Adding The Simply Good Foods Company (SMPL) to short bias list
Simply Good Foods was formed with the merger of the Atkins brand with the Canadian SimplyProtein brand in 2017 and brought public through a SPAC. In November 2019, the company purchased Quest Nutrition, a high protein, low sugar, snack manufacturer for $1B. Snack bars are the most extensive product category for the company. Increased snacking is one of the changes in consumption behavior we have seen during the pandemic. Snack bars are convenient meal substitutes for people on the go. According to the company, on-the-go usage occasions (40% of sales for Atkins) declined 17-18% for the category in the most recent quarter. The pandemic has grounded the majority of people and given them more time to prepare meals at home. Shopping visits have also declined to the important specialty and convenience stores, while grocery and large format stores have seen the shoppers' time spent in the store reduced.
Interest in the Atkins diet has been downtrending over the last two and five years with peaks around January resolutions, as seen in the following chart.
EBITDA growth this year, excluding the Quest Nutrition contribution, is expected to be roughly flat. Legacy Atkins sales decreased by 8.3% in the most recent quarter. The company's balance sheet is levered at 3.7x debt to EBITDA, which limits another acquisition. Low FCF generation is also a concern. Shares are trading at 22x F2021 EPS and 15x EV/EBITDA, which we believe is expensive relative to the visibility of future growth and inherent brand volatility in the category. For more details, please see our separate note.
Impossible Burger's share gains at the expense of animal meat (BYND)
According to Numerator, an analytics company, 9 out of 10 people who buy Impossible Burger regularly eat animal-derived foods. 21 cents of every dollar spent on Impossible Burger at the grocery store is incremental to the entire meat category. 78 cents of every dollar comes from consumers shifting their purchases from other categories of plant and animal-based Meat. With 92% of Impossible Burger sales coming at the expense of animal-meats, Impossible Burger displaces animal-meats for 72% of total purchases. Impossible Burger is now available in 11,000 retail locations compared to fewer than 150 before the pandemic. The percentage of first-time buyers has doubled each month since April.
A burger designed to taste like an animal meat burger was always targeting non-vegetarians. The price premium also implies no volume growth to the meat department. Impossible Burger and Beyond Meat are now pursuing shelf space in the retail channel for growth. The incremental change to the meat department and empty shelves make it obvious why grocers have added plant-based meats during the pandemic. Repeat purchases when the pandemic is over is the biggest unknown, but the competition is ramping up. Beyond Meat is a best idea short. Last week we held a call with a buyer for the plant-based food category CLICK HERE for a replay.
UK grocery sales decelerate with restaurant subsidy program (NOMD)
According to Kantar grocery sales grew 10.8% during the 12 weeks ended September 6 in the UK compared to 14.4% in the 12 weeks ended August 9. In the most recent four-week period, sales grew 8.0%, the slowest rate of growth since April. The deceleration was driven in part by the "Eat Out to Help Out" program that subsidized restaurant meals. The program ran on Mondays to Wednesdays in August and offered 50% off food up to £10. Discounts for more than 100M meals were claimed. On the final day of the program, dining out accounted for 2.5x more significant share of consumer spending than the pre-COVID average. Alcohol sales dropped in August compared to July, with wine down 5% and beer down 10%. Sales of grooming products accelerated as people ate out more with hair styling products up 17% more in August than in July. The UK inflation rate fell to 0.2% in August from 1% in July in part driven by the eating out in restaurants program, as seen in the following chart. Prices in restaurants were 2.6% lower in August than a year ago. The cut to the VAT rate from 20% to 5%, which lasts until January 12, 2021, on food and non-alcoholic drinks as well as accommodations and attractions, also helped drive prices lower. The UK is Nomad Food's (a Hedgeye Best Idea Long) largest country by sales, representing 31% of overall sales.
