In this week's episode of Industry Focus: Consumer Goods, Fool senior analyst Jason Moser talks with MyWallSt head analyst Rory Carron about some recent consumer goods industry developments. With alcohol sales falling, some of the biggest booze makers are finding more success with things like seltzers and no-alcohol beers.
Meanwhile, Vail Resorts (MTN 0.81%) raised some eyebrows with its latest acquisition, and climate change looms as a long-term threat. Facebook (FB +4.39%) remains determined to get its hardware in people's living rooms, despite privacy controversies galore. Rory explains why he's been looking into the anti-fast-fashion market, and shares one company listeners might want to add to their watch lists. Tune in for more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 23, 2019.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Tuesday, September 24th. I'm your host, Jason Moser, and we've got a packed Consumer Goods show for you today. We're taking a look at how the big alcohol companies are diversifying away from alcohol. We're going to check out the state of Vail Resorts. Facebook continues to try to break into hardware. We'll dig into the opportunity in online luxury. We even have another installment of "what's the last stock you bought and why."
Joining me this week all the way from the other side of the pond in lovely Ireland -- been there, love it. I have to get back there, Rory. Head analyst on the investing team of MyWallSt, you may remember it as Rubicoin. They've rebranded to MyWallSt. It's Rory Carron. Rory, how's everything going?
Rory Carron: It's all going very good here, Jason. It's the hottest day of the year and I'm in a very, very hot studio. Glad to be on with you!
Moser: We'll forgive you if we hear the ice clinking or some water gulping. Speaking of hot and thirsty, I think that's a nice segue into our first topic today. We're talking a little bit about the big alcohol companies out there, and how they're diversifying away from alcohol. I was reading on MyWallSt, on your app, a recent post that you all put up there on the five big brands out there. We're talking about brands like AB InBev, Molson Coors, Heineken, Diageo, and Constellation Brands, and how they're diversifying away from alcohol. When I read the initial headline, I thought, "They're alcohol companies. Why are they diversifying away from alcohol?" But you dig a little bit deeper, and you understand why. It does look like, based on the numbers, U.S. consumption, for one, volumes are going down. Total volumes are going down. Beer seems to be leading the way, doesn't it?
Carron: Yeah. When you talk consumers, what we try to do here anyways, there's two ways to approach it. You can look and think, what are people going to be doing in 10 years that they're not doing now? Conversely, and maybe this is a bit easier, what are they not going to be doing? We know prediction is a hard game to be in, but you do start seeing long-term trends, and you can start making a couple of assumptions. We do know that, for a variety of reasons, young people aren't drinking as much as the generation before them, who didn't drink as much as the generation before them. We know there's issues related to health, which for a long time were downplayed. I've also seen some research that suggests social media may be playing a big part in this, suggesting that young people didn't want to have moments when they were not of a right mind being documented forever in eternity.
Moser: Understandable.
Carron: This is a trend that's forcing companies in the space to innovate. We've seen in spirits, there's been a long-term trend toward premiumization. People are drinking less, but spending more money on those drinks, buying cocktails with the best spirits or liquors. They obviously work nicely for a social media post as well. One of the companies we focused on here for that is Diageo. They typically either occupy first or second place in any given major segment. That gives them a lot of scope to launch new products. Brown-Forman would be another one there that we keep an eye on.
In beer in particular, we see non-alcoholic beers leading the segment at the moment.
Moser: That's surprising to me.
Carron: 10 years ago, non-alcoholic beers were pretty rubbish, really. But even in terms of marketing here in Dublin, at the moment, we're seeing a real gold rush in terms of the big companies trying to advertise and promote low or no-alcohol alternatives. Heineken in particular said earlier this year that its flagship brand had the best performance in more than a decade last year, driven by their alcohol-free alternatives. AB InBev are looking to have 25% of their sales in low to no-alcohol brands by 2025. A lot of it is moving toward non-alcoholic beer.
