1. Corona sales up by half in the latest week
According to the Nielsen data for packaged goods brands for the week ended March 22, sales of Corona increased 50% YOY. Corona sales even outpaced overall Constellation Brands sales growth of 39%. Sometimes the best survey is the one at the cash register as the 5WPR survey previously reported 38% of respondents would never buy Corona again. We had Constellation Brands on our short bias list due to our concerns with management’s capital allocation decisions, in particular the Canopy investment. Poor cash deployment extended well beyond Canopy; as the Ballast Point and High West Distillery acquisitions also illustrate. Those acquisitions are in the past, and with the 30% decline in the share price in just over a month, we are moving Constellation Brands to our long bias list. We still have our cannabis-related concerns, which we can enumerate on, but in our opinion, the Crown Imports beer portfolio has the most attractive growth opportunity in the domestic beer industry. Constellation could also be the best situated with the challenges in on-premise sales, which only represent 17% of sales. In contrast, the big brands are impacted by the lack of events and craft breweries affected by the closing of bars and their taprooms.
2. Lamb Weston fries are essential
Lamb Weston said on its call yesterday that demand for French fries in China fell 50% for about a month after restrictions were placed due to COVID-19. As restrictions have relaxed demand has returned to about 70% of pre-crisis levels currently. In other Asian markets, French fry demand has only been modestly impacted. The company said previously 65% of all fries domestically are consumed in quick-service restaurants with 20% consumed in full-service restaurants and the remaining 15% purchased at retail. In the US the company said it “saw little change in orders and shipment to QSRs as increases in drive-through traffic as well as higher delivery orders cushioned much of the decline in on-premise dining. However, with the adoption of more severe restrictions across more states, we’re seeing orders begin to slow.” It sounds surprising that the company didn’t see more of a demand drop in the US, but maybe fries to Americans are truly essential.
3. Sysco looking to sell frozen food
The NY Post reported yesterday that Sysco is temporarily suspending selling fresh meat and produce. In a letter dated March 18 to some of its customers, Sysco said it is "essentially focusing on frozen chicken, beef, seafood, and vegetables for the interim period." Sysco is also eliminating Saturday deliveries, product returns, and warned delivery times would not be guaranteed. Instead of addressing questions about the letter, a spokesperson for Sysco said the company is looking to pivot to servicing supermarkets. While Sysco does indeed distribute food, the items, brands, package sizes, etc. for supermarkets are different than for its existing restaurant, and industrial kitchen customers and supermarkets already have pre-existing distribution partners. The pivot is unlikely to prove meaningful beyond the initial clearing of inventory.
