We keep learning about the new behavior, what people do at home when they are working. As the state by state stay-at-home rally cry gains steam into what our national leaders are telling us could be the worst week, we keep learning about these new methods of operation, or m.o.s of those who suddenly find themselves stuck in their homes with a kitchen a couple of yards from their home office.
We know, for example, about how Zoom (ZM) has literally taken over the nation, to the point that it really can't handle the traffic without compromising security. It needs to outsource it to a trustworthy source so it can concentrate on quality. Cisco's (CSCO) Webex has tight security and is the favorite of the enterprise. RingCentral (RNG) as we saw from Vlad Shmunis on Friday, has offered a product that's easily embedded into those with Avaya, and I thought the quality vastly superior to all others. That said, RingCentral is late and I don't know how much share it can gain.
There's quite a bit of controversy among the web services, about who offers the best data strength and retail penetration. After last week's deep dive coming from the Microsoft's (MSFT) Azure over-claim, about how it's business is up 775% in stay at home areas, only to realize by an 8k filing that it meant the stay at home area of Italy, I tend to think that it is Amazon (AMZN) Web Services that is in triumph mode. No it is not a punitive observation. I had to do some digging to find out who has the capacity to handle what's happening without rationing or capacity issues, and I come back with AWS which seems to have been built for this moment.
But the most intriguing and accessible portion of the new stay-at-home movement is the desire to stock up the pantry and store up the snacks. The food companies, loath to predict something that's flat out not sustainable, are all in question mode about how significant the sales are since near universal lockdown, but I think that it is sustainable in part because we are scared to go to the supermarket but we know we have to because we can't go out much.
Winners? The ultimate so far is Constellation (STZ) , which is Corona, Modelo, Pacifico, as well as new hard seltzers and cannabis drinks and edibles in Canada.
The numbers here are staggering because it turns out that 85% to 90% of beer is consumed at home, not at bars, and the only real growth offering for home consumption is Constellation's brews. I am so impressed by how these brands, and their premiumization brands like Modelo Especial, are doing. They do have too high a debt load after the overspend for Canopy (CGC) but they should get $850 from Gallo when the regulators allow the sale of their non-premium spirits. That's welcome. If cannabis ever becomes legal in this country, Canopy will easily be the dominant brand. I also think that the new line-up of spike seltzer with the Corona brand could be a hit even if some think it is too late to the category. Covid-19 can ruin a summer but it can't ruin a thirst which is why I feel strongly that the little pleasures that Constellation offers will do well and the stock even better if the economy goes into deep recession. Beer has always outperformed in those circumstances.
You had to be impressed with the numbers from Conagra (CAG) where the snacking movement and the dinner offerings are the stars. It's tough to stock Chef Boyardee and Birdseye foods, a sign that those who are home want convenience and, dare say, the brands of their parents. I imagine people think this stay-at-home movement isn't going to last long because the numbers aren't leading to much of a higher stock piece. I think the spotty execution has hurt Conagra and the belief that it overpaid for Pinnacle but it is the Pinnacle brands, notably Bird's Eye, that are doing very well.
Perhaps the snack movement belongs more to PepsiCo (PEP) , the king, with FritoLay and Quaker, but they reported early so we haven't seen the numbers. In that last quarter there was concern about weakness in carbonated sales but there was not even a question about the strength of Frito Lay's or its ability to roll out new product that has a strong following already.
I was disappointed by the way General Mills (GIS) spent so much time talking about the loss of Haagen-Dazs sales in China and nothing about the stay-at-home baking movement. They emphasized the pet food strength which made me want to buy Chewy (CHWY) not General Mills. A totally subpar presentation. I would have spent a huge amount of time in Gold Medal to remind people of legacy brands. But I don't run the company.
Domino's (DPZ) works because it's been working for years. Plus, now it's a pioneer of the contactless food. It will come out of this era stronger than ever. I don't think people realize the destruction this scourge is having on every mom and pop pizza place that hasn't been destroyed by Domino's. This is the era where, unless the SBA comes through quickly, then Domino's might win by default.
So will Chipotle (CMG) , which has the best take out and a product that can be delivered and still taste well. It's a buy, even up here. Chipotle also has an easy drive through just in case you can afford to leave your house for a few, not that I encourage that even for a moment.
When you look at the collapse of so many of dining establishments, many of which were drowning in private equity debt that was never paid off quickly enough, you realize that Chipotle and Domino's are two of a handful of restaurant chains that are actually going to survive. I'd say that this sector, after retail, is the most damaged by the stay at home edicts and it most likely cannot recover.
When we had Hormel Foods (HRL) on I was reminded not only of the Spam revival given its multiple flavors but that Skippy and Justin's also have a similar millennial appeal. In an era when dividends are being cut more quickly than I ever expected would happen, it's great to know that Hormel celebrates its record of dividends and just declared its 53rd consecutive increase. That shows a commitment that is not going to be sacrificed any time soon.
Mondelez (MDLZ) hasn't come in much at all. Maybe that's the sign that its snacks are selling well but it's got gum and gum is in decline, and I don't want any number cuts if I am picking an at home eating product.
Finally, the real winner here is Nestle (NSRGF) which, unfortunately, requires you to have a Swiss bank account. The company is built for this moment because of its breadth of candy, pet food and home hot drinks, all of which score high here. It's a remarkable company, so strong, and I just wish it would list here so I can tell you to buy it.
Will stay-at-home stay as the most revolutionary sea change of this era? I think a combination of carbon reduction, traffic avoidance, rent shrinkage and improvement in the quality of video makes unquestionably the most emphatic of investable changes and these are the most sensational of them all.