Oatly expands in New Jersey (STKL)
Construction is expected to begin on a $45M facility in New Jersey that will provide processing and packaging to an adjacent Oatly facility that produces an oat base. Innovation Foods will build and operate the facility. The co-packing facility received approval from the Millville planning board last week. Oatly opened its first facility in the US in the town in 2019. Oatly’s facility is 19,000 square feet, and the new facility will be 71,866 square feet. The second phase of construction will add two additional buildings with a total footprint of 125,286 square feet. The new construction will take the total investment at the location to $110M. The “low-acid aseptic” facility will be able to produce shelf-stable products that do not require refrigeration. Oatly and Innovation Foods will use outside co-packing facilities. Last week Oatly announced the construction of its first facility in the U.K. Oatly is expected to IPO in the coming months. Oatly has tremendous growth potential ahead of it, but its manufacturing capacity challenges it. The company is setting up its growth and expansion plans ahead of the IPO. We are excited about the IPO, but the rumored valuation is ~$10B. SunOpta is the best way to invest in the secular growth of plant-based milk.
Kroger closes stores in the face of additional hazard pay (KR)
Kroger’s Ralphs/Food 4 Less division said it would close three supermarkets. The move was in response to the Los Angeles City Council finalizing an emergency ordinance that requires grocery and drug store operators with more than 300 employees to pay hazard pay of an additional $5 per hour for at least 120 days. Last month Kroger closed two supermarkets in the Long Beach area after a new law mandated an extra $4 of hourly pay. Kroger also two supermarket closures in the Seattle area after a similar hazard pay law. All of the stores were described as underperforming. According to Kroger, the extra pay mandate would add $20M more in operating costs over the 120 day period. Kroger will still operate 65 stores in the Los Angeles area. The company said nearly 20% of Ralphs and Food 4 Less associates had received a vaccine dose. Kroger added that Los Angeles associates receive an average hourly wage of $18, and including benefits, the total compensation comes to $24 per hour. With two million Americans receiving the vaccine each day, it seems unlikely that additional municipalities will pass similar laws. As the pandemic ebbs and the sales boost to eating at home are anniversaries, it will be clearer what the grocery industry's structural changes are – primarily in online ordering.
Southwestern drought (TSN)
57-90% of several states in the Southwest are in extreme drought conditions. Colorado, New Mexico, Nevada, Utah, and Arizona are all impacted by a smaller snowpack this winter. For four of the states, last year was the second or most dry year on record. This winter has been one of the driest winters as well, compounded by La Nina. The snowpack in California is at 58% of its historical average, which could reduce the amount the agricultural industry can use. The dry conditions could also lead to a large wildfire season this year. For ranchers in the region, the drier conditions will lead to less weight gain, higher costs to feed and water, and smaller herd sizes to prevent overgrazing for over 10% of the total US herd. The drought conditions in the Southwest will add to inflationary pressures in several crops and cattle. With water rationing and restrictions on use, there could be some unforeseen changes to the region's agricultural industry and their longer-term access to water if the Government gets involved (which seems likely).
