Broken growth story? (STZ)
We are hosting our Constellation Brands Black Book later today.
Constellation Brands stands apart (and not in a good way) from nearly every Consumer Staples company by raising prices in 2023 by less than in 2022 while cost increases are accelerating from 2022 to 2023. Beer price increases will decelerate to +1-2% while costs accelerate to +HSD%. Over the past decade management has been disciplined by keeping annual price increases between 1-2%. The steady price increases are an integral part of its "growth algorithm." In 2022, management made a concession to the elevated inflationary environment by stepping up the pace of price increases slightly to 2-3%. In comparison, the overall beer CPI in November was +6.6%, with AB InBev and Molson Coors recently adding another round of price increases. Constellation Brands implemented an additional price hike in October and the consumers' reaction was swift, putting an end to any thoughts of further increases. What is worse - a strategy of not wanting to raise prices or not being able to? Regardless of the answer the result is the same for Constellation Brands in 2023 - margin contraction.
The investment themes for our call:
CALL DETAILS:
|
December CPI (WMT)
Food at home CPI increased 11.8% YOY, decelerating 20bps sequentially. The meats, poultry, fish and eggs category accelerated 90bps sequentially to 7.6% YOY in December. Egg prices have surged in 2022 due to the avian flu. The categories with the most deceleration included dairy decelerating 90bps to +15.3%, fruits and vegetables decelerating 130bps to +8.5%, and sweets decelerating 90bps to +12.2%.
The animal protein category led food inflation on the way up and down, so we are paying closer attention to it as a leading indicator. The USDA has projected food at home inflation to increase by 3-4% in 2023, an projection that will seem overly optimistic in early 2023. We published our food inflation projections in our Food Retailer 2023 outlook.
New oat milks (STKL)
Califia Farms is launching a line of organic oat and almond milks. The products are made with only three ingredients, giving it one of the cleanest labels – water, sea salt, and oats or almonds. Kroger, Whole Foods, and Sprouts Farmers Market are set to carry the line. Califia is also adding updates to existing products with a 50% less sugar version of chocolate oatmilk and a 72 ounce package for its unsweetened almond milk and extra creamy oat milk. SunOpta is the largest supplier of plant based milks, supplying a number of brands including Califia. Having only three ingredients and organic oats will appeal to a sub-segment of the market that does not have much to meet this customer, besides making it at home.
