Off-premise alcohol sales decelerate (SAM)
Total alcohol sales in the off-price channel grew 17.5% for the week ended August 1, decelerating from 18.6% the prior week. The spirits category grew 29% for the week decelerating from 31% the prior week. The wine category grew 17.3% for the week decelerating from 18.2%. Beer category sales in the last week of July increased 13.9% down from 14.7% the prior week, as seen in the chart below. Core beer sales excluding hard seltzer and FMBs increased 7.8% down from 8.1% the previous week.
For the fifth consecutive week, off-premise sales growth of beer, FMBs, and cider in convenience stores outpaced sales in the grocery/mass channel. For the week ended August 1, beer category sales in convenience stores grew 16.7% compared to the same week a year ago while sales in the food, drug, mass, and warehouse club stores grew 9.9%. The change from the previous trend indicates people are increasingly on the move compared with the previous pandemic weeks. Craft beer sales grew 10.9% for the week, driven by smaller breweries up 12%. Off-premise beer category sales in California, which rolled back the re-opening process, grew 14.3%. 70% of that growth was driven by hard seltzers.
We presented our hard seltzer Black Book yesterday. We made a case for re-opening leading to decelerating growth for the hard seltzer category. The convenience store channel outpacing the mass store channel supports the case that re-opening is occurring. For webcast and materials: CLICK HERE
Retail produce sales slow (SFM)
Retail sales of fresh produce slowed to 8.4% in the week ended August 2 from 12.0% in the prior week, as seen in the following chart. Volumes grew 5.8% in the latest week, decelerating from 9% in the prior week. Vegetable sales for the week increased 13%, decelerating from 16.7% the prior week. Fruit sales slowed to 4.4% from 7.5% the prior week. Sales of apples, bananas, grapes, and avocados declined for the week. Fresh vegetable sales are one of the best indicators of increased cooking at home. Peppers, mushrooms, and corn grew above 20% in the week. Seven of the top ten vegetables grew DD%. Fresh produce is a key traffic driver for Sprouts Farmers Market. The company said during the last week of July that SSS for the month was expected to be up 9%.
Sysco Q4 results show still depressed demand, but the market focuses on any improvement
Sysco reported a loss per share of $.29 in Q4, a penny better than consensus estimates due to incentive pay reversals ($115M). Revenue was lower than expected at a 42.7% YOY decline. Total case volume declined 41.5% in US broadline operations. International Foodservice sales decreased by 52%. SYGMA segment sales decreased by 17% as the company’s QSR customers appear to be among the weaker performing QSR operators. Gross margins contracted 160bps. Bad debt was an additional $170M, in contrast to the reversal recorded at US Foods. That puts the $1B in new business wins in a different light.
The company claimed it was profitable with a 30% sales decline. A 30% sales decline is what management called the exit rate of the quarter. Sales did not improve in July which management attributed to the reversal of some restaurant re-openings in certain states. Management said they are seeing a strong improvement in Europe in the current quarter with France being the top performer.
We are removing Sysco from our Best Idea short list to the short Bias list. The market appears to be satisfied with any pace of improvement, as long as it is improvement. Since the exit rate of Q4 was down 30%, there is a lot of potential improvement ahead. We think it will be a Best Idea Short again when the expectations are more concrete than simply any pace of improvement.
We are also removing US Foods from our Short Bias list for similar reasons. We also note that we find the company to be better managed and have a better mix of business than Sysco. Our updated position monitor is below.
