While the vast majority of spirits Hot Brands are continuing to show robust growth in control states so far this year, the largest among them—Tito’s—was roughly flat. Time will tell whether that marks just a blip on the radar or a lasting deceleration for the brand, which totaled more than 12 million cases in the U.S. last year, according to Impact Databank, doubling in size since 2017.
A total of five Tequilas earned Hot Brand honors earlier this year, and all of them continued to grow at double digits in control states in the first half, led by Don Julio, which was up by nearly 50%. “What we really like about our portfolio, and the moat we feel like we’re building, is that we actually have a very different Tequila business from most,” Diageo CEO Debra Crew recently told analysts. “As an example, on Don Julio, two-thirds of the brand is Reposado and above. You take the direct competitor to Don Julio, and that business is the opposite, only about a quarter is Reposado and above.”
Fellow Tequila Hot Brands Espolòn (+29%), Lunazul (+27%), Teremana (+25%), and Milagro (+19%) are also up strongly in control states so far this year. And their marketers continue to turn up the volume to reach new consumers. Heaven Hill recently kicked off “Look to Luna,” a new advertising campaign promoting Lunazul, which neared 1.3 million cases last year. Teremana is also getting significant advertising support via a new global “Share the Mana” campaign, while Campari is backing Espolòn Tequila with the brand’s first global campaign, titled “To the Bone.”
Within the liqueurs category, Campari America’s Aperol continues to be a key growth driver, having more than doubled in size over the past three years. The brand, which has leveraged trends toward daytime drinking and lower-abv cocktails, advanced at a 12.5% growth rate in control states this year through June. “We’re seeing very nice growth on Aperol and continue to feel very optimistic that there’s still a lot of upside in terms of its growth in the U.S.,” Campari America managing director Melanie Batchelor told SND.
Also from the liqueurs segment, Sazerac’s 99 schnapps label jumped by more than 30% in control states in the six months through June. With that performance, it’s well on its way to blowing past the 500,000-case mark in total U.S. volume this year. 99 is known for its extensive range of cordials flavors, all bottled at 99 proof.—Daniel Marsteller
WASHINGTON — Foster Farms’ latest petition for an emergency service order that would direct the Union Pacific Railroad Company (UP) to deliver corn to the poultry processor’s California facilities was denied as moot by the Surface Transportation Board (STB).
STB will require UP to file weekly status reports through May 15.
In the summer, STB granted an emergency service order for Foster Farms. The company requested the order so that it could feed its livestock and maintain obligations to customers, which was proving difficult to do after delayed shipping issues.
After Foster Farms presented a second emergency service order request due to delivery issues with UP, STB ordered the distribution company on Dec. 30, 2022, to meet specific service commitments to the processor. According to UP, the deliveries were delayed due to “weather events.”
In January, Foster Farms received five trains so that all its facilities could be fully operational again.
STB said the docket will remain open for 180 days in case any further action is necessary.
“We appreciate the consideration of the Surface Transportation Board, and their continued interest in ensuring that grain delivery schedules are met,” said Ira Brill, spokesperson for Foster Farms.
DALLAS — Ellie Doty has been promoted to senior vice president and chief marketing officer of Chili’s Grill & Bar at Brinker International Inc.
In her new role, Doty will be responsible for all US and international Chili’s brand marketing, including menu innovation, using the brand’s insights to better understand Chili’s customers and employees, and harnessing digital marketing, social media, public relations and more to promote the Chili’s brand.
Doty joined Brinker in 2017 as vice president of marketing for Chili’s. Before that, Doty spent seven years with Yum! Brands, Inc. in various leadership roles, including director of marketing for KFC, marketing director and CMO for KFC Canada, and senior brand manager for Taco Bell. Earlier in her career, Doty was brand and field marketing manager for Long John Silver’s.
“Ellie’s innovative leadership has helped the Chili’s brand achieve positive results in fiscal 2019, and I am confident she will continue to drive success for the business,” said Wyman Roberts, CEO and president of Brinker. “I look forward to continuing to work with Ellie as she tells our brand’s stories and brings guests into our restaurants across the world through quality, convenience and value.”
NEW YORK — Food and groceries remain top of mind for US consumers when it comes to spending their inflation-tinged dollars, said John Furner, president and chief executive officer of Walmart US, at the Oppenheimer Consumer Growth & E-commerce Conference.
Following the post-pandemic inflation wave, customers have favored nondiscretionary over discretionary purchases, and increased food and consumables sales have siphoned dollars from Walmart’s general merchandise business, Furner explained in a question-and-answer session with Oppenheimer & Co. analyst Rupesh Parikh at the virtual event on June 11.
