenue guidance was cut from $280-285 to $235-245M. The company’s goal is to achieve positive EBITDA and cash flow by mid-year 2024. The company expects to raise additional debt or equity capital in the future.
The implosion of plant-based food companies including Beyond Meat (BYND), Oatly (OTLY), Tattooed Chef (TTCF), AppHarvest (APPH), and Kalera (KAL) has resembled cryptocurrencies this year. There are several similarities in both supply and demand for both.
Plant-based milk is the largest category of plant-based food by far with annual sales of $3B, representing 40% of the category. Growth in plant-based milk continues to be strong with growth of 12% in the last 13 weeks at retail according to the scanner data. In addition to environmental, health, and diet reasons plant-based milk is also driven by lactose intolerance. SunOpta’s growth in plant-based milks is driven by the share gains of oat milk (+29%) within plant-based milk, as well as share gains among manufacturers.
