Feb. CPI (BUD, LANC)
The headline CPI increase was 6.0% YOY in February, the lowest increase since September 2021. Food at home CPI increased 10.1% YOY in February, decelerating from 11.3% in January. All of the major categories of food at home saw deceleration in February. The two-year average was flat sequentially at 9.4%. Keeping the two-year average steady (which it has been for the past four months) the CPI growth rate would decelerate by 300bps over the next three months to ~7% in May.
Beer at home CPI increased 7.0% YOY in February, decelerating from 9.0% in January. The two-year average remained flattish at 5.4% due to the comparison to last February’s step-up in prices. Despite Ball Corp.’s comments the deceleration seems to reflect the comparison rather than discounting.
The CPI for salad dressing increased 18.4% YOY in February, decelerating from 19.0% in January. A surge in the price of soybean oil has pressured the price of salad dressing. Lancaster Colony saw significant COGS pressure from soybean oil in its dressings and sauces in 2022, but price increases will lead to gross margin recovery in 2023.
Counting down to Conway (WEST)
Westrock Coffee reported a Q4 loss of $3M compared to nearly breakeven last year. Revenue grew 20% YOY with Beverage Solutions growth of 28% and SS&T’s decline of 12%. Single-serve cup volumes increased by 57%, and increased pricing was offset by a 6% decrease in ground coffee. Adjusted EBITDA of $17.5M grew 27% YOY, but was $2M below consensus expectations and at the low end of guidance.
Management guided 2023 EBITDA to $66-75M, representing 10 to 25% growth vs. consensus of $73M. The growth drivers in 2023 include new customer and product wins, the Concord, NC expansion completed in May, additional single-serve volumes, and RTD can sales. The opening of the Conway plant a year from now is the reason the company went public. Westrock Coffee is on our Long list.
Natural and organic sales (SFM, CELH)
The natural and organic products industry grew 5.4% to $278B in U.S. consumer sales in 2022 according to New Hopes’ Nutrition Business Journal’s analysis of SPINS data. That represents a deceleration from the 7% growth reported in 2021 and the 10% growth in 2020. Natural and organic food sales increased 7.5% in 2022 to $111.5B. Natural living products, which include personal care, household items, and pet products increased by 6% to $27.6B. Functional food and beverage sales increased 5.8% to $87.3B. Supplement sales grew 1.7% to $60.9B.
Natural product sales grew 7.4% in the multioutlet channel, 4.1% in the regional grocery channel, and 2.5% in the natural channel. Strong product categories included carbonated drinks, dairy alternatives, better-for-you sweeteners, baby products, and canned/dry soup. Organic food and beverage sales increased by 4.6% led by baby formula, candy, dips, soft drinks, and yogurt. In functional food and beverage growth of 5.8% was led by sports and energy drinks, soft drinks, frozen desserts, and snack chips. Sprouts Farmers Market, a natural and organic food retailer, saw its sales trail the category over the past three years.