“What we’ve really noticed starting in early 2022 was some conscious switching amongst products, and you can see that pronounced suddenly in the store,” Furner said. “But based on what people are having delivered, our flexibility, convenience and other things that we have improved over the last few years have made a difference in our ability to serve more of our existing customers more often with more units and then meet some new customers as well, which is great. As far as the mix inside the business when it comes to merchandise, over the last five years — really four-and-a-half to five years — we’ve seen about a 2% shift from discretionary to nondiscretionary. In other words, 2% more of our business is food and consumables than what it was before this period began.”
But change may be in the wind among consumers, Furner noted. For the fiscal 2025 first quarter ended April 26, Walmart reported that US net sales rose 4.6% year over year to $108.7 billion, and comparable sales excluding fuel increased 3.8%, with e-commerce contributing 280 basis points to comp results. The average shopper ticket amount was flat despite a 3.8% growth in transactions. Operating income climbed 9.6% on an adjusted basis.
“We’re seeing consistency amongst consumer groups over the last several quarters,” Furner said. “Some of the factors that are weighing in are strong employment — another 272,000 jobs created reported last week (by the US Bureau of Labor Statistics). Wages have grown pretty significantly in a lot of sectors over the last few years, and wages at Walmart amongst our associate group have grown about 30% over the last five years.”
Despite shoppers’ efforts to temper spending, both the food/consumables and general merchandise segments have grown for Walmart US, Furner pointed out.
“Both businesses are bigger,” he said. “The only real shift we’ve seen in the last couple of quarters, (which) we talked about at the end of Q1 as we got into the month of May, is more strength in apparel and more strength in home. Apparel is coming from both our new remodels, what we call ‘Store of the Future,’ which is great to see the improvement there. And then expansion of assortment and first-party commerce and the Marketplace have both helped our home and apparel businesses.”
Agreeing with Oppenheimer’s Parikh, Furner said the market is “definitely a bit more promotional” versus a year ago as key players have become more aggressive on pricing to draw cost-savvy shoppers. After waiting to be the “last up” to lift prices during the runup in inflation, Walmart US stepped up promotions in 2022 to clear inventory and then stabilized them in 2023, he noted. Now the Bentonville, Ark.-based retail giant is turning up the promotional heat again to keep its pricing edge.
“We wanted to maintain our price gaps, and it feels like we’re in the third phase where there’ll be more unit retail pressure across the market,” Furner explained. “So we’re definitely seeing more promotions. We have over 7,000 Rollbacks in our assortment, which is up about 45% over a year ago. During this third phase, we’re really focused on unit growth. And if we see the opportunity to lower prices, we want to be the first down.
“We’ll manage margins. We’ll invest in prices appropriately. We’ll invest in experience and associates and then manage this within the bottom line. But the 7,000 Rollbacks are a great example of what’s different this year versus last year.”
Walmart customers have embraced the Rollbacks.
“The consumers are very smart,” Furner said. “They recognize its value, and (with) a lot of items where we’ve taken 20% off the retail — or in some cases, less or more — we see up to 40% increases in units. It’s typically immediate items like french bread or some price investments made in produce have done really well. Our private-brand soft drinks we took from $1.42 to $1.”
He added, “There is more participation as of late with both brands and things that we’ve invested in on our own and for our merchants. They can invest in high-margin items and still grow units and mix categories. That’s a lever that the merchants have always had. But we are seeing more participation amongst suppliers as we try to get unit volumes up.”
When asked by Parikh about food-at-home versus food-away-from-home, Furner said Walmart US can cater to both channels as customer preferences and affordability change. But for now, consumers are still leaning toward at-home food consumption to save dollars.
“I think we’re positioned to continue to benefit, should that continue,” he said. “We’re also positioned that if that goes the other way, then we still have a lot of flexibility in channels we can deliver on. And when you look at our baskets by type of channel people shop, we can see differences. About a year ago, we saw units start to accelerate in produce, proteins and the dairy category. And when you dig into what was accelerating, it’s ingredients that would be used to cook at home, which is different than selling frozen food or packaged grocery, which of course we can do and (offer) great quality and value.”
Sealed Air has pledged that by 2025 it will use an average of 50% recycled content across all packaging solutions; 60% of which will be post-consumer recycled content.
Most conversations about sustainability in food production tend to eventually lead to packaging. Meat and poultry companies are looking for new ways to navigate the often-complicated dynamics of providing sustainable packaging options that are truly “green” but don’t break the bank.
