Chocolate splurge (HSY)
Last week cocoa prices hit the highest level since 2016 as seen in the chart below. This season will be the second consecutive season that will end in smaller ending stocks of cocoa. El Nino is expected to bring lower rainfall to the West African region where cocoa is largely grown. Cocoa butter prices have increased 20.5% YTD according to Mintec. Sugar prices hit an 11-year high in April. According to NielsenIQ chocolate retail prices have risen by 14% in the past year.
Hershey is at the top of our Best Idea long list. The company’s style factors also align with what outperforms in Quad 4. Input inflation with cocoa and sugar among others ensures that chocolate manufacturers will still be raising prices in the 2H of the year. With additional manufacturing capacity that came online in 2023, Hershey will be one of the few CPG companies with volume growth as well.
ANgus Beef plant (WMT, TSN)
Walmart announced it will open a case-ready beef plant in Kansas in 2025. The plant will help create an end-to-end Angus beef supply chain for the company. The facility will package and distribute a selection of Angus cuts to supply Walmart stores across the Midwest. Walmart first announced its plans in 2019, but the pandemic delayed them. Last year Walmart took a minority stake in the rancher-owned producer that will supply the animals. There was a shortage in processing during the first year of the pandemic mostly due to labor and demand. In the future, there will be a shortage of supply as the herds need to be rebuilt.
Reducing regions (UNFI)
United Natural Foods announced a restructuring that will eliminate 150 management and supervisory roles. The newly named COO and President of Wholesale have been tasked to improve efficiency and enhance the customer/supplier experience. The company is consolidating four operating regions into three. Management had previously stated that they were evaluating ways to make the administrative structure more efficient which would reduce SG&A. Management also believed the changes would make the company more adaptable and speed decision making. United Natural Foods benefited from the markup of its inventory when inflation accelerated. With disinflation and the outlook for deflation, the tailwind has become a headwind. We just added UNFI to our short bias list and presented the company in our Idea Hunt yesterday. For the replay CLICK HERE.
