Three takeaways from our plant-based food speaker call (STKL)
Our three main takeaways from the call we hosted with a grocery buyer of plant-based foods were the following:
- Price sensitivity of the plant-based category. Plant-based products are priced at a significant premium to regular milk or meat, so I thought there would be less price sensitivity. I was surprised by the number of examples our speaker gave of the price sensitivity in many plant-based products. As the number of competitors and products entering the plant-based categories continues to grow, it will only become more promotional as the new entrants are looking to gain share in the growing category, with the price being a significant sales driver.
- Private label opportunity in oat milk. Our speaker said oat milk was third in plant-based milk at her company behind almond and cashew due to the higher price of oat milk. Her chain did not carry a private label oat milk but believes it would sell well. Private label represents a massive opportunity for SunOpta when it completes its manufacturing expansion.
- Plant-based foods are a higher margin for the grocer. Plant-based products generally have higher prices and margins than the regular products they are replacing. The buyers also have higher incomes and spend more at grocery stores, so they are attracting customers to retain for the grocer.
For more insights, CLICK HERE for replays (includes materials link).
Constellation Brands acquires a craft distiller (STZ)
Constellation Brands announced the acquisition of Copper & Kings American Brand Company. Copper & Kings produces American Brandy, absinthe, gin, and Destillare liqueurs. It uses small-batch copper pot-distillation and unconventional methods. It also has a tasting room and restaurant in Louisville, KY. The company received between $350,000 and $1M in PPP loans, which it said was vital to keeping the business afloat during the pandemic. 2020 has certainly been a roller coaster for the Louisville distiller. Copper & Kings was initially a minority investment through Constellation Brands’ venture capital group. Constellation Brands has made it clear it will continue to make acquisitions in the alcohol industry. While its track record is mixed, it is certainly better when the targets are purchased for less than $1 billion. Copper & Kings’ items are higher-end, as can be seen in some of the product listings below.
In-stock level and promotions continue to be linked (KR)
Total distribution points, a measure of breadth and depth of an item, continue to be down 6.5% for the past six weeks up to August 29, as seen in the left-hand chart below. During the pandemic, CPG manufacturers have had difficulty keeping up with the increased demand, and many have limited SKUs to make it easier on volume production. Promotional levels have been tied to in-stock levels during the pandemic. The right-hand chart below shows that promotions, which at one point were down more than a third, were slowly returning toward prior-year levels. However, over the past six weeks, promotional levels have fallen again to be 20% lower YOY. With elevated demand, promotions have been unnecessary and sometimes counter-productive for improving in-stock levels. Kroger said increased promotions and price investments were the main reason gross margins only expanded 5bps in the past quarter despite robust ID sales growth of nearly 15%. If Kroger was the more promotional grocer in FQ2, we might see lower sales growth, but better gross margins from the other grocers.