Moser: That's fascinating to me. The one thing we've seen with smaller companies in the space, I look at Boston Beer as the shining example here. Over the past several years, Boston Beer, which is known for its flagship Samuel Adams brand in the craft beer market, and we know where craft beer has gone. It's an extremely saturated, competitive market. Samuel Adams itself, that core brand, has been having a lot of trouble in that market because of the flood of other craft options out there. It feels like craft beer is becoming very local. As a beer drinker, I certainly see that here in Virginia. But, to see Boston Beer diversifying away from their beer portfolio into other things, like cider or Twisted Tea, or now, the big thing over here is these hard seltzers which are low-calorie, similar alcohol content to beer, but maybe a little bit of a lighter option as opposed to something like a heavy beer that people are steering their way away from. I haven't heard a whole heck of a lot about the alcohol-free options on that front, though.
What do you think about companies like Constellation getting more into the marijuana side of it, now that legalization has taken hold here in Canada and it's finding its way here domestically, as well? Do you feel like that is going to be an opportunity for these companies to pick up share? Or do you feel like maybe it's moving more toward the non-mind-altering options?
Carron: Look, I think there's always going to be a demand for things that are, in some senses, bad for people. Unfortunately, marijuana is not legal over here, so we haven't had the opportunity to try out any of these new offerings.
Moser: Give it time.
Carron: [laughs] In one sense, CBD drinks, we do have over here. They just taste awful. I don't know if you've tried them, but CBD doesn't taste very good. And, because it's oil, it doesn't mix very well. I don't know what's going to happen with the CBD things. Obviously, it's so early days for this stuff, Constellation Brands being the big mover with their stake in Canopy Growth Corporation. Samuel Adams, as well, has come out and said that they are looking into the space, but at the moment are focusing on that hard seltzer area that you mentioned before. The seltzer thing, we haven't got here either, actually. I've never had a White Claw. I believe it's big over there at the moment. Hard to keep on shelves.
Moser: I can't say I've ever had it. I am a beer drinker pretty much and that's where I draw it. I'll have the occasional spirit or wine depending on the situation but I'm mostly just a beer drinker. I haven't jumped into the seltzer space. It does seem like it's proving to be a worthy alternative out there for people looking for something a little bit different. I guess it's all to say that these big companies are certainly looking forward and figuring out ways to make up for sales they're losing in what we'd call core competencies. We'll keep an eye on it. Those are some big names in the space, though, Diageo and Constellation particularly. We know a lot about those here.
Let's switch over to a place where, probably, people are having a nice spirit after the end of a long day on the slopes -- Vail Resorts, a company we love here. I know you guys love it there as well. It was a really interesting piece that you all had with MyWallSt recently, because you had an expert in meteorology and atmospheric science, a gentleman by the name of Trent Vonich. It centered around this purchase of Peak Resorts that Vail Resorts recently made, and Peak Resorts doesn't necessarily fit into the portfolio that we've become familiar with Vail having. Talk to us a little bit about Vail Resorts, the stuff that you like about it, and perhaps some of the concerns that you may have as well.
Carron: First of all, it's great to be operating in the digital space with blogs and Twitter, particularly where you can write a piece of analysis with the disclaimer that you're not a climate scientist, and you can then get in touch with someone who says, "Actually, I am a climate scientist, and I can write a follow-up for you." I'm not sure if Trent would classify himself as a climate scientist, but he certainly knows an awful lot about it, he's studied it in detail. We'll get back to that.
What we like about Vail, to begin with, is that there is another big trend that we're seeing of people favoring experiences over ownership. Vail caters for that. You get out of the city, you reconnect with nature, plenty of good opportunities for Instagram shots. They're sitting on some of the best assets in the world. You look at any list of top destinations in North America, you're going to see plenty of Vail properties on that list.
The adding of the 17 ski areas that we saw recently was a strange move, we thought. They're mostly in the Northeast, near large urban centers. They paid about $264 million for those when the company had $200 million in debt on its books. Vail said they'd taken out some additional... With some kind of investments they're making $60 million in annual EBITDA by 2021. So, on the face of it, it didn't look like a terrible deal, but it really depends on how they're going to manage those resorts and how they're going to turn those people into Epic Pass holders, which is how they're pushing forward. Vail is a is a highly astute company at getting people to sign up to those season passes. From 2008, they sold $78 million worth, and last year they sold $412 million worth. They still have 44% of all skiers on lift tickets at the moment, so there's a large base to convert there.
