The Goods (U.S. Edition) – Highway Cobbery
Welcome back to The Goods! This week, we’re discussing the FDA’s busy week, Chili’s hold on Gen Z, and the revival of Chuck E. Cheese.
The days of free-riding in a Starbucks to rest your feet and hide from the cold are in the past. Starbucks is introducing a new code of conduct across North American cafes, requiring customers to make a purchase in order to linger at a table or use the restroom. This change ends the company’s seven-year open door policy and aims to improve customer experience and safety, making cafes more welcoming for (paying) patrons to sip and relax.
What’s In: This Week’s Trends
- Turn Up the Volume: After years of increases, many grocery prices have topped out with inflation-sensitive consumers. As a result, packaged food and snack companies are shifting focus to volume growth by introducing new product variations, adjusting packaging sizes and ramping up marketing efforts. J.M. Smucker is offering more size and flavor options, such as its iconic Hostess doughnuts in a two-pack, sleeve of six, or bag of 15, as well as introducing a new Jif peanut butter and chocolate flavored spread.
- And For Our Final Act… Before the new administration takes office, the FDA is shaking things up. On Wednesday, it announced a ban on Red Dye No. 3 due to cancer concerns, with food companies given until early 2027 to adjust product recipes accordingly. The agency also proposed front-of-package nutrition labels showing percentages of daily limit for saturated fat, sodium, and added sugars. While the Biden administration argues the labels will help consumers make healthier choices, the food industry worries that they will villainize products like the occasional candy or bag of chips, arguing they are not major risks.
- No Small Cask: The bourbon industry is facing a decline in sales and demand following a pandemic-fueled boom. Distillers nationwide have cut jobs and halted production, with whiskey giant Brown-Forman reporting a 3% decrease in U.S. sales over six months this past year. In 2023, volume of spirits dropped for the first time in three decades, attributed to the rising popularity of non-alcoholic beverages and anti-obesity drugs, potential tariffs, and market oversupply. Warnings from the U.S. Surgeon General that alcohol should carry cancer warning labels could also affect sales.
Cash or Card: Consumer Behavior
What’s going on with the consumer these days? This week we talk about the Chili’s craze driven by a dip platter, e-commerce concerns and GLP-1 usage.
- Dip Into Something Nice: Chili’s has transformed from a suburban mall staple to a Gen Z favorite, due in part to a quirky social media presence that the company describes as “cheeky, quick, and confident.” With high inflation, young consumers are also drawn to the chain’s deals, such as the $20 Triple Dipper, which is an appetizer sampler and TikTok sensation. The brand is also attracting more “young urban singles” than other full-service restaurants in the third quarter of 2024.
- Very Mindful, Very Secure: Social commerce is predicted to become a $1.2 trillion industry by 2025, fueled by growing interest in platforms like TikTok and Instagram Shops that offer a tailored shopping experience. However, a new research report shows that 70% of consumers worry about data breaches on these platforms, and 61% have abandoned purchases due to security issues. The data suggests that retailers must balance consumer trust, while still providing them with a personalized experience.
- Ozempic Picks: According to research firm Circana, GLP-1 users currently account for nearly 8% of food and beverage units sold, a figure that could rise to 13% by 2034 as the drugs become more affordable and available. In a positive sign for grocers, GLP-1 users during their first year on the medication increase their spending on grocery foodservice and pull back on quick-service restaurants and food at convenience stores, the research found. These consumers also spend more on deli and produce, while pulling back on spicy foods, fatty proteins, beverages with added sugar, dried meat snacks and alcohol.
Making Moves: Industry Transformations & Innovation
ICYMI, even industry icons need to reinvigorate their brand presence through unique and creative ways. Here are some new brand moves that you should know about:
- Highway Cobbery: In a rush for lunch and need a nutritious drive-thru fix? Just Salad opened its first drive-thru in New Jersey. After experiencing record growth in 2023, the fast casual salad chain is positioning itself to compete with rivals like Cava and Sweetgreen. CAVA manages 31 drive-thru restaurants and Sweetgreen operates one, signaling that fast casual salad bowl chains are increasingly targeting fast food customers.
- Doing Some Sole Searching: Your grandma and your favorite athlete may be rocking the same kicks this season. Skechers has become the third-largest footwear company in the world by sales by focusing on comfort and affordability, targeting underserved markets such as retirees and families. The company also expanded into soccer cleats and basketball sneakers, signing athletes like soccer star Harry Kane and Philadelphia 76ers’ player Joel Embiid. In 2023, Skechers propelled its sales to $8 billion, up from $1.8 billion about a decade ago.
- Trial’s Over: Amazon’s “Try Before You Buy” service is saying goodbye at the end of this month. Amazon launched the service in 2017, allowing members a seven day trial of over 1 million items across name brands like Levi’s and Adidas. However, the offering became a financial and logistical hardship for retailers. Amazon claims consumers are already using AI shopping features such as personalized size recommendations and virtual try-on to obtain the same benefits as Try Before You Buy.
- Rat Pack: Ready to go where a kid can be a kid? Chuck E. Cheese is offering annual subscriptions to lure families back, already selling more than 100,000. Parent company CEC Entertainment has invested $300 million to fuel renewed growth at Chuck E. Cheese, and the strategy seems to be working – the company has seen eight straight months of same-store sales growth. Chuck E. Cheese is hoping to bring the iconic rat-turned-mouse outside of the ball pit, with over 30 licensing deals and plans for a game show or feature film in the works.
Capital Markets Corner
What consumer news is moving the market this week? Our investor relations experts break down this week’s trends and headlines.
- Penney for Your Thoughts? JCPenney has merged with Sparc Group, Aeropostale’s owner, to create a new apparel powerhouse with more than $9 billion of revenue, 1,800 store locations and $1 billion in liquidity. The new entity, called Catalyst Brands, will operate as a joint venture between JCPenney and Sparc and will bring together brands such as Brooks Brothers, Eddie Baur, Stafford, and Liz Claiborne. Catalyst said that it has sold U.S. operations of Reebok and is exploring strategic options for Forever 21.
- CPG Shake-Ups: According to a Gordon Haskett research report, companies in the packaged food space have seen an increase in CEO departures in recent months. In early December, Campbells’ Mark Clouse announced that he’d be subbing soup for football as he took a job as President of the Washington Commanders. Potato product maker Lamb Weston also replaced its CEO amidst pressure from activist Jana Partners. Last week, Michelle Buck of Hershey announced that she’d be leaving in 2026 after being at the helm for more than 7 years, and Hormel’s CEO announced that he’d be retiring later this year.
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