Salads and IPOs for millennials
In November, the American chain of health food restaurants Sweetgreen held an IPO and increased by 80% in the first day with a valuation of the company at $ 3 billion. It is not true that he has profits. In the profiles of Forbes, Inc. and Eater in 2018 and 2019, Sweetgreen was rated as profitable. In its IPO filing, Sweetgreen reported losses of $ 31 million in 2018 and $ 68 million in 2019. Company officials told the NY Times that 2019 revenue “exceeded $ 300 million,” when in fact it was $ 274 million. .
For example, David Trainer of Forbes wrote in a note entitled “Healthy Foods and Unhealthy Public Registration” that he did not find Sweetgreen an attractive investment – a $ 24 per share indication that the company’s revenue would grow eight times faster in next time. years since the year 2020 increased. And given the fierce competition, especially in a pandemic when “healthy” restaurants have lost their main audience – millennial employees who are accustomed to ordering good food in offices – called it $ 0 fair price per share. Now Sweetgreen’s share price has fallen – but is not yet 0, and is still above the offer price – as of December 2, the price per share is $ 32.66.
Already after the Sweetgreen IPO, Bloomberg analysts noted that the company will have to face serious problems in the coming years in the form of labor shortages and falling demand. They also warned against buying shares of investors who are worried about the company not making a profit – although this is generally not the case for a stock company, but the fact that it is in 2007 and has not yet made a profit can cause questions.
What guided the people who rushed to buy Sweetgreen shares? On the one hand, although the company is unprofitable, recent financial results show that the company is growing: 12-month revenue increased by 50% to $ 240 million on September 30 and restaurant-level margins increased to 12%. Sweetgreen calls itself “the fastest growing restaurant company in the US”. The chain, founded by three Georgetown alumni, consists of 140 restaurants in 13 states. Salads are a mainstay of restaurants, a key element in high-density business areas, especially those where technology and financial companies are located. In general, Sweetgreen has an attractive image for a young audience in the city and this year the world tennis star Naomi Osaka became the face of the company, which added fans among the fans of a healthy lifestyle to lettuce growers.
The company’s founders, Nathaniel Roux, Jonathan Neman and Nicholas Jammet, are children of immigrant businessmen who met at Georgetown University in Washington. It was created by Sweetgreen friends for themselves, but then opened stores across the country. For the development of the restaurant, the partners raised start-up funds: each took $ 10,000 from their parents and raised $ 300,000 from friends and formed business contacts. Borrowed $ 50,000 from the Latin American Economic Development Center. Jammet’s experience also helped partners compete with other cafes: his parents owned and operated the French restaurant La Caravelle in New York. The founders still work in the same office, do not have personal cars and do not use social networks much. For several years, Sweetgreen even held a music festival, which also supported the image and helped develop the community around the brand.
Proper nutrition as an investment
Sweetgreen is not the only food technology company listed on the stock exchange, while it is still losing money, but it is growing rapidly. A similar scenario unfolded this spring with Oatly. The Swedish oat milk company raised $ 1.4 billion in a $ 10 billion public offering and the value of each share at the time of the offer was reduced to $ 15 to $ 17. Shares of the company, whose investors include TV presenter Oprah Winfrey, music producer Jay-Z and actress Natalie Portman, jumped to $ 28.73 as of June, but fell to $ 8 on Dec. 2. $ 4 per share.
In 2019, vegan meat company Beyond Meat rose from $ 25 to $ 59.22 on the first trading day after its IPO. At its peak in July 2019, the price per share was $ 234.9. In the fall of 2021, the company’s shares fell amid bad forecasts for earnings growth and now, as of December 2, the price of a share of Beyond Meat is $ 66.26.
Part of the reason for the explosive popularity of companies like Oatly, Beyond Meat and Sweetgreens is the general IPO market situation. According to Bloomberg, this year’s IPOs were generally more successful than expected, with all new entrants attracting more attention. In an overheated market, some companies are more attractive to potential investors than others. There are many representatives of Generation Y among active investors now and studies show that when choosing a strategy, it is important not only for the profit, but also for the companies to comply with their values, as well as for the impact of the investment with the general sense. Millennials love healthy food and respect the values of sustainability. In the media, you can find a large number of options, such as “Top 8 Vegan Stocks”, “12 Healthy and Sustainable Food Stocks” or “7 Organic Stocks for a Healthy Portfolio”.
