Albertsons spends some cash
Albertsons’ Acme Market announced that it won the bidding for 27 Kings Food Market and Balducci’s Food Lover’s Market locations. After approval of the FTC, it is expected to close later this year. The winning bid was $96.4M. KB US Holdings put the chains up for sale in August when it filed for Chapter 11. At the time, there was a $75M stalking-horse bid for the two chains that were hung up on union concessions.
Albertsons currently operates 20 different banners and plans to operate both of the new banners as well. Balducci operates nine gourmet market stores in New York, Connecticut, Maryland, and Virginia. Kings operates 25 specialty gourmet supermarkets, of which 23 are located in New Jersey. The small number of stores per banner, lack of market density, high-end products, and business model impact from COVID-19 on delivery and prepared meals does not make the synergies obvious.
Albertsons also announced a $.10 quarterly dividend, a not insignificant sum of $230M annually. The cash outlays highlight our biggest concern for the company – its cash flow generation. Generating free cash flow is likely to be the most effective way to see its depressed multiple expansion.
Albertsons reports FQ2 results next week. We are modeling EPS ahead of consensus with SSS lower than KR’s 14.6%, but gross margin expansion better than KR’s ~flattish results. The market tends to value sales beats more than margins, but it is probably better to have the reverse when it makes the pandemic comparison more difficult. Not being promotional this year gives management a lever to pull next year. We added Albertsons to our Best Idea Long list after the IPO, and the stock performance has been disappointing. We were guilty of giving too much attention to the valuation, and the market has been guilty of the difficult path the company took to return to the public markets.
Grocery decelerates slightly, still elevated (SFM)
According to IRI, CPG sales in grocery stores decelerated to +11% for the week ended October 4th from +13% the previous week, as seen in the chart below. Grocery stores outpaced multi-outlet retailers that were up 7% for the week. Edible categories, which were up 12%, outperformed the non-edible categories that were up 7%. Frozen food and beverage alcohol sales, which were both up 17%, led the edible categories. Fresh produce sales grew 10%, similar to the previous two weeks. Fresh produce sales are a good indicator of current meal preparation at home since they are not stockpiled.
Kroger expands private label plant-based brand (BYND)
Kroger announced that it had expanded its Simple Truth Plant-Based product line with more than 50 new plant-based foods. The new products include non-dairy cheese, oat milk ice cream, and plant-chicken patties. In 2019 the line had 20 products, and by the end of the year will have 75 products. Simply Truth introduced a plant-based burger in January. The increasing number of competitors undercuts the proprietary technology moat that Beyond Meat promotes and underpins its multiple.
This week the LIVEKINDLY Collective, a multi-brand plant-based company, raised $135M to accelerate its 2021 launch of brands in the U.S. The company has raised $335M in 2020 and is one of the highest funded plant-based food companies globally. On Friday, Thailand’s NR Instant Produce, a plant-based pork exporter, raised $51M in its IPO. The competition is rapidly increasing in plant-based meat from private labels, start-ups, large food conglomerates, and international companies.