The Best One Yet - Costco’s absurd China debut, Smucker’s peanut butter problems, and the cigarette re-merger

Episode Date: August 28, 2019

Costco just opened up its first physical store in China and the reaction was huge (the store had to close early). Smucker’s dropped 8% on word its peanut butter is facing price cut problems (and other nut-butters). And Altria and Philip Morris used to own the tobacco industry together, but now they may re-merge because nearly every trend is anti-cigarette.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. It is Wednesday, August 28th. Jack, how are feeling about this? We are bringing the heat. Prior to Labor Day weekend, it's Wednesday. It's almost the long weekend, everybody.

It's Labor Day, pre, pre-Eve, and it's perfect because this is the best snacks daily we've ever done. It's so much better than yesterday. Jack, what have we got? First story about Costco. This is the huge box American grocery store company. It opened up in China for the first time. The response at the first Chinese... Costco was insane, and it's going to shift your understanding about China.

We got a 12-pack of this story. Core theme here, you got to shift the understanding from producer to consumer. What's number two, Jack? Second story is about smuckers. It showed its earnings report yesterday. It's got a peanut butter and jelly problem, and this reveals an economic issue in America. Jack, smooth or crunchy, I don't even care. We can't even get into that.

This may mean we redefine the term staple foods. Third and final story, a $200 billion cigarette baby is being born. We're talking Altria and Philip Morris. They're getting married. Jack and I literally had a whiteboard up. We ran out of marriage nuptial analogies. Just don't send these guys wedding gifts. Do not send them a wedding gift.

We're talking Philip Morris. We're talking Al-Tria. We're talking Marlboro cigarettes. Now, before we go into those three stories, snack style, we noticed that Monday was actually International Dog Day, which we ignored because we were covering National Women's Equality Day. But two days later, we're going to shout out Sweet Green because they're taking care of your puppy.

Now, technically, sweet green's the place where you go. and, like, they could tell you the origin story and friends that all the carrots had that you throw in your salad. Jack and I go there. We do the whole miso bowl situation. Chopped is dead. It's all about sweet cream these days. And they are trying to treat your dog to, like, a vegan delight special treat. Now, this is the kind of thing you're going to get a lot of street cred for on Instagram.

You're going to lose a lot of street get for on the actual street because it's like a cool $16. Snackers, it's called plants for pups. It comes with some dehydrated apple and some sweet potato. It's ridiculously non-GMO, but it's $16. I bet the dog would prefer your pizza crust anyway. This is a harvest bowl for your Frenchie. It's like a farm-to-bowit-o situation. I'm sticking with the Starbucks Puppuccino,

which is just an empty Starbucks cup full of whipped cream. Dogs love it, and it's free. Most dogs will just go for the jiff, which we're going to get into one of our stories soon. Let's hit those. You're tuned in the snacks daily. We spoke to the lawyers and we got to get something legal out the way. The snacks are about to hear rain food.

tear candy. They don't reflect the views of the Robin Hood family. It's all informational just so. You know, we're not recommending any securities. Nope. It's not a research report or investment advice. Not an offer or sale of a security. Right. Snacks is digestible. Business news

for you. Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, past the milkjack, Smokers just dropped 8% because peanut butter is having a problem right now. The most awkward part, Muckers sits next to Snapchat on the stock exchange floor.

Like, those companies couldn't be more different. The other awkward part is this isn't a 122-year-old company, Jack. It sounds about 200 years old. It's officially called J.M. Smucker Co. You got to show them respect. They got the syrups, the honey, the jams, everything you eat at an indulgent hotel breakfast. By the way, it's been family run for like four generations. Unbelievable.

They've been smashing berries like my granddad and like my granddad before. Now, Jack and I noticed. in the earnings report that things kind of started off on a slightly, I don't know, should we say depressing note? I mean, it's a publicly traded company that makes preserves. So I wasn't expecting champagne bottles. But quote unquote, the company fell short of expectations. That's how they opened up the earnings report.

