Q&A call today at 2 PM ET
We are hosting a Consumer Staples and Restaurants Q&A call today at 2 PM EST. CLICK HERE for event details, including video and materials link.
Hero pay grocery mandates (KR)
Kroger announced it was shuttering two of its stores in Long Beach, California, in response to a city ordinance requiring a $4 hero pay bonus. The company’s statement said, “As a result of the city of Long Beach's decision to pass an ordinance mandating extra pay for grocery workers, we have made the difficult decision to permanently close long-struggling store locations in Long Beach. This misguided action by the Long Beach City Council oversteps the traditional bargaining process and applies to some, but not all, grocery workers in the city.” On January 5, Los Angeles County passed a $5 per hour hero pay bonus during the pandemic. Other municipalities in California are considering similar laws. Santa Clara county’s ordinance includes fast-food restaurants. The California Grocers Association has sued over the mandates, citing how the large grocers have been singled out for the higher pay. Kroger won't be able to close all the other stores that will see a boost in labor costs.
NY Recycling bill (KO)
A bill proposed in New York state would require manufacturers to pay for recycling. New York State Senators Todd Kaminsky and Assemblyman Steve Englebright have introduced S.1185 to shift the responsibility from local government to corporate producers for the disposal of packaging and paper products. The program would also create a funding mechanism to cover recycling costs. Charges would be adjusted based on the amount of recycled content. If the bill were passed, no producer would be permitted to sell any covered materials unless covered by a producer responsibility organization approved by the state. If the proposal were to be approved, it would be the first state to implement a similar program. New York state is not the only state considering a recycling program paid by the manufacturers. After China stopped importing bulk waste materials for recycling in 2018, the costs to U.S. municipalities for recycling programs increased, straining municipal trash budgets. COVID-19 has exacerbated single-use items. According to the Solid Waste Association of North America, U.S. residential recycling programs are collecting more than 7% more waste than in 2019.
Consumer goods companies are no longer fighting the imposed costs. The Consumer Brands Association says it would support per-item fees on packaging as long as the fees are used to improve recycling. The lobbying group Ameripen, established by companies including Coca-Cola and Colgate-Palmolive, said it would actively support policy proposals that require industry funding. In parts of Europe and Canada, companies already pay for packaging recycling programs.
AppHarvest completes SPAC merger (APPH)
AppHarvest closed on its merger with Novus Capital yesterday. The company received $475M of gross proceeds, including $375M from a PIPE financing. The company projects to have positive EBITDA by 2023. The company highlights bringing produce production back to the U.S. as a key goal. It seemingly fixes a concern below the radar for society as the US imports about 15% of its overall food supply. If the environmental aspect of fewer trucking miles is a key component, what would happen when trucks are electric in the future? The company has big expansion plans, as can be seen in the timeline below.
The risk of AppHarvest becoming a popular pick of the Wallstreetbets crowd appears to be rather high. The company has a social mission, environmentally friendly credentials, a theoretically large TAM, purported technology to challenge incumbents, and a simple story that avoids math. AppHarvest will remain on our short bias list until we determine a catalyst as the valuation and business model risks are not enough in the current environment for story stocks.
