Produce inflation at the highest level of the pandemic (SFM)
The gap between price and volume growth remained 4% for the second week in a row in the latest week, according to IRI. The gap was the widest it has been since the pandemic began, as seen in the following chart. Both vegetables drove the gap at 6.1% and fruit at 1.7%. The trend is a tailwind for Sprouts Farmers Market that has a more extensive produce department than conventional grocers. The largest growth rate of a top ten produce item continues to be oranges, up 47.6% for the week ended July 5. The increased demand for oranges is likely due to vitamin C’s perceived immune system benefits.
California beer distributor moves benefit Constellation Brands
Anheuser-Busch and Triangle Distributing announced on Thursday that they would exchange distribution rights in California. The competitive landscape for beer distribution in California shifted in 2018 when Constellation Brands forced a sale of the rights to distribute its Crown Imports brands from Triangle Distributing to Reyes Beverage Group, the country’s largest beer distributor. Reyes also acquired the Crown Imports portfolio from Markstein and Ace Beverage in 2018 when Constellation Brands forced the sale since mid-2018 Reyes has made 11 transactions in California, including four since the pandemic began.
Reyes is also the distributor of Mark Anthony (White Claw). Reyes now sells 1.6x as much beer in California as Anheuser-Busch affiliated distributors. The role of distributors is critical in determining shelf placement at retailers. It’s not a coincidence that Modelo Especial is the best-selling beer in California or that Corona Hard Seltzer had one of the largest debuts this year, and Reyes is Constellation Brands’ distributor. Through the first half of 2020, Modelo Especial has sold nearly twice the amount that Bud Light has in California (~$340M v 160M).
In comparison, Bud Light has sold more than double Modelo Especial nationwide. In April, Constellation Brands said Modelo was the #1 beer in Chicago, which happens to be the territory of Reyes’ oldest distributor with over 10M cases in the metro area. Anheuser-Busch’s options are limited by antitrust laws restricting it to only owning 5% of its distribution and not having the fastest growing brands in its stable. Reyes’ acquisitions are an under-appreciated growth driver for Constellation Brands.
More state restrictions on bars (BUD)
More states that are growing concerned over increasing COVID-19 cases are putting additional restrictions on indoor dining and bars. On July 16, Pennsylvania limited indoor dining to 25% capacity and alcohol consumption on-premise is limited to meals only. On July 17, New York ordered all restaurants and bars to limit on-premise alcohol sales to people who are also eating. The New York order prevents people from ordering drinks and consuming them in front of the bars. Many bars in New York offer a limited food menu to continue to stay open. One bar in Buffalo added a humorous food menu, as seen below.