Packaging companies are working with meatpackers to adapt current equipment so it can accommodate new packaging solutions while meeting different sustainability goals. Innovation in plant-based and post-consumer, fiber-based materials is being prioritized for many companies while increased reliance on recyclable plastics continues to be more efficient. Sustainable packages can be prohibitively more expensive than less environmentally friendly packaging like overwrapped foam trays.
Ossid, based in Battleboro, NC, has worked with its customers to provide ways to reduce the financial burden of pivoting into more sustainable packaging materials. When Ossid released its NextGeneration500E overwrapping stretch shrink wrapper in 2018, the company had sustainability in mind. The machine can accommodate many different styles of trays that can be changed over to a different size in under two minutes.
“We don’t want it to be a burden on our customer base; we’re 100% partnered with our customers,” said Mike Rogers, Overwrap product line manager at Ossid. “When they have a need we want to deliver it and don’t want to call them up and tell them you have to buy a new machine.”
Flexible options
The NextGeneration500E stretch shrink wrapper from Ossid can accommodate a variety of tray styles that can be switched out in a matter of minutes. (Photo: Ossid)
Designing and manufacturing new equipment is more expensive than designing flexibility into the current equipment. Many of Ossid’s customers are requesting machines that can run more recyclable, clear plastics, and thus, the company has built that flexibility into its equipment. Ossid designed the NG500E sensors differently than the older models so the machines can recognize and run clear trays just as easily as opaque foam trays, Rogers said.
Sealed Air, headquartered in Charlotte, NC, has pledged to use an average of 50% recycled content across all packaging solutions; 60% of which will be post-consumer recycled content by 2025.
Currently the company’s Cryovac Brand Food Packaging division is working with a variety of sustainable packaging types; including recycle-ready plastics, renewable plant-based resins, recycled content and compostable materials that reduce the company’s carbon footprint.
“One of the challenges we are currently facing is that many of the complex, multi-layer materials used in food packaging cannot be recycled through traditional, mechanical recycling methods,” said Kristin Meyers, senior manager of global marketing food platform at Sealed Air.
Sealed Air has partnered with Plastic Energy, an advanced recycling company that uses technology to recycle plastics that would otherwise end up in a landfill or the environment. With this partnership, Sealed Air hopes to create a circular economy for plastics.
Sustainable packaging’s higher cost per unit can make it difficult at times to sell to bigger food companies and retailers.
The ECO Bowl is a flat, corrugated paperboard tray that includes a plastic liner. (Photo: Multivac)
Often Gregg Poffenbarger, materials business director at Kansas City, Mo.-based Multivac, has customers tell him, “‘I love the idea. It’s a fantastic product, it forms well and performs great,’ they say. But it comes at a cost premium, and that cost premium is too high for many of our current customers to accept,” he said.
This hasn’t stopped Multivac from trying. It has been working with starch-based and plant-based, mixed polymers that are totally renewable – many that are compostable and some that are biodegradable, Poffenbarger said.
By experimenting with different sustainable options, Multivac offers options to its customers in this emerging market.
The company has seen a lot of interest in its ECO Bowl product line. The flat, corrugated paperboard trays come primarily from post-consumer feedstock and are designed with plastic liners that fit inside. The boxes remain clean for recycling programs, while also providing the benefits of saving storage space and transportation costs because all the manufacturing is done on-site.
Harpak-Ulma, with US operations in Taunton, Mass., is using its Platformer equipment to form paperboard trays that are manufactured in partnership with Graphic Packaging and G. Mondini. The product, Paperseal, reduces plastic usage by 85%, reported Carlo Bergonzi, product manager for Mondini tray sealing at Harpak-Ulma. “These trays are produced with renewable fiber sourced from sustainably managed forests.”
Paperseal trays are made to perfectly match the product, reducing waste and producing nearly 0% scrap to manufacture. The inner film liner can be separated from the paperboard when discarded, allowing for the paperboard portion to be recycled.
“The reduction in plastic and forming process equates to 59.5% less greenhouse gas, and 69.2% less energy used in production of Paperseal trays compared to traditional plastic barrier trays,” Bergonzi said.
Reduce, reuse, recycle
After the inner film layer of this Paperseal packaging is removed, the material is 100% recyclable. (Photo: Harpak-Ulma)
Paperboard trays like Paperseal and the ECO Bowl can circumvent the current problems with US recycling infrastructure by using paperboard and fiber-based materials. Recyclable plastics are becoming more and more common in many food product applications, but municipal recycling infrastructures can make it difficult for consumers to know what is acceptable and what is still being put in landfills.
