Out West, a former farming co-operative has transformed itself into a $300 million business that supplies the U.S. with more than 25% of its avocado supply. The popular pear-shaped fruit will likely put a lot green in the coffers of Calavo Growers (CVGW) in the next couple of years.
While avocado sales account for nearly 75% of the company's revenues, Calavo has been aggressively expanding its offerings to leverage its global distribution network and sales points. While avocados will remain Calavo's main breadwinner for the foreseeable future, the company also produces a line of fresh salsas, ready-to-eat fresh-cut fruit, tortilla chips, and various other fresh-produce-related items. Looking ahead, demand for avocados will likely remain robust. Since 2000, avocado consumption in the U.S. has grown by 11% annually; in 2010 consumption increased by 30%. Even as avocado supplies have increased over the past decade, prices have increased as well.
Mexican restaurants are increasingly popular, and are the second-most-popular ethnic-dining option in the U.S. Look no further than the rapid growth of Chipotle Mexican Grill (CMG) for proof. Chipotle prides itself on a fresh menu with a few options -- avocado-based guacamole is a key item. A doubling in the size of Chipotle's restaurants alone will be enough to spur avocado demand significantly. Overall, food at Mexican restaurants is fresh, fun and, most of all, affordable. Avocado's are an essential ingredient in Hispanic cuisine. According to the U.S. Census Bureau, Hispanics today account for more than 14% of the U.S. population; by 2050 that percentage is expected to triple. Even so, just walk into a Chipotle or any local Mexican restaurant and observe the diversity of the customers.
In May, Calavo signed a deal that puts the company's fresh salsas in 1,500 Safeway (SWY) stores. Costco (COST) also sells the company's products. Over time, I expect a natural progression of deals with other notable grocers. While this is mere speculation on my part, a future collaboration with a name like Whole Foods (WFMI) could be a significant value-creating catalyst for Calavo seeing how Whole Foods' shoppers are big on fresh foods.
Calavo recently acquired privately held fresh produce company Renaissance Food Group, which will dramatically expand Calavo's exposure. Terms of the deal weren't disclosed. Renaissance Food's sales have grown by an annualized rate of more than 50% for the past seven years. Calavo's management expects the acquisition to add to earnings by the end of this quarter.