Unless you live in the US or the UK you may not know StitchFix.
It is an online apparel retailer with revenue exceeding $2.1b.
Its USP is data science. StitchFix employs over 140 modellers who pour over a client’s clothing preferences to recommend five items that “fix” neatly into a box.
On sign up, customers fill out a questionnaire based around their shape, style and material preferences. The company looks at 3 data buckets: client profile, merchandise and critically feedback.
It’s an intriguing selling pitch and one that clearly resonated with investors when the business IPO-ed at $15 back in 2017.
However for its first 3 years as a public company, the stock price wandered between $15-20 earning it a disparaging moniker: a broken IPO.
This year there has a been change in leadership. Founder Katrina Lake has stepped down, to be replaced by an ex-Bain management consultant.
Shares are currently trading at $33. The reason? StitchFix’s revenue is up 23% due to the massive shift to online during the pandemic. StitchFix say that online apparel is 47% of the category, up from 37% pre-pandemic, a seismic change. Losses are also down significantly.
StitchFix makes over 45% gross margin and has little debt.
I would wager it has significant international growth too.
Skylark may not be a household name in Japan but it has a plethora of well-known fast food restaurant brands from Gusto to Yumean to Tonkara Tei that are found across the country.
It’s a big company with sales in excess of $3b, although its revenues dropped 23% in the pandemic.
Like many Japanese corporates, it’s not global having less than 100 of its 3000+ restaurants overseas, mainly in Taiwan and Malaysia.
Late in September it opened its first outlet in Chicago, a shabu shabu hotpot, branded Shabu-You.
Illinois was chosen because ‘the demographic composition is close to the national average,’ according to the press release.
Reading in between the lines, it seems Skylark thinks sushi or other more commonly consumed Japanese foods (in the West) are too competitive.
This first outlet is company owned and managed, though like many fast food operators, Skylark hopes to grow through franchising.
I can’t see too many Shabu Shabu brands in the US besides TabuShabu which is based in California, who incidentally appear to be keen to find franchise partners.
Shabu-you’s pricing is based on an ‘all you can eat’ offer with 4 types of meat. I wonder if Skylark has name (and taste tested) the ’Shoulder Clod’ or ‘Eye of Round’? If I was cynical I’d guess these names came straight from the Tokyo head office…
Lego has been ranked as Denmark’s most valuable brands for some time, however the gap between it and second placed Maersk may have widened.
Although privately owned, Lego released first half figures last week which showed revenues had grown nearly 50% to DKr23bn ($3.6bn), a record.
That’s an astounding achievement for a consumer products business, especially given the Covid pandemic.
Counter intuitively, Lego has doubled down on opening new retail outlets, including 40 in China.
Lego has cleverly stayed close to its core consumer target, children 4-12 years, whilst embracing digitalisation, bolting modern marketing techniques like licensing and merchandising into its playbook. It has partnered with Disney, Marvel and DC Comics to name a few.
Lego also has a strong education and teacher endorsed opinion leader programme which appeals to parents, the main spenders.
Lego’s CEO was careful not to talk up the growth numbers too much, not that he has to worry about a public audience of investors!
Interestingly, the CEO also promised Lego would not be taking price rises, unlike some of its closest rivals.
Back in October 2016 Fonterra’s shares traded at NZ$5.9. However, shoot forward 5 years and the stock has gone backwards to NZ$3.35 leaving management with more questions than answers.
Fonterra is a dairy cooperative, owned largely by New Zealand based dairy farmers that supply the business.
In Asia-Pacific, Fonterra is a well known brand. China is one of its largest export markets.
However the company’s history is checkered. At one time international was high on the agenda. In 2008 it spent $202m to buy the remaining stake in Chilean dairy company Soprole. As late as last year it acquired Dairy County, an Australian cheese business.
Yet milk is a commodity and farm gate prices vary dramatically impacting margins.
Fonterra’s gross margin is just 16%. Arla, a somewhat similar business, although focused on Europe and the Middle East makes 22%. Nestlé by comparison makes nearly 50% gross margin.
Last week Fonterra’s management revealed plans to dial back on international looking at divesting or IPO-ing its Australian and Chilean businesses.
Debt is one big headache. Fonterra also needs to shore up its capital base and wants to change the link between the number of shares a dairy farmer owns and the quantity of milk they supply.
Discussion and rumours of this change, which has yet to be finalised, is driving down the share price.
Management is fighting increased competition and dis-satisfied stake holders. Whilst NZ milk enjoys a very positive image, especially in Asia-Pacific, the company’s future growth path lacks clarity.
This month I spent a week in West London before returning to the Far East. It was a mixture of work, pleasure and early morning work-outs by the Thames (much recommended!)
I walked as much as possible but when using public transport rode the bus more than the tube. The view is better, the buses are less crowded and I was concerned about catching Covid (even though I’m double vaxxed).
From the bus, you can’t help noticing the sheer number of Lebanese, Moroccan, Turkish and other Arabic restaurants, especially around Knightsbridge, Edgware road and even Park Royal. Whilst these establishments are not a new phenomenon, if anything there seemed to be more than I remember.
Despite Covid, I heard a significant percentage of their patrons are locals; there are of course very few tourists at the moment.
In the supermarkets too, the range of ethnic foods is growing wider.
Most stock Hummus or Hummous, a chickpea and tahini sauce dip. There’s a growing range of Falafel and other dishes too.
Whilst many offerings are retailer private labels, there are brands like Cauldron and also Yarden.
Cauldron has had several owners. It’s a subsidiary of Marlow Foods which in turn is part of Quorn, part of Monde Nissin. Monde Nissin is listed in Manila and has a large meat alternatives business.
