Milk demand (STKL)
According to Hoard’s Dairyman, a national dairy farm magazine, the fluid milk market is at an all-time low in the U.S. However, the amount of milk in the Federal Milk Marketing Orders, a USDA program that ensures dairy farmers receive a fair price, is increasing. From 2005 to 2017, fluid milk’s usage of all federal order milk was about 30%. In 2018 it fell to 28.9%, then rebounded in 2020-2021 to above 30%, then fell to 27% in 2022, a 75-year low.
Dairy milk has declined at a five-year CAGR of -3.2% from 2017-2022. At the same time plant based milk has grown at a five-year CAGR of 6.9%. Conventional milk still accounts for 86% of sales in the dairy aisle. In the year ended May 21, conventional refrigerated milk sales decreased by 0.3% according to Circana. Conventional refrigerated milk had an average price of $.63 per pint compared to $.95 for alternative milks. Despite selling at a 51% premium, alternative refrigerated milk sales captured a market share of 13.3%, up 0.16% over the past year. The biggest concern for plant based milks has been whether the category can continue to gain share despite selling at a premium to conventional milk despite the growing headwinds for consumer spending. Demand for oat milk is not inelastic, but demand has exceeded supply for several years and SunOpta is adding capacity to meet the market.
Bud Light’s #1 crown (BUD)
Since the controversial Instagram post on April 1, Bud Light has lost its #1 beer crown to Modelo Especial nationally. For the four weeks ended July 1, Modelo Especial had an 8.7% market share in the off-premise channel while Bud Light was second with a share of 7%. In the preceding month, Bud Light had a share of 7.3% and Modelo had a share of 8.4%. At the start of the year, Bud Light had a share of 10.3% and right before the boycott started on March 25 it had a market share of 10.0%.
In the lead-up to the important 4th of July holiday, off-premise sales of Bud Light decreased by 31.2% in volumes and 28.5% in dollars for the week ended July 1. Volume trends improved by a modest 10bps compared to the prior week while sales trends worsened by 60bps as seen in the chart below. Despite additional marketing efforts and rebates, volume trends have not improved.
An interesting development has taken place at the state level for the #1 beer since April. In April, the most popular beer in each state varied among 12 different beers in a YouGov poll. Over the July 4th weekend it varied between only five brands. The top beer by state now reflects a clearer regional trend in comparison to April when it was much more varied even among adjacent states. The #1 beer crown is not all that important for investors compared to the extent that AB InBev can reduce its cost base for the lower revenue base in the U.S. and keep its shelf space despite significant reductions in velocity. Bud Light is said to represent 30% of the company’s US earnings, which itself constitutes 30% of global sales.
Lease termination (APPH)
AppHarvest disclosed the receipt of a lease termination from Mastronardi Produce for its Berea indoor farm. Mastronardi is the exclusive distributor and marketer for AppHarvest’s produce. In December the distributor provided a sale-leaseback loan of $127M for the Berea location that included an upfront two years of prepaid rent. AppHarvest’s access to inexpensive capital surprised me, but even that came to an end as it borrowed from its distributor who is now positioning to take over the assets. The indoor grow bubble was financed by ESG investors, but years later the industry that was being disrupted will be absorbing the assets at significant discounts.
