Industry 3Q23 Slowdown Confirmed
RRGB - In the context of off-premise dining and third-party delivery channels, there is evidence of consumers managing their spending. Third-party checks were down by 12% year-over-year, suggesting consumers may be more price-conscious in those channels. The Black Box data suggest concerns about a potential decline in consumer traffic in the industry during 3Q23. It's unclear whether this is a temporary fluctuation or a broader trend, but the CEO is closely monitoring it. Economic news suggests there might be an elevated level of risk in the current consumer environment compared to the past year and a half.
CHUY - The CEO noted that there hasn't been a significant change in consumer behavior and traffic at Chuy's. This consistency is observed from the second to the third quarter. While there were initially some changes in attachment rates, particularly with appetizers and beverages, he mentions that appetizers have rebounded, especially with the introduction of new Happy Hour Food items(discounting). He doesn't anticipate significant changes in consumer behavior or traffic trends for Chuy's soon. Still, there may have been a minor slowdown in recent weeks, but it's not considered a significant concern.
BJRI – The CEO said generally, you tend to see sales and weekly sales average strengthen into May and June with graduations, Mother's Day, and Father's Day, as it is celebratory time. And then from there, sales drop down into July, into August, and they bottom out into September and then slowly start to build. And as we look at the business trends this year, you're seeing a slowing pattern that looks much more like 2015, 2016, 2017, 2018, 2019, very traditional patterns.
CHEF - The CFO said the summer of 2023 was described as somewhat weaker than expected due to various factors, including extraneous weather conditions and fluctuations in the protein market. The focus was on profitability rather than top-line demand, and it was not as robust as the recovery seen in 2022. He characterizes the demand as returning to a more typical summer level after an initial 4th of July week in early July. That said, there is significant uncertainty in the macroeconomic environment, consumer behavior, and the outlook for 2024. This uncertainty makes forecasting performance for the fourth quarter of 2023 challenging.
The Road Ahead for Instacart
Instacart secured $660 million in its IPO, pricing its shares at $30, the top end of its range. Instacart will be trading on the Nasdaq with the ticker "CART" starting today. The IPO price of $30 per share implies a $9.9 billion post-deal market cap (fully diluted) and $7.5B post-deal EV. While initially aiming for a $26-$28 share price, Instacart later increased this range to $28-$30. Alongside the IPO, PepsiCo is set to acquire $175 million worth of preferred convertible stock from Instacart. Instacart's journey post-IPO is anticipated to be multifaceted. The company must navigate economic hurdles, intense competition, and evolving consumer preferences. However, with a clear strategic direction, focusing on non-grocery deliveries, and capitalizing on holiday shopping trends, Instacart might find its unique market space. AMZN, DASH, and WMT are competitors to watch closely. Amazon said yesterday it is considering new subscription programs for grocery and healthcare, including standalone memberships and integrating One Medical's service with Prime. The new programs may be introduced by the end of the year but could increase membership fees. Amazon struggles to attract younger customers and low-income households to its Prime membership. In the second quarter, net sales increased 11%, and subscription revenue grew 14%. DASH also put out a press release; see below.
Some thoughts on CART From a Civic Science conducted in early September:
Consumer Pulse: A Mixed Bag
- Consistent User Base: About 18% of US adults have used Instacart since May 2022, a relatively stable figure.
- Growth in Grocery Delivery: 35% of consumers have tried grocery delivery services, showing a minor increase from 33%. However, Instacart might need to worry about the fact that nearly half of Americans are not keen on trying their service, a 3% YoY increase.
- Increased Awareness: More people know Instacart now, which can be a small victory.
Ordering Trends: Beyond Groceries
- Instacart's users predominantly order groceries once a month.
- The platform faces significant competition from grocery chains launching their own delivery services and third-party apps like DoorDash entering the grocery delivery space.
- Instacart's strategy to diversify by partnering with non-grocery retailers like Lowe's seems to be paying off. A significant 51% of its users are interested in ordering non-grocery items multiple times a month.
Challenges on the Horizon
- Economic Factors: Rising inflation, increased gas prices, and upcoming student loan payments could influence consumers' purchasing decisions. Cost is a significant concern for many potential Instacart users.
- Trust Issues: Distrust regarding the shoppers fulfilling orders accurately is a noted concern.
- Preference for In-house Services: 45% of grocery delivery users prefer using the store's own delivery service compared to 25% opting for third-party services like Instacart.
- Love for In-Store Shopping: 35% of non-delivery users enjoy the in-store shopping experience, a sentiment that rises to 40% among those not interested in using Instacart.
Silver Linings:
- Demographic Opportunities: Instacart is popular among younger generations. 42% of Gen Z adults and 31% of Millennials have used the service.
- Holiday Shopping: With the festive season approaching, 23% of Instacart intenders plan to do most of their shopping online, which could be a potential boon for the company.
DASH's Don't Forget About Me moment
On the eve of the CART IPO, DASH announced a significant expansion into the grocery segment by partnering with various grocery outlets with an aim to offer consumers a broader range of online grocery shopping options.
Not to be overshadowed by the CART IPO, the company released a "grocery" press release yesterday. DoorDash's aggressive push into the grocery delivery space indicates its vision to become more than just a food delivery service. Still, it will never compete in the greater than $75 basket grocery business. DASH's foray into on-demand grocery delivery started in 2020, and now, the platform claims that more newcomers to online grocery shopping begin with DoorDash than any other service. With the new partnerships, DoorDash has further solidified its position, boasting over 100,000 "non-restaurant" stores across its platforms in North America versus CART's 80,000 stores. With increasing competition in the online grocery industry, partnerships with various retailers and an enhanced user experience are the keys to attracting and retaining a more extensive customer base.
Notable grocery partners joining the DoorDash Marketplace include:
- CUB - Offering delivery from 79 grocery locations in Minnesota and 31 liquor locations.
- Eataly - Enables on-demand delivery from seven of its primary locations, including NYC, Boston, and LA, bringing authentic Italian meals to doorsteps.
- El Super - Expanding DoorDash's reach across southwestern states with a unique blend of Latin American grocery items.
- Fiesta Mart - Enhancing Texan consumers' access to international products from 59 stores.
- Lowe's Markets - Set to offer delivery from its many locations spread across five states.
- Pruett's Food - Soon to offer on-demand delivery in Oklahoma and Arkansas.
- Stater Bros. Markets - Enables shopping from nearly 170 stores in Southern California.
- Strack & Van Til - Accessing 22 Northwest Indiana and Illinois locations.
