Ontario reconsiders beer sales (TAP)
The Ontario government is considering changing the way beer is sold under its Master Framework Agreement (MFA). Since the end of prohibition, beer in Ontario has primarily and sometimes nearly exclusively been sold at a single chain of stores that only sells beer. The 10-year contract between the Beer Store and the province expires at the end of 2025. The Beer Store has exclusive rights to sell beer in 12 and 24-packs and limited competition under the MFA. The chain has 400 locations across Ontario, efficient distribution, and a recycling network for cans and bottles. The Ontario government must announce its plans by year-end. The Beer Store is 48% owned by Molson, 48% by Labatt, and the remainder by Sapporo.
Opening up beer sales at convenience stores and lifting restrictions on grocery stores would significantly increase competition for the Beer Store. Ontario represents 40% of Canada’s population and a larger percentage of the country’s retail sales. In the U.S., convenience stores are the largest channel for beer sales.
Truck rates Aren’t bouncing (KR)
Van contract rates are down 15.5% in November, while spot rates are down 13.4%. In September, both spot and contract rates were down 16%. Spot rates have been stable since April, while contract rates took a couple of months longer to hit bottom. ACT Research expects the freight market to “continue bouncing along the bottom” for the rest of the year into 2024.
It has been a slower start to the holiday season. Spot rates almost always rise the week before Thanksgiving, but according to the FTR and Truckstop weekly report, that did not happen this year. Last week van spot rates fell 3.5 cents per mile, 11% lower YOY. Lower truck rates will continue to be a gross margin tailwind for the CPG companies in Q4.
Cocoa highs (HSY)
Cocoa prices are near 45-year highs and are up by two-thirds compared to the prior year. Heavy rains in Ivory Coast, the top producer of cocoa beans at 40% share, have the industry expecting a very low harvest. The Ivory Coffee-Cocoa Council is forecasting a 20% reduction in the harvest. The cocoa market has been experiencing a supply shortage for the past two years.
Cocoa prices, as well as higher sugar prices, will keep the chocolate manufacturers adding new price increases when many other CPG manufacturers will refrain from additional price hikes. It wouldn't be surprising to see some gains by private labels, but the mix is low compared to other categories.
