Price increases (NESN)
Nestle’s CEO said it an interview that the company will have to raise prices further in 2023 in order to offset higher production costs that it has not fully passed on to consumers. The increases will not be as large as in 2022, but “we have some catching up to do over the full year.” Through the first nine months of 2022 price accounted for 7.5% points of the 8.5% organic sales growth Nestle reported. Our call for 2023 is food disinflation, not deflation. Most CPG companies need to continue raising prices to offset cost pressures. We see food inflation well north of consensus expectations in the 1H of 3-4%.
The importance of innovation (STZ, TAP)
In 2022, new beer products accounted for 83% of the incremental sales of the category according to Nielsen. In spirits, new products contributed the entire sales gain of traditional spirits. Of the top 25 best selling new products in 2022, a dozen were FMBs, six were hard seltzers, four were imports, two were craft beers, and one was a domestic premium.
The biggest innovation in beer last year was White Claw Surf variety pack at $74M of off-premise sales. Bud Light Next was the largest domestic premium launch of the year and #2 overall in new product sales. Simply Spiked Lemonade by Molson Coors was #4. Two additional Simply Spiked Lemonade flavors were in the top 25 for Molson Coors, as was a Topo Chico flavor launch and Vizzy Hard Seltzer Mimosa variety pack. SAM’s Hard MTN Dew variety pack was #5. Three of the best-selling imports were Modelo Chelada Naranja Picosa, Modelo Chelada variety pack, and Modelo Oro ($5.4M). The beer category needs innovation in order to grow. Modelo Oro was tested initially in three cities. Next month Modelo Oro is expanded nationally and the expectations are high for the lower-calorie beer.
Truck rate relief (WMT)
The national average dry van rate has fallen 16% since the start of 2023, a steeper fall than the 11% seasonal decrease in January for the past seven years. Van spot rates are down ~23% YOY in January, weakening from the ~-19% decline in December. Contract rates are down ~2% YOY.
Intermodal trips are typically a day slower than full truckload shipping on most lanes, but many shippers find the savings attractive. On lanes shorter than 1,200 miles intermodal spot rates were only 5% lower than truckload rates in the third quarter as truckload rates fell. Compared to longer routes of more than 2,000 miles, the savings was an average of 26%. It’s likely shorter intermodal lanes will see price pressure in the near term. Intermodal volumes fell 4.8% in 2022 according to the American Association of Railroads. The growth of Asian imports coming to East Coast ports is pressuring intermodal demand. Truck