I also think Vail as a company is very good at embracing technology. It's key to their marketing strategy at the moment. They even have an assistant called Emma, which is like the Alexa of ski slopes. It tells you where the big lines are, where you can get the best food, it gives out deals, and all that kind of stuff. And finally, it's one of those resorts that, they're using technology as well to get those resorts opened earlier every single year, and keeping snow on those mountains. They said they think Vail will be open one week earlier this year than last; and The Keystone, one of the other slopes -- one of the first slopes opened in the U.S. -- three weeks earlier than last year.
Moser: Wow. That makes a lot of sense. I look at Vail, and it makes me think of Disney to a degree. You've got these parks. For Vail, the parks are the mountains. But these are just these big mountains that are sitting there, ready to roll. It's all about pushing through as many people as you can. That gives you that operating leverage. Whether they're buying the season pass, or they buy the season pass, go skiing, and then they're staying at the lodging or buying the lunches or dinners or whatever at the restaurants there, it's really all about traffic for these companies. From that perspective, the purchase of Peak Resorts made sense. But, to your point, it's a different part of the portfolio for them. They're majority Northeast, places like Ohio, Pennsylvania. They're lower elevation than skiing out West. But, people here on the East Coast do like to go ski, and it's not always so easy to jump out there to Utah or Colorado, or up to Canada, to necessarily go do that. Having options closer by makes sense.
The piece by Trent really got me thinking. It was interesting to hear his perspective on it. The purchase of Peak gave him a little pause, and it really was from the atmospheric science perspective. We could sit here and probably debate climate change all day long. I'm sure there are people out there who feel like it's not an issue, and some people who do. I generally think it does have something to it. And I think at the end of the day, listen, can't we agree that it makes sense to treat the planet a little bit better? I think everybody can get on board with that. Granted, Trent's thinking was very long-term. There was a reference in the piece there to 2090, if I'm not mistaken. But, the point was that you're seeing, as the Earth warms up a little bit, that potentially can shorten the times that these properties can stay open for skiing during the winter. And that could be a problem down the road.
Carron: Yeah, but you know yourself, how many earnings reports have you read where the company's missed, and they blamed an extra day or an extra weekend in the quarter for their bad results? You think about ski resorts, you're talking about mountains being open for multiple weeks longer or shorter, depending on the conditions. Think of the impact that has. With Trent's piece, he was particularly focusing on those Northeast regions and how they, with climate change, would be the first and hardest hit. So, that was a question for him.
Now, at the same time, there could be an element of Alec Baldwin's character in Glengarry Glen Ross, getting those names into the system. Creating a network effect in that ski community with Vail is very important, very much part of this company's long-term strategy.
Moser: Yeah. It was a really thoughtful piece. I appreciated reading Trent's views there. I supported a lot of what he was saying. I think it would cause anyone to sit back and think about it a little bit. I appreciated having the opportunity there.
Real quick, I wanted to jump into this -- I don't have a lot to say here, but I wanted to get your perspective on this. We saw this headline out here recently that Facebook is now going even more all-in on their Portal bet here. They have the Portal TV device that's coming out. And, along with that news, there's news that they are, in fact, continuing to work on developing some type of eyewear, Facebook glasses, where they'd be able to incorporate some type of augmented reality. As you know, that's right up my alley. I cover the augmented reality service here. Facebook is a recommendation in the service, primarily because of its Oculus device, which they acquired. But it gets me thinking, when I think about Portal in particular. I don't own a Facebook Portal. I never will own a Facebook Portal. It's not something I want in my life. We know that Portal itself has not been meaningful for the company at all. So, it is a little bit interesting to see that they're going even more into this with a TV device. Can Facebook ever really break into the hardware space?
