Restaurant distributor liquidated (SYY)
Maines Paper & Food Service, which supplied 6,100 restaurants in total, filed for a Chapter 11 bankruptcy. The company and its ten distribution centers will be liquidated. It had an extensive list of customers, including Olive Garden, Applebee’s, Burger King, Tim Horton’s, and Wendy’s and covered 30 states. Lineage Logistics, a cold storage distributor, was set to acquire Maines Paper & Food Service, but the deal was tripped up by COVID-19. The distributor had been challenged by increasing labor costs and had difficulty recruiting enough drivers. Maines Paper & Food Service was one of the ten largest distributors in the US, with revenues of $3.5B. The company had two divisions, with one supplying quick service national chains and the other carrying supplies for Darden Restaurants for a fee. Lineage Foodservice Solutions has assumed part of Maines’ customer base, including all the Darden owned restaurants. Maines had several lawsuits filed against it recently for non-payment by food manufacturers. Maines’ bankruptcy highlights the tremendous hit to restaurant distributors but also removes some capacity from the industry. National restaurant chain customers have low margins for the distributors.
Fresh produce sales decelerating but gaining category share (SFM)
Fresh produce has grown double digits in 11 of the last 12 weeks, according to the Produce Marketing Association. Since the beginning of the year, the industry has sold $2.7B more fresh produce at retail, representing 944M pounds. In the week ended May 31, fresh produce growth decelerated 100bps week over week to 13.2%, similar to the deceleration for the past three weeks, as seen in the following chart. Fresh fruit is more of an impulse purchase, and the drop in time spent at the grocery store could be responsible for the slower growth compared to vegetables.
Frozen fruit and vegetable growth of 28.8% in the week ended May 31 outpaced fresh sales growth of 13.2%. YTD frozen grew 28.8% compared to 10.4% for fresh. The smaller sales base of frozen and shelf-stable sales helps explain the difference in growth rate. Frozen produce’s share of total fruit and vegetable sales has steadily fallen since the peak of the stockpiling (when out of stocks were the highest), as seen in the table below. Produce is a higher than average margin category for grocers, so the robust growth has been a boon to grocers. Fresh produce has been a key category for Sprouts Farmers Market during the pandemic.
Wine industry adapts to COVID-19 and thrives (STZ)
Wine industry sales were mostly flat going into the pandemic. While wine sales spiked during the stockpiling phase of stay at home restrictions, most expected sales to decelerate quickly. Yet three months later, grocery sales of wine are still averaging 30% growth. According to Nielsen, total wine industry sales would be flat if off-premise sales are up 22% to make up for the lost on-premise sales. So industry wine sales have been up 5-10% during the pandemic. Consumers have purchased more wine to go along with their home-cooked meals. The sales mix for the average winery according to Silicon Valley Bank has changed dramatically but shows how the industry has been able to adapt to the loss of on-premise sales through growth in wine clubs and e-commerce/phone sales as seen in the following charts.
