Idea Hunt (CLX, RGF)
We are hosting an Idea Hunt call for Restaurants and Consumer Staples on Wednesday at 2 PM ET. We are hunting for longs and shorts where our estimates differ materially from consensus expectations and where the multiple could be re-rated. We will present our analysis after a further round of vetting on a handful of companies. Our best ideas often are sourced from vetted Idea Hunt companies. Stay tuned to see whether we are leaning long or short on each company, our analysis, and our next steps in the research process.
Clorox (CLX) is a consumer and professional products manufacturer of a myriad of goods from cleaning supplies to food wraps and a lot of items in between. Clorox was a big winner during the pandemic and a long sufferer of the hangover. The market expects the company’s return to growth imminently. How much price is too much? What are the company’s organic growth prospects? What is priced into the shares? We will jump into the debate.
Real Good Foods (RGF) is a fast-growing, wellness-focused frozen food manufacturer. The brand is centered on high protein & low-carb – the future of healthy eating trends where organic growth trends are strongest. The company’s margins were under considerable pressure from input cost inflation in 2022. The combination of ingredient disinflation, price increases, and manufacturing efficiencies should see margins inflect in 2023. Real Good Foods is also an attractive asset to the larger food manufacturers that will be seeking growth once disinflation settles in. We will examine the different paths management can take to create value and what the challenges are. Is it just a matter of when?
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CLICK HERE at the time of the event for the webcast and materials. |
Stop the merger (KR, ACI)
A coalition of dozens of labor unions, advocacy groups, and politicians have joined together to form Stop the Merger. The coalition is united in its goal to stop the Kroger-Albertsons merger. Stop the Merger states that the merger will lead to store closures, thousands of lost jobs, and higher food prices. The coalition also states that a merger will result in less competition which will in turn lead to higher prices despite Kroger’s insistence that prices will be lowered and that stores will be divested or sold, not closed. Workers are concerned about jobs, wages, and benefits. Kroger is going to have to increase compensation expenses to get merger approval from the unions.
Oat milk surcharge (STKL)
Stumptown, an artisanal coffee chain, made oat milk the default milk option across its store base. Stumptown also priced oat milk the same as all milk options. Plant-based milk is now in 70% of the company's beverages that contain milk. Oat milk represents 75% of the plant-based milk mix. Blue Bottle ended plant-based milk surcharges last May when more than half of its customers chose plant-based milk anyway. After removing the surcharge, plant-based milk sales increased by 45% and orders with oat milk increased by 58%. Panera Bread and Pret a Manger eliminated plant-based milk surcharges in 2020.
As the largest coffee chain, Starbucks has the ability to eliminate the surcharge for plant-based milk. Smaller coffee shops would find it difficult to remove the surcharge as plant-based milks are more expensive than dairy milk. Starbucks has stopped charging additionally for plant-based milk in the U.K., France, and Germany. SunOpta supplies Starbucks with all of its plant-based milk options except oat milk. For oat milk, SunOpta is the backup supplier and Oatly is the main supplier. Starbucks is SunOpta’s largest customer.