Carron: I think my instant reaction to this is probably the same one you had, which was, no. I don't understand why anyone would invite Facebook, with the company's bad history and privacy, into their living rooms. They're saying that even with that checkered history on privacy, they still have billions of people using their apps and platforms. Perhaps privacy is not as important to people as we think. I know all about their past indiscretions, and I still use WhatsApp.
I also think, looking at both the original Portal and the new lineup that they announced yesterday, they look like well-designed products.
Moser: Yeah, I'll give them that. It does look slick.
Carron: The Portal TV in particular, making that an extension of your TV rather than a stand-alone device -- first of all, it's not going to take up any more space in your house. It's cheaper than a lot of alternatives. I see very good design there. For certain people, this might be a very good product. I think about, if you have elderly relative you want to keep an eye on, or if you're living abroad for a year from someone that you feel very close to, if you're in a long distance relationship or something like that ... So, you almost feel bad for their Head of Consumer Hardware. It looks like he's really out there building quite nice products, but there's an ickiness factor about them that won't go away for quite a while.
Moser: Yeah, I think you're right. It's a trust problem. I'm not sure how they overcome that. Maybe, one day, they can. But, to your point, they have billions of users on their platforms. As much as everybody wants to get out there and gripe about what they've done lately on the privacy front, No. 1, they're griping about it on one of Facebook's platforms, and they're essentially using the platforms just as much as ever before. So, I think there is that difference. But people love to get out there and tell you how offended they are, but then they get back to their same old behavior. I don't know that necessarily changes. Facebook has done a good job of cornering the social market. They're going to own that for some time to come. I certainly don't blame them for trying to figure out new ways to leverage that user base.
Carron: Do you have an Alexa?
Moser: I do. We have a few Echos at home. I've had an Echo in the house ever since they first came out with it. It's clever. We like it. It's got a lot of merits to it. It's a terrific timer in the kitchen. It's a nice stereo. It does neat things. It's something that, if you took it out, I'd probably miss it. I do enjoy being able to ask for the weather forecast, or set a timer when I'm cooking something, or play a podcast or something like that. But I did draw the line at the Video Echo. I just said, there's a point where I don't want things spying on me if I have the choice.
Carron: Yeah, I'm with you. I have an Echo as well. Whenever we talk about the smart home, this is always something that gets thrown at me, because I'm the only one with any smart home device here. I don't know why I trust Amazon more than I trust Facebook. But, for some reason, I do. I'm the same as you about the video, I don't think I feel comfortable with that, even with all the privacy protections they promise. I just wouldn't like it there.
Moser: Yeah. It's like when LinkedIn and Facebook were out there doing their thing, and all of the data told us that people wanted that separation between their personal and their professional life. People probably want that separation between their social and their purchasing or retail life as well. Maybe that's where Amazon's been able to succeed some, knowing that people do want that separation at some point, as opposed to having all of their eggs in one basket. I guess we shall see. It will be a telling holiday season for them, I'm sure.
Real quickly, let's get into a stock that you've been talking about with the team there recently. We talked about this concept of fast fashion, or this mass-produced retail stuff, and this move away from fast fashion. There's a company called TheRealReal that you guys have been digging into that's playing into the online luxury goods market. Tell us a little bit about TheRealReal and what you like about it.
Carron: On the bigger trend, we have been spending a lot of time trying to find an anti-fast fashion play, because we think that may be one of the new trends we see in the consumer space. Obviously, fast fashion, there's always an ethical dilemma with buying a T-shirt for $5. Someone down the supply chain is not being treated very well. And, we're in serious environmental problems with it, too. 235 million items of unwanted clothing were dumped in U.K. landfills last year.
Moser: That's amazing.
Carron: I know, isn't it? The numbers are staggering. 100 billion items of clothing were produced. 50% of fast fashion pieces are disposed within a year. It's clearly unsustainable. Going back to social media, it's a theme of this conversation. It has a part to play in this as well. There was a study by a charity The Hubbub Foundation that found that one in six young people will not wear an outfit again once it's appeared on social media. Think about for a minute.