Sales fell 6%. And the stock was like the worst performing stock in the entire S&P 500, aka 500 companies. Two key products for JAMSmarker were suffering. Coffee and peanut butter. They both made less profits for the company. And in case you're trying to get a visual here, when we're talking smucker peanut butter, we're talking like jiff and uncrustables. Jack, do you know uncrustables? Uncrustible is not a peanut butter product. It's actually peanut butter and jelly all wrapped in a little

thing. It's basically a room temperature peanut butter and jelly hot pocket. Sounds like either the best thing in the world or the worst thing in the world. This thing was invented by someone who had like a carnal desire to hate crust. Jack, I think we've got to introduce are like peanut butter hierarchy here. Yeah, it's a totem pole. Jack and I spent like a good half hour on this today. So you got, you got, you got Peter Pan at the bottom, then you got Giff, then you got Skippies, then you get like Justins where you're getting the artisan stuff. And then you're getting like the super craft nut butters that are like ethically crushed peanuts. Yeah, Jiff is close to the bottom of this totem pole and it's kind of struggling down there at the bottom. Now that doesn't mean it's a

negative. I have a guilty pleasure that is Skippies every other day, smooth, not chunky. Well, let's talk about two trends in business that are affecting peanut butter. One, grocery stores are viciously priced competing with each other. They want the lowest prices. You got Amazon online to compete with. So it's just tough to make money on peanut butter. Prices are so low. So they're dropping peanut butter prices.

And then the second trend here that's hurting peanut butter is that consumers are going with more top-nutch premium nut butter. Before, the staple was a GIF peanut butter. It didn't matter what was in it. Now you need like the premium, the all-natural. If the thing isn't made in some law, in Brooklyn by artisanal chefs. You don't even want it.

Jack, choosy moms, choose jiff. It just doesn't exist anymore as a thing. So what is the takeaway for our buddies over at Smuckers? It's about time we redefine what consumer staples are in your pantry. Jack, I'm so glad you brought it up. Consumer staples, those are quote-unquote defined as something eaten routinely and in such quantities that it constitutes a dominant portion of a standard diet for a given people. Sounds like the things you buy during the Great Depression, but old school examples of consumer

staples are like milk, bread, and peanut butter. Now we have to adjust our vision of what a staple is because staples are getting upgraded and Jif isn't the go-to anymore. Yeah, milk. We talked about milk struggling. Dole food stock is at like an all-time low because people are upgrading to almond milk, bread, people are getting gluten-free versions and peanut butter. They're just uptearing and it's tough for Jif.

So the trend is for higher-end nut butters and it looks like that can become a a new staple, except if one thing happens, Jack? If we go to a recession, Jiff is going to be in good shape, so smuckers might be rooting for that. For our second story, Jack, grab the 48 pack of Kleenex. Costco just opened its first store in China. This was pandemonium. Picture Black Friday meets Mardi Gras in China. Picture like that freshman year moving with this super helicopter parents who went to IKEA all weekend meets a Beyonce concert of anything.

Mine was bedbath and beyond not IKEA, but this thing had to shut down early. there was such a mad rush to see Costco's first store in China. Literally Costco opened up its first store in Shanghai, and then things just got crazy. So many people were going to that store that there was a three-hour wait just to get a parking spot. Jack, can I paint more of a picture for you? The Costco team had to text all its members the following. Can you please share? To provide you with a better shopping experience, Costco will suspend business in the afternoon.

Please don't come. No joke. And then the police showed up because they had to handle the situation where they had to They were, according to CNN, had to quote unquote, urge people to remain calm. Okay, there's no, I can't verify these translations, but the Shanghai police apparently also said, for your safety, we hope citizens who want to go to Costco can maintain a rational attitude about consumption. Jack, this got so insane that we ran out of quotes. We only limited to these three that we could find.

Here's the thing. I'd expect this kind of pandemonium for like a Michael Jackson concert for a new Tesla Model X like getting to China. for the first time or for like a new iPhone. But this is Costco. Why are people going there? It's even crazier because technically Costco is not totally new. It was like previewed in China over the last few years. It existed for five years with an online partnership through Alibaba. And apparently it won some serious fans among Chinese consumers. This was like the Chinese middle class seeing Santa for the first time. It got dramatic. Now, investors are so excited that Costco might have a budding new growing market in China that the stock rose by 5% yesterday.

So, Jack, what's the takeaway for our buddies over at Costco? There are two unique elements of Costco that make it super in touch with China's new middle class right now. So this is perfect timing. And the first reason is affordability. Costco's bulk sizes, don't let it just charge like low prices. It lets them charge ridiculously low prices with hardly any profits. I love this stat from Costco's annual report.

The markup on average that it charges like customers. for its things is only 11% and 11% markup. Jack, can you give us like a beautiful markup example for us now? Imagine you go to Costco and you want to buy a human-sized bag of potato chips because that's their go-to item. If Costco paid $10 for that bag of chips to produce it, it's only going to charge you $11 and $10.10. That's an 11% markup.

