Beer Index remains in contraction (STZ, SAM)
The National Beer Wholesalers Association’s (NBWA) Beer Purchasers Index (BPI) improved slightly in January after falling to a new low in December. The BPI rebounded to 38 from 30 in December. The BPI returned to November’s level, but was still down compared to last January’s 46. A reading over 50 denotes expansion, while below 50 denotes contraction.
Imports were the only segment in expansion at 52 but fell from 54 in December and 71 last year. Fewer distributors are reporting that they are ordering more imports. The index for craft beer fell to an abysmal 21 in January. Hard seltzer/FMBs fell to an even weaker 18 in January from 26 in December. Premium lights improved from 31 in December to 37 in January. Premium regular had a reading of 27. Below premium improved from 42 in December to 48 in January and was the only segment to have a higher reading YOY. The measure for at-risk inventory was 52, up from 51 last month, pointing to a weak start to 2023.
Below premium’s improvement is likely due to consumers trading down due to the recent price increases, but overall purchases are still declining. Additional price increases by the large brewers are negatively impacting demand. Constellation Brands remains the sector’s growth story (even though its growth rate has slowed) while the other categories remain under pressure.
Organic produce loses share (SFM)
Organic fresh produce sales grew by 3% to $9.4B in 2022 while volumes decreased by 3.7%. The top produce category was fresh berries at 16% of fresh organic produce share. Total fresh produce sales grew 7.3% with volumes declining 1.3%. Organic fresh produce sales comprised 12% of all fresh produce sales and 7% of volume.
The price gap between organic and conventional produce widened to the most it has been in the past four years as seen in the following chart. With higher prices, consumers traded down for conventional produce. The average conventional price per pound grew 9.2% in 2022 compared to a 7% increase for organic. 13 of the top 20 organic produce categories grew in sales while 14 of the top 20 had declines in volumes.
Sprouts Farmer’s Market is on our short list. We have several concerns about Sprouts’ ability to recoup traffic lost during the pandemic, increased competitive intensity, and the risk of losing customer occasions without produce promotions. The company is embarking on an acceleration in CapEx spending for new distribution centers and a ramp-up in new store openings which will depress returns as profits decline against difficult comparisons.
Sam’s Club growth plans (WMT)
Sam’s Club said it plans to open more than 30 new warehouse clubs in the U.S. over the next several years. The new stores are expected to be 160,000 square feet, 20,000 square feet larger than most of the current store fleet. The larger store will feature an expanded area for curbside pickup, home delivery, ship from store, walk-in coolers, and expanded cooler doors. The stores will even have a sushi island, full-service floral, larger healthcare space, and walk-in dairy space. Sam’s Club is also planning to open five new supply chain fulfillment and distribution centers in 2023. Sam’s Club had not opened a new store since 2017 and closed more than 60 in 2018. Sam’s Club had a difficult 2022 from a profit perspective. The decision to resume expansion is not due to recent performance, but management’s outlook for warehouse clubs in a weak consumer environment.