These lists include, among others, Real Good Food, which makes ready-to-eat, low-carb, high-protein, gluten-free products such as cauliflower pizza and cereal-free coconut flour waffles. The company announced its readiness for an IPO this fall, saying it plans to raise $ 80 million by offering $ 5.3 million worth of stock at prices ranging from $ 14 to $ 16. However, Real Good Food was introduced at $ 12, closing the first day at $ 11 per share. As of December 2, the company’s shares are already trading at $ 7.35. It should be noted, however, that in November the stock market as a whole did not grow as actively and American investors became a little more cautious.
Independent financial adviser Natalya Smirnova, commenting for Forbes, noted that for a company to succeed in the stock market, keeping healthy eating trends is not as important as meeting analysts’ expectations, competitive advantage and financial performance. “Suppose Beyond Meat showed minus 45% for the year and competing Tyson Foods plus 29%. The business is the same, but the situation is different. “Although Beyond Meat is still trading much higher than the IPO price,” notes Smirnova. According to her, it is not the start-ups that benefit the most from the popularity of healthy eating in the new generation, but the already viable companies that follow the global trends and bring the modern trends in their product line. “The same Tyson Foods: have existed since 1935 and the direction PP (PP – proper nutrition) in the form of vegetable meat appeared only in 2021 and gave the (already prosperous) company an additional impetus for growth,” says Smirnova. .
The advantage for large companies is that if the trend changes in the future, companies like Tyson Foods will not have to close the business or take a turn (a sharp change in the direction of a startup in order to further develop it and maintain its viability. . – Forbes): will just add another ruler to the existing fixed base. But if the vegetable trend disappears or is replaced by something radically different, Beyond Meat will suffer a lot.
Healthy lifestyle and organic versus homemade
Although the start-ups in the trend of healthy eating are also developing in Russia, there are not many of them that can participate in the global fight for the money of millennial investors. Two years ago, the health food chain VkusVill announced plans to enter the Nasdaq stock market. The Russian company wanted to open stores in France, the Netherlands and China (later, Andrey Krivenko, the founder of the commercial network, called the opening of the first store in the Netherlands a failure). This year, the Wall Street Journal reported that the company’s IPO in the United States could take place in the coming months. But in November it became known that VkusVill was considering abandoning the IPO in favor of a strategic investor.
Natalya Smirnova believes that in Russia the trend of proper nutrition is not yet so developed and there are no important players in this market. Of the existing companies, according to her, VkusVill still looks like the most promising candidate: “I believe that if the IPO can take place, the demand for its shares will be high. “Further growth will be either steady or with the risk of absorption of retail chains by the current player, but not in the short term.”
Sergey Ivanov, CEO of Efko, co-founder of Food of the Future, estimates the Russian food market at $ 80 billion and the world market at $ 7 trillion. He is convinced that it is dangerous not to notice this trend: the number of players in the farm and organic food market will only increase. “Healthy eating is an important trend that will push the food industry for years to come,” says Ivanov. “We estimate the capacity of this section at 30-40% of the total food market in 10 years.”
Alexander Kiselev, director of the Welldone project, which attracted $ 1.5 billion in investment over the summer, also sees a great future for producers of useful products in Russia. He believes that the products and dishes of the healthy lifestyle category are no longer specialized and become a regular part of the variety of ordinary shops, restaurants and cafes. In large chain stores, separate alleys of healthy lifestyle products have appeared and the menu of many restaurants has healthy and / or vegetarian dishes, which allows us to hope for a serious growth of such companies.
Alor Broker investment general Pavel Verevkin is more skeptical and believes that in Russia the demand for healthy food is declining and is being replaced by the demand for “any food, preferably cheap”, as Russians’ real incomes have been falling for several years. . in a row. In this respect, VkusVill’s chances of a significant increase in revenue by attracting a mass consumer are not very high. “Rather, the bulk buyer will rush to the cheaper grocery chains or even the markets,” says Verevkin. “We are returning to the era of wholesale markets, home products and the like. Of course, one can optimistically expect that the cycle of declining real wages of Russians is about to break. But if it’s natural for health food chains to believe this, then it’s not for an investor. “Russia is a resource-based economy and we can not develop into a developed consumer market. The crisis after the crisis is pushing this consumer dream.”