Risk, returns & timeframes illustration
5 min read
August 8, 2023
by
Belinda Nash

Yum!, DoorDash & Starbucks take the bite out of inflation

We are what we eat and it seems we’ve become a planet of lil nuggets as budget-friendly kai kicks inflation to the curb for some food stocks. And while some companies filling pantries are battling inflated commodity costs, Seattle’s finest, Starbucks, is trying to convert the world’s most populous nation of tea drinkers into craving a fresh daily brew.
5 min read
August 8, 2023
by
Belinda Nash

Yum!, DoorDash & Starbucks take the bite out of inflation

We are what we eat and it seems we’ve become a planet of lil nuggets as budget-friendly kai kicks inflation to the curb for some food stocks. And while some companies filling pantries are battling inflated commodity costs, Seattle’s finest, Starbucks, is trying to convert the world’s most populous nation of tea drinkers into craving a fresh daily brew.
5 min read
August 8, 2023
by
Belinda Nash

Yum!, DoorDash & Starbucks take the bite out of inflation

We are what we eat and it seems we’ve become a planet of lil nuggets as budget-friendly kai kicks inflation to the curb for some food stocks. And while some companies filling pantries are battling inflated commodity costs, Seattle’s finest, Starbucks, is trying to convert the world’s most populous nation of tea drinkers into craving a fresh daily brew.
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Finger-lickin’ chicken. Thanks to budget-friendly meal deals and the Colonel’s new secret recipe nuggets, KFC’s been flying out the door as consumers ‘trade down’ to cheaper meats. 🍗 The fast food mecca’s global same-store sales were up 13% since the previous quarter - boosted by China reopening - soaring higher than Wall Street estimates of 8.29%. Yum! Brands CEO David Gibbs indicated that the inflation squeeze has provided KFC an ‘environment where we can succeed’ thanks to ‘always on value’.

KFC’s results helped grease the wheels of Yum! Brands (YUM), which missed revenue estimates due to slower sales at Pizza Hut and Taco Bell, rising just 3% to US$1.69 billion, lower than the expected US$1.75 billion. While their share price wobbled following the news, YUM! Brands is up 6.4% year-to-date (YTD).

Dashing through your door. 🚪 

Following last year’s launch in Christchurch and Wellington, Silicon Valley food delivery darling DoorDash (DASH) is dangling sizzling deals hoping to hook in Aucklanders by banking on their Tom Sainsbury-led goods from your ‘hood campaign - all part of the company’s investment to drive international growth. 

CEO Tony Xu told CNBC’s Jim Cramer that the company’s in ‘offence’ mode, and they're targeting more of the US retail and grocery delivery market to ‘build the biggest business for the long run’. And according to Xu, DoorDash’s Q2 ‘numbers speak for themselves’:

  • Revenue of US$2.13 billion beat estimates of US$2.06 billion, with 33% year-over-year growth 
  • Total orders had grown 25% year-over-year to 532 million. 

While DoorDash’s stock prices dropped 1.6% since the announcement, their YTD numbers have delivered investors 74.4% since January. Among their biggest challenges is enticing customers to switch loyalty from competitor brands, such as UberEats (UBER) that last week reported their first ever operating quarterly profit. 

Could DoorDash’s AI-based chatbot DashAI deliver a seamless personalised user experience and bring the app a fresh competitive edge?

China’s new daily brew? ☕

Following Starbucks’ (SBUX) third quarter (Q3) earnings last Tuesday, where the coffee giant reported booming 46% sales in China, their share price temporarily frothed, up 2.5% during the day, before dropping nearly 1% to below pre-earnings price. While Starbuck’s stock peaked at US$114.56 during the quarter, it’s since dropped 11% landing at US$101.74, up barely 1% YTD, but has experienced growth of 18.7% since August 2022. 

CEO Laxman Narasimhan says converting China’s 1.4 billion population of tea-drinkers is the company's growth ‘opportunity’, noting:

  • The average person in China drinks just 12 coffees a year 
  • More than 20 million Chinese have joined Starbucks’ loyalty program (the US has 31.4M)

No crying over spilt milk. 🥛 The company’s global same-store sales grew 10%, missing Wall Street estimates of 11%, but could US consumers have beef with Starbucks? 

  • Same store US sales grew by 7% but Starbucks missed analyst estimates of 8.4%
  • Despite efforts to target ‘younger, wealthier’ customers, transaction growth slowed to 1%, down from 6% growth in Q2. 
  • Narasimhan added, however, that while three-quarters of US customers now prefer cold drinks, they’re upsizing, with Starbucks reporting ‘growth in our largest sizes over our smaller sizes’.

Price-conscious shoppers sink Kraft Heinz sales’s growth 🥫

While Kraft Heinz (KHC) lifted prices to protect margins in their two year battle against climbing supply-chain input costs, it seems shoppers ain’t buying it. The food giant has a fully stocked pantry of household staples, including Philadelphia, Maxwell House, Jell-O, Golden Circle, Kraft, Heinz and, Kiwi fave, Wattie’s. While last week the company announced net sales of US$6.72 billion - 2.5% higher than the same time last year’s US$6.55 billion sales - they still fell 1.24% short of Zacks Consensus Estimate, expected to be US$6.81 billion in sales. But the company was ahead in earnings-per-share (EPS) of US$0.79, beating Zacks’ estimate of US$0.70.

Some good (and not-so-good) news for investors. 💸 Kraft Heinz announced they'll pay shareholders a dividend of US$0.40 per share, a healthy dividend yield of 4.5%. Ka-ching! The markets’ response has seen Kraft Heinz’ share price lift slightly at 2.3%, however, their YTD has struggled in the high inflation market, down 14%, and in the year since August 2022, their shares have fallen overall 7%.

Commodity prices not a cereal killer

Kellogg (K) has also faced high commodity costs in their operations, but the cereal and Pringles snack-maker beat second quarter Zacks’ EPS estimate to deliver an ‘earnings surprise’ of US$1.25 EPS. This beat the expected US$1.11 per share, and is up nearly 6% from the same quarter last year, with EPS of US$1.18. Since the update, Kellogg’s share price has dropped 2.7%, and YTD down 9%, on the back of a 14% decline since the same time last year.

Kellogg CEO Steve Cahillane spoke to Squawk on the Street, about inflationary challenges, the cost of higher wages and commodity costs - like the price of sugar - saying he remains optimistic that commodities are coming down. Net sales for Kellogg are up 5%, and they announced a Q2 operating profit increase of 23%. 🥣

Belinda Nash
Finance writer
Linkedin

We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.

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