And that's hardly anything. And the second reason that Costco is perfect for China's middle class right now is exclusivity because Costco charges a membership fee. And for China's new middle class, this is a very cool different way to engage with a new retail brand. Yeah, we might get kind of annoyed about membership fees because they cost money, but this is a novel concept in China, becoming a club of a store. Kind of a cool thing. So membership fees, by the way, $60 in the U.S. $42 in China for Costco. And 75% of Costco's profits actually come from those membership fees.

So it's a big deal. Add those two together and Costco is nailing the timing to enter China. By the way, this is Nick and I own shares of Alibaba. For our third story, Philip Morris and Altria, two tobacco companies, Jack, are desperately getting together and they plan to re-merge, like merge into one company again. Philip Morris and Altria, these are the two big boys in smoking. It's like Uber and Lyft, Burke and Pepsi, Britney and Christina. He went there. Big deal. Altria is based in Richmond, Virginia. It happens to be the owner of Marlboro Cigarettes. Philip Morris International, based in New York City. Also, the owner of Marlboro Cigarettes. We know you think we're messing with your heads. We aren't quite.

There's a legal technicality here. Altria sells Marlboro cigarettes in the United States. Yes. And Philip Morris is the proud salesman of Marlboro everywhere else in the world. Now, they're merging together because basically they're a little desperate. They're basically moving into the same apartment because they can't afford two rents anymore. This is classic Medon Tinder, swiped right, kind of like each other and want to live in the West Village. So you're teaming up to get that studio. Now, stocks of both companies fell because they confirmed they were thinking about merging, but there was no like upside to this merger. They're just like, we're merging.

No, in fact, Jack and I looked at this little further, and there's like a little bit of a relationship history here. They used to be the same company, but they actually split up in 2008. Back then, the idea was Philip Morse's international business. Let's free them from the lawsuits that are coming from the United States and from those pesky legislators who want to like push anti-smoking legislation through. So it's been a little messed up because now Philip Morris has been pushing tobacco in China and Indonesia, and that's where smoking rates are rising. Yeah, their crusade abroad has been successful. But in the rest of the world, especially the United States, Russia, and Japan, smoking rates are falling pretty dramatically.

So, Jack, what is the takeaway for our buddies over in smoking at Philip Morris and Altra? American tobacco pretty much isn't worth suing anymore. Get this, Altria's annual sales, they're down a whopping 35% in the last decade. Yeah, that's the U.S. focus. business, and they're responding by investing in Jewel and Kronos, you know, e-cigarettes and cannabis. And then Philip Morris, its sales are down another whopping 10% over the exact same period of time. That's also really bad, not quite as bad as Altria, because they've benefited from growth in cigarettes in China and Indonesia.

Basically, you've got to look at the trends here. People are getting healthier. They're vaping more, and they're smoking more marijuana. Add it all together, those are all anti-smoking trends. Lungs are still busy with e-cigarettes and with cannabis. They're just a little too busy for cigarettes. And that's hard if you're Altria or Philip Morris. Jack, can you whip up the takeaways for us over there? Smucker stock dropped by 8% because its Jif peanut butter is getting left behind in the pantry. The pantry has gone upscale, Jack, and it's gone organic. Jif has done neither. Second story, Costco stock jumped by 5% because of its celebrity-like debut in China. Jack, what trade war? What trade war? What trade war? Third and final story, Altria and

Philip Morris are thinking of merging each other because hard times in tobacco. I like that remerger, situation going on. This is adorable. By the way, time for our snack fact of the day. This one sent in by Ryan from Austin, Texas, although he also goes by his emoji, which is a wave emoji. That's his Twitter handle is a wave emoji. Now, his snack fact, KFC, is actually officially KFC. It's not Kentucky Fried Chicken. No, technically they changed the name in 1991 because they had a very prescient idea. Well, the rumor I heard growing up was that they weren't actually chicken. That turns out to like not be true, but apparently they were trying to distance themselves from the word fried. Not by actually not frying the chicken, but just by removing it from the name. It's a trigger word

for a lot of people since the 90s. Now, Snackers loved having you with us. Another key story you got to know today. We're covering our newsletter. Peloton, the at home spin company. It just issued its S1. It's getting ready for its IPO. We're going to dive deep into that thing and report on it. But seriously, Jack and I are actually jumping in snacks out of this one. We're going to cook it up. We're going to actually get on the bike, do a 30-minute, what do you think, arms toning ride. And we're going to get back to you tomorrow with more info on Pelotown. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets, Inc, or any of its subsidiaries or affiliates.

The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.