Consumables Monthly Digest
We are hosting our monthly Consumables Digest call today at 2 PM ET. We will recap some of our Best Ideas, address the top inbounds during the month, revisit position monitor changes, and discuss the latest questions on HSY, TAP, LANC, SN, and STZ.
Send us your questions ahead of time to consumerstaples.
|
EVENT DETAILS:
|
Private label Chick-fil-A sauce (LANC)
Dollar General issued a press release yesterday highlighting the expansion of its private label brand, Clover Valley. Dollar General introduced more than 100 new items under the store label this year including a wider selection of sauces, condiments, entrees, sides, and snacks at more affordable price points. On the company’s most recent conference call management said, “We continue to see signs of increasing financial strain on our customers as they seek affordable options, including increased reliance on private brands and items at or below the $1 price point.” 80% of Dollar General’s sales are consumable items. Dollar General has a 2.3% market share of U.S. groceries.
One of the new sauces is “Chicken Sauce” which is a store label version of Chick-fil-A sauce, a mustard and smoky BBQ blend. The Clover Valley sauce is priced at a 33% discount per ounce compared to the Chick-fil-A sauce sold at Walmart, but the Chick-fil-A ingredients appear to be of higher quality. Dollar General does not carry the Chick-fil-A sauce, limiting the impact of substitution. The Clover Valley Chicken Sauce will capture a portion of its customers’ sauce purchases, but it is important to keep the relative size in context. In my personal taste test, I found Dollar General’s version to be very similar to the Chick-fil-A sauce. However, I do not expect Dollar General’s sauce to have a material impact on Lancaster Colony’s Chick-fil-A branded sales.
Worsening gross margins (ACI)
Albertsons reported FQ1 adj. EPS of $.93, above consensus expectations of $.85. Most of the upside came from a lower tax rate. SSS increased 4.9%, ahead of consensus expectations of 4.0%. Sales growth was in the middle of supermarkets but trailed lower-priced food retailers. Digital sales grew 22% as the company continues to benefit from a catch-up perspective in digital.
Excluding fuel and LIFO expense gross margins contracted 91bps YOY, 20bps more contraction sequentially. Lapping the vaccinations in the pharmacy department last year accounted for half the contraction. The other half was due to an increase in shrink, digital picking and delivery costs, and warehouse costs. SG&A expense leveraged 53bps ex. fuel. Adjusted EBITDA margins of 5.5% were in line with expectations.
Albertsons is waiting for the merger with Kroger to conclude. Excluding the cash dividend the shares would appreciate nearly 26% upon closing. Last week the FTC and the DOJ issued their draft merger guidelines that signal a broader application of antitrust laws than in the past. The FTC is widely expected to oppose the merger despite its losing streak in court. Broadly speaking the worsening gross margin trends are a headwind for the supermarkets.
On-premise hit (BUD, TAP)
According to a report from Union, a hospitality data firm, Bud Light fell from first place to fourth place on the list of most popular beer brands in restaurants and bars. The first three spots were Miller Lite, Michelob Ultra, and Coors Light. Miller Lite sales increased by 20.7% in Q2 in the on-premise channel according to Union. Michelob Ultra sales increased by 3.6%, Coors Light sales increased by 19.6%, and Bud Light sales decreased by 34.2%. The social impact of ordering Bud Light is having a larger impact on the on-premise channel compared to the off-premise channel.
