Beer - Where to Be in 2024 (BUD, SAM, STZ, TAP)
We are hosting our Beer Industry Outlook call on Tuesday, December 19th.
2023 was a year of muted stock price returns for the brewers, but a dynamic year for market share changes. We will provide a preliminary review of the industry in 2023 and the events that shaped the year. Historically, the beer industry has been one of the most consistent in CPG in modestly raising prices annually. That approach put the brewers behind when a surge in inflationary cost increases from labor to cans forced price increases that lagged the broader CPG sector by half a year. We expect a reversal in some trends in 2024, including markedly fewer market share changes and a moderating cost outlook, but a more challenging outlook for revenue growth.
Event Details:
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Stayed tuned for additional details and rating changes.
Coffee acquisition (KDP)
Chobani announced the acquisition of La Colombe for 900M on Friday. Keurig Dr Pepper exchanged its stake in La Colombe for equity in Chobani. In July, Keurig Dr Pepper announced a long-term sales and distribution agreement with La Colombe, which included manufacturing K-Cup pods. Keurig Dr Pepper invested 300M for a 33% stake in La Colombe. Keurig Dr Pepper was aware of Chobani’s interest in acquiring La Colombe.
Hamdi Ulukaya, founder and CEO of Chobani, has been La Colombe’s only investor until Keurig Dr Pepper’s investment. Chobani’s investment buys out Ulukaya. Last week, Moody's upgraded Chobani’s debt after its leverage has fallen since the pandemic. Chobani has plans to go public. Expanding into the coffee category opens up new addressable markets and collaborations. Keurig Dr Pepper now has a stake in yogurt and coffee creamers. It seems likely that there will be more M&A in this sector.
Infant formula actions (PRGO)
The FDA announced ongoing actions to strengthen the safety of the infant formula market. The actions include:
- establishing a new Office of Critical Foods that will receive specialized training for its personnel
- updating the compliance program
- supporting the elevation of Cronobacter to a nationally notifiable disease
- increasing the diversity of infant formula available in the U.S.
- issuing warning letters to infant formula manufacturers
The FDA has increased scrutiny of baby formula after its shutdown of the Abbott plant resulted in a long-lasting shortage. Perrigo received a warning letter that raised production costs due to additional cleaning downtime. The higher production costs will be reflected in higher prices to consumers.
Online grocery (KR)
Digital grocery sales increased 5.2% in November, similar to the 5% growth in October, according to the latest Brick Meets Click/Mercatus survey. Delivery had the strongest growth rate of 8.6%, with order volumes up 7.5% and average order value up 1%. Pickup grew by 1.6% YOY due to average order value increasing by 11.8% and partially offset by a 9.2% decrease in order volume. Ship-to-home sales increased by 7.6%, with average order value up by 4.5% and volume up by 3%. Delivery was 33% of all digital sales, up 250bps YOY, while pickup was 38%, down 350bps. In November, 42% of U.S. households used a mass retailer for most of their in-store or online grocery purchases, 390bps higher than supermarkets. Digital sales have been growing faster than in-store sales for most food retailers in recent quarters.
