Setting the bar at the low (GO)
Grocery Outlet reported Q1 EPS of $.23, a penny above consensus expectations. SSS decreased 8.2% vs. consensus expectations of -7.8%, in line with Q4 SSS of -7.9%. Sales decreased 1% due to the store openings. Gross margins contracted 40bps. SG&A grew a modest 0.9% despite the 10% increase in the store base.
Management did not mention it directly, but purchases have been improving as in-stock levels. New product introductions at grocery stores are getting back to normal after several quarters of increased at-home meal consumption. Grocery Outlet is just beginning to build out its store base on the East coast. The company recently hired buyers for the East coast that will improve the company’s inventories on both coasts and lower transportation costs. Reduced online shopping and the end of stimulus checks would also be tailwinds. A recent poll by Survey Monkey found that 86% of adults in the U.S. want to buy groceries themselves in-store.
QTD SSS are trending down low double digits. The QTD average weekly sales are consistent with Q1. This leads management to believe comps will continue to decline LDD% in Q2. Last year’s comparison is similar, but as we noted yesterday, the pace of reopening is changing in California. California’s restrictions were stricter and lasted longer than other states. Removing the restrictions will have a bigger benefit for over half of the company’s store base. Management guided Q2 gross margins to be 30.5%, down 110bps YOY. The gross margin expectation reflects the LDD% SSS as well as freight costs and higher commodity costs. We believe management gave a very conservative view for guidance for the year, setting up for beat and raises.
The on-premise beer poured decelerates (BUD)
According to BeerBoard, which tracks $1B in draft sales nationwide, the open rate remained 92% for establishments open and pouring beer for the weekend of May 6-9. The open rate has been 92% for the previous five reporting periods going back to Feb. 25-28, as seen in the following chart. The closed 8% may represent businesses that have permanently closed during the pandemic. Data Essential reports that about 10% of the 778,807 restaurants existed before the pandemic closed for good.
Nationally the volume of beer poured compared to 2019 was 40% lower. Compared to the weekend of April 22-25, the volume was down 12.1%. The volume poured in Florida was 39% lower than in 2019, while Texas was 38% lower. On the other end, Minnesota’s volume was 69% lower while Illinois was 54% lower. The volume share for imports was 16.3%, up from 15.9% for the previous reporting period of April 22-25, while the craft was flat at 32.6% and domestic lost 0.4% to 51.1%.
Pandemic was a break for branded CPG (KR ACI)
For the fourth consecutive year, private label outpaced branded sales with YOY growth of 13.7% vs. 12.9%, respectively, according to Coresight. Private label’s outperformance narrowed in 2019 from a 6% differential. Out of stocks during the pandemic contributed to the narrowed gap. A survey by the Hartman Group in August 2020 found that nearly 20% of respondents rely more on private label products since the pandemic, and 52% said they expect to continue to purchase private label once it subsides.
Expanding the premium offering of private label is an initiative for both Kroger and Albertsons. In FQ4, Albertsons noted its own brand penetration exceeded 25% of sales, and the target is 30% in the next few years. Albertsons noted own brand gross margins are 1,000bps higher than branded. Albertsons introduced 1,200 items last year. Kroger’s private label sales grew 13.4% in F2021 and captured 21.3% of total sales. Despite the faster growth in private label in 2020, the pandemic was likely a brief respite in the continued share gains of private label compared to future years.