Yarden is an Israeli brand, part of Osem Investments, now 100% owned by Nestle SA.
Globally the hummus market is said to be worth around $4.5b and the biggest markets are in the UK, Germany and France followed by the US.
Middle Eastern food, or at least Hummus, ticks a number of boxes.
Exotic is the first; easy to use it can be mixed with other dishes or bread for snacking; perhaps most importantly it has a positive health image. Chickpeas are a legume, high in protein, and for some are a super-food.
Antoine de Saint-Affrique was previously at Barry Callebaut, a specialist (and hugely successful) chocolatier and before that Unilever.
Danone’s share price has not shown any positive momentum this year and the previous CEO was forced out in March. There were multiple reports of a boardroom power struggle over a strategic reorganisation, not to mention an activist hedge fund stirring the pot.
Danone has four core businesses segments, ‘Essential Dairy’ (yogurts and other fermented products), ‘Plant based products’ (Soy Milks), ‘Waters’ and ‘Specialised nutrition’ (infant and adult formulas).
Conventional wisdom amongst investors and other commentators is that whilst dairy, plant and specialised nutrition have strong USPs, leverage health technology and are categories with strong momentum, waters is the outlier.
Back in the 1990s when I was a Nestlé executive, ‘waters’ was designated as ‘strategic’ and huge sums were spent acquiring brands like Perrier, San Pellegrino and a plethora of local marks. The times have changed and recently its US water business was divested.
The knives are out for Danone’s water business. Partially because it’s lower margin but also environmentally questionable.
In France, where Danone is listed, the company enjoys the status entreprise à mission, meaning purpose driven, where enterprises pursue set social and environmental goals.
According to a study by Harvard and summarised in this French newspaper, 86% of bottled water packaging headed for the US ends up as waste.
The challenge for Danone is perhaps less about divesting lower profit and environmentally questionable businesses, but more about where to reinvest the proceeds?
I expect the CEO to double down on Dairy, Plant and Specialised Nutrition. How can those categories be broadened and stretched? There is mileage in plant dairy yogurts, functional foods and healthy ageing for sure. Danone’s brands enjoy strong awareness.
He will also be tempted to acquire. Plant cheese may be one area. A business like Mom’s meals may be another.
Possibly Danone’s scale and global reach can propel these businesses to far greater heights?
Let’s not forget, 5 years ago Alpro was nowhere.
The challenge will be not over paying; Private equity and others will be more than happy to sell, providing the price is right.
Danone’s debt has fallen slightly in recent years and with its core businesses providing strong cash flow, funding acquisitions is not an issue.
Although the Nikkei has danced to new highs recently (+30% at time of writing), not everyone has been doing so well.
That’s especially the case for food & beverage stocks.
Yakult and Morinaga’s share price has not grown whilst Ezaki Glico, Nissin Foods and Calbee are down (-7%, -8% & -14% respectively). Alcohol giants Asahi and Suntory are doing somewhat better (+45%, +19%), though Kirin is treading water (+4%).
Ajinomoto, maker of flavour enhancer MSG, mono sodiumglutamate is up 76% far ahead of its peers.
There’s been no big restructuring and to my knowledge no rumours of any takeover.
In fact conventional wisdom would suggest a business with a heavy foodservice and industrial bias would be suffering headaches from the Coronavirus shutdown.
It’s not widely known, but besides MSG Ajinomoto has a chemical division. One of its star products is ABF, Ajinomoto Buildup Film. ABF is a thin membrane used in computer boards, satellites and electric vehicles.
And there’s a supply shortage of ABF which has a knock on effect limiting CPU and GPU supply.
Shareholders and industry analysts in Japan are encouraging Ajinomoto and other Japanese food producers to refocus.
“Every company needs to review its business portfolio regularly, that’s especially the case for Japanese food makers, which face a shrinking population in their home market.”
DAIWA SECURITIES ANALYST
ABF films are reportedly used by Intel and Advanced Micro Devices.
Barclays Investment bank held its annual jamboree for the great and the good in the consumer products industry last week.
On the roster were many familiar names: P&G, J&J, Kraft Heinz, Nestlé, Coca Cola and more. All the usual suspects.
However one name intrigued me, Canopy Growth. I hadn’t heard of it.
Founded in 2013, Canopy Growth markets medical and recreational marijuana in the Canadian market. Besides Canada it’s also focused on the US, where its betting there’ll be legislative reform in favour of marketing marijuana, and Germany.
It’s listed on both the Toronto and NYSE exchanges and has annual revenue C$607m and over 3,200 employees.
The company’s website boasts an array of marijuana brands including Tweed, 7 Acres, Blissco, Hiway; Dog Treats; flavoured waters; a sleep solution branded ‘Dream Gummies’ and if that wasn’t enough they also do vapes.
What surprised me was how little money the company makes. In fact it’s heavily in the red, and losses have increased despite a rise in revenue.
The issue starts with their gross margin which averages just 15%. Compare that to Philip Morris who make 68% or BAT who make 83%
Canopy Growth’s stock price once traded at over C$60 but in recent days it’s down at C$19.
At the Barclay’s conference the CEO talked about the importance of consumer insights but perhaps the issue is a lack of focus, too many brands. There were apparently over 100 innovation projects on the go, but it seems many have been shelved as cash burn accelerated.
Perhaps the market isn’t as big as they imagined? Penetration of legal marijuana in Canada is rising but it’s still below 10% of the population.
Investors who hang on will be betting legislators in America and Germany vote in their favour.
I’ll end with a few disclaimers: I’m not an investor in Canopy Growth, nor am I doing any work the company. Oh, and I don’t smoke either.