Price cuts – wink, wink (L.CN)
Empire Company, the second largest grocer in Canada, announced it will begin to freeze the prices on 20,000, mostly center of store items. The price freeze is a longer version of the Canadian tradition of not raising prices during the holidays. Historically, Empire has frozen prices on ~90% of CPG items between November and January. This year, the company says it will include all packaged products in the store. One thousand seven hundred planned price increases were canceled due to the new program. Food inflation in Canada was 5.4% in October, decelerating by 40bps from September.
Groceries are less competitive in Canada than in the U.S. Five chains have a combined 80% share of the market. The Canadian government has been leaning on the industry to limit food inflation. Last week, Loblaw said it would cut prices on 35 products, including milk, butter, eggs, meat, pasta, and produce. Loblaw reported a gross margin contraction of 20bps in the most recent quarter. Management attributed the pressure to higher shrink in the drug stores, not due to increased promotions. The actions to date by the grocers do not reflect any substantial gross margin pressure from government scrutiny.
Online grocery grows (WMT)
Brick Meets Click said online grocery sales increased by 5.0% in October YOY. Online grocery sales comprised 12.5% of weekly grocery shopping in the last week of the month, increasing by 90bps YOY. The total number of orders fell 3% YOY due to a drop in ship-to-home and a slight decrease in pickup. Pickup sales increased by 3%, delivery sales increased by 14%, and ship-to-home sales decreased by 7%. The average order value increased by 9%, driven by a 10% increase in delivery. The mass MAU base has grown 29% YOY as Walmart continues to gain share online.
Digital sales were a comp contributor for most food retailers in Q3. Ahold’s exit from FreshDirect confirms supermarkets' difficulty in making home delivery work as a digital business.
Cold coffee disrupter? (KDP, SN, WEST)
Cumulus Coffee Company announced that it raised $20.3M in seed funding while preparing to bring its home cold coffee machine to market. Howard Schultz, Chairman Emeritus of Starbucks, is among the investors. The seed round was led by Valor Siren Ventures, which was created with anchor investments from Starbucks, Nestle, and several other Fortune 500 companies. Cumulus Coffee launched pre-sales of its $599 cold coffee brewing machine. The machine can produce cold coffee, nitro cold coffee, or espresso-like cold coffee within seconds using its single-serve, recyclable pods.
Coffee consumption continues to shift to cold coffee, but the long brewing times are a hurdle for at-home brewing. Howard Schultz said, “Cumulus’ opportunity to bring premium cold coffee beverages to the home is simply enormous and will raise the bar for cold brew coffee everywhere.” Howard Schultz’s investment is one of the first business moves he has made since he left Starbucks. He was a pre-IPO investor in Oatly. It’s unlikely that there will be one winner in on-demand cold coffee machines, but you can not rule out a disrupter. Keurig Dr Pepper and SharkNinja will continue to innovate in the category, while WestRock Coffee will continue to supply the food service industry.
