Price increases across the pond (TAP, BUD, NOMD)
The CPI for food and non-alcoholic beverages accelerated to 18.2% YOY in February from 16.8% in January. The category was the second largest contributor (+1.7% points) to the overall CPIH increase of 9.2% in February. The increase was broad-based with eight of the eleven sub-categories seeing an accelerating trend. The largest contributor was from vegetables due to bad weather in southern Europe and Africa as well as higher electricity prices impacting greenhouses in the U.K. The annual rates in February for bread and cereals, chocolate and confectionery, ready meals and sauces, and hot beverages were each the highest since 2008. The CPI for alcohol and tobacco accelerated from 5.2% in January to 5.7% in February.
The annual inflation rate for restaurants and hotels was 12.1% in February, up from 10.8% in January. The increase was the highest since July 1991. The main driver in the growth came from restaurants and cafes where prices rose 11.4% in February up from 9.4% in January. The upward pressure came from price increases for alcohol served in restaurants, cafes, and pubs. The disinflationary trend has not reached the U.K. yet. Global CPG companies are still passing through additional price increases to offset inflationary pressures.
70M kisses a day (HSY)
At Hershey’s analyst day management provided more insights into their growth strategies, momentum in salty snacks, investments in capacity to keep up with demand, and the white space opportunities the company is targeting. Management reaffirmed sales and EPS guidance for the year. Sales are expected to grow 6-8% while adjusted EPS is expected to grow 9-11%.
In Salty Snacks the company will invest in advertising, ERP, and personnel to drive top-line growth and margin expansion. Salty Snack gross margins are planned to expand by 300bps over the next three years. Supply chain and ERP will combine with growth to drive higher margins.
In N.A. Confection the annual margin drivers are sales growth, fixed cost leverage, additional capacity and capabilities in manufacturing, and improving media spend.
Driving operating margins higher in the next couple of years will be fixed cost leverage, price increases, supply chain and digital productivity gains.
- Network utilization increased by 15% points over the past five years. Utilization has grown beyond the target, resulting in missed sales opportunities.
- The additional capacity will enable other levers including pricing and mix.
- Payday was 20% of total retail sales growth in 2022 after additional capacity was freed up for the candy bar’s production.
Hershey competes in a category with low private label penetration with brands that have strong pricing power. The company will have additional capacity and price increases in 2023. Hershey will be differentiated from its CPG peers by having gross margin and EBITDA margin expansion while also having volume growth. Hershey is on our Long list.
St Patrick’s (BUD)
The combination of St. Patrick’s Day coinciding with the opening weekend of the NCAA men’s college basketball tournament resulted in beer draft volumes increasing 20.8% compared to the prior year and 81.3% above the same weekend in 2021 according to BeerBoard. Week-over-week draft volumes on March 17 increased by 45%. Guinness, which typically is not in the top ten beer brands, was #6 for St. Patrick’s day. Light lagers (Bud Light, Miller Lite, etc) were the best-selling style of beer on draft nationwide, but volumes still declined 1.5% YOY. Lagers were the second best-selling style and volumes grew 10% YOY. IPA draft volumes increased by 5% and were the third best-selling style. The on-premise industry would prefer the timing of festivities to be on separate days.