“Meat and poultry packaging are difficult because there is often food contamination of the packaging from the products,” said Nina Goodrich, executive director of GreenBlue and director of the Sustainable Packaging Coalition. “Sometimes a package might be recyclable if it was washed and dried, but is this a step that most consumers would take?”
One solution to this tedious practice could be for companies to reclaim their own trays and reprocess the packaging on-site.
Clearly Clean, an Orwigsburg, Pa.-based packaging company, is doing just that, making patented 100% recyclable, smooth-edge overwrap trays using PET. The company is planning to launch another business called Eco Standard, where it will reclaim a significant portion of its trays to recycle itself.
“Getting back a significant percentage of our trays will help close the loop and is a win for everyone: the consumer, processor, retailer, environment and Clearly Clean,” said Jeffrey Maguire, managing partner of Clearly Clean.
This will ultimately allow the company to get a clean stream of recyclable PET to use for new trays; creating a circular supply chain. This is encouraging for advocates like Goodrich and the Sustainable Packaging Coalition, whose members represent the entire supply chain. Goodrich encourages meat companies to understand that sustainability initiatives need to be all-encompassing.
Clearly Clean is working to the close the loop on the package recycling process by reclaiming materials to recycle and reuse. (Photo: Clearly Clean)
“End of life for the package is important but so is the beginning of life and the design of the package,” she said.
Companies like Clearly Clean, that analyze how recycling supply chains can improve, can make sustainable packaging proliferate further.
“What we’re trying to get to is not just be a company that tells people how to recycle, but we want to actually do it,” Maguire said. “We believe we can help how we do things in the country from a recycling standpoint.”
Packaging in the crowded deli retail environment demands an exclusive and premium appearance to attract consumers while also focusing on freshness of the product.
Following a trend that started during the pandemic, many supermarket delis are focusing on meat products that offer convenience while keeping products fresh longer, which is largely a function of their packaging solutions.
“Innovative and unique look and feel from print technologies continues to evolve and innovate into new and trending technologies,” said Melanie Bandari, senior marketing manager for meat, poultry and seafood at Amcor Flexibles North America, Oshkosh, Wis. “New entrants in the deli meat space focus on smaller, more premium brands versus large, mass-produced brands.”
Ryan Spencer, product market manager for chambers, portioning and slicing at Multivac Inc., Kansas City, Mo., has noticed more demand for grab-and-go packaging that is designed to look like it was cut and packaged at the in-store deli counter.
“The footprint of the in-store deli in many grocery stores is either shrinking or disappearing entirely, as offerings such as prepared meals, in-store restaurants, sushi bars and the like are becoming more prevalent,” he said. “Grab-and-go packaging allows retailers to provide sliced meats and cheeses in a familiar-looking package that customers are seeking, without requiring a fully staffed deli section.”
Multivac offers many solutions in this area, starting with slicing and running all the way to palletizing.
“When it comes to package design, we have the experience to provide best practices and ideas, or we can take concepts from the customer and recommend the best way to achieve it,” Spencer said.
Furthermore, grab-and-go pre-packaged deli meat packaging is a growing segment for enhanced retailer convenience with the added benefit of a product delivered safely direct from the manufacturer.
“Our pre-packaged grab-and-go deli line offers a freshly sliced deli packaging’s look and feel, but the retailer doesn’t incur the labor costs of packing it on premises,” Bandari said. “The products are packaged on TFFS as well as new HFFS flow wrap lines.”
For 40 years, Kansas City, Mo.-based Weber has been a global leader in industrial high-speed slicing systems. Five years ago, Weber acquired a thermoform packaging company, and got into the packaging game.
“There’s a ton of innovation that we’ve rolled out where we feel we are pushing the industry forward in how these solutions are put together holistically,” said Zach Bearson, director of new business development for Weber. “Instead of 6-7 machines on a line that work together in a simple way, we’re thinking of these lines as one solution that works within itself, communicating within machines.”
For instance, customers utilize Weber’s solutions from hygienic product preparation to weight-accurate slicing and automated insertion, to the desired presentation in the packaging, whether they want trays or tubular bags.
“We can integrate tray sealers or flow packers into the Weber line as alternative packaging machines to the thermoformer and take care of seamless integration without interfaces for a smooth production process,” Bearson said.
Carlo Bergonzi, product manager for Tray Seal at Harpak-ULMA Packaging, noted in terms of pre-made containers