So, we've been looking for a while to try and find some investment vehicles for the movement away from fast fashion. One side of things is definitely this clothing rental thing. When I first heard of it, I pushed back on it quite heavily. But the more I read about it, the more I'm seeing people adopt to it. There's a U.S. company called Rent the Runway which has been operating for 10 years now. They're valued at $1 billion at the moment. Just opened up a new headquarters on the west coast of Ireland.
Another one we were looking at is this like growing secondhand market. There's lots of companies in the space. It's very, very crowded. thredUP and Poshmark are two big ones. The one that recently went public is called TheRealReal. It's been having a bit of a difficult time of it, as most recently IPO-ed companies are. Part of that might be due to the fact that the founder is a woman called Julie Wainwright, who was once CEO of pets.com.
Moser: Ah. Talk about shedding a reputation.
Carron: The poster child of the Dotcom bubble. Of course, that was a long time ago. Wainwright appears to have hit a winner this time. She's now the founder of a $1.5 billion recently IPO-ed business. They've got sales a $200 million last year. Growing really quickly. They focused on the luxury brands, with a team of human authenticators that make sure all items that are advertised are exactly as advertised. Luxury brands tend to hold their value for many years, with some even appreciating. So, in a sense, TheRealReal is the opposite of fast fashion. People who use the service now love it. 82% of their last year's GMV coming from repeat buyers. As I said, it's very recently IPO-ed. It's too early to call. But it's one we're keeping a close eye on.
Moser: Alright, very good. Sounds a little bit like another company that recently IPO-ed here called Farfetch. Generally speaking, I like the concept there. Folks will buy expensive luxury goods, and then years down the road, they don't want it anymore. Those things hold their resale value, a lot more so than anything in fast fashion. It does seem like a market that could sustain itself. I guess we'll have to see how the economics all shake out for it.
Okay, Rory, a couple weeks back, we introduced a segment here called "the last stock you bought and why." It's turned out that people enjoy it because we're getting some new tickers and some ideas as to why people are buying or adding stocks to their portfolio. I wanted to jump in here and ask you real quick, if you're willing to play along, what is the last stock you bought, and why?
Carron: The last stock I bought was a company called Twilio (TWLO 0.06%). I don't know, would your listeners be aware of what they do?
Moser: Yeah, I think all of our listeners are very familiar with it. It's a company that's got a lot of traction here in our Foolish universe.
Carron: I think Twilio is one of those companies that's leading the way in helping brands communicate with their customers. When I try to explain it to people, I always say, "You may have never heard of it, but I guarantee you've used it, probably 10 times today. You've been in that ecosystem." I just love that business. On the numbers side, they keep increasing their active users. It's up like fourfold in the last few years. Revenue's up 13-fold since 2013. What I think they're doing is, they're serving this Uber-ized generation of people who want things immediately. They're becoming far less patient. It's not good enough to know that your order will be there in 30 minutes. You need to see the exact location of the driver. Secondly, there's a need for security. So many of the things we do now are carried out in the digital realm. Things like two-factor authentication is very important. It's standard use of Twilio's platform. So, I think they're in a really good space, market leader, and I really like the CEO.
Moser: Alright, people, Twilio, get it on your radar if you haven't bought it yet. We're always telling you, good story there. I like what I'm hearing.
What's the last stock you bought, and why? Let us know by emailing us at [email protected], or hit us up on Twitter @MFIndustryFocus. Tell us what the last stock you bought was and why you bought it. Maybe we'll even read it on air if you're lucky.
One more thing. If you're on the Instagram, keep an eye out on our Motley Fool Instagram profile. An awesome contest is coming up starting Wednesday, September 25th. Yes, that's tomorrow, people. Keep your eyes peeled on The Motley Fool's Instagram feed. Neat contest coming up.
Rory Carron, thanks so much for taking the time to join us this week.
Carron: Thank you for having me!
Moser: To learn more about MyWallSt, check them out at mywallst.com for more of Rory's insights on the market and how beautiful it is over there in Ireland. I don't know, maybe I'll get a golf picture from him one day or something. You can follow him on Twitter @RoryCarron.
As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Today's show was produced by Austin Morgan. For Rory Carron, I'm Jason Moser. Thanks for listening and we'll see you next week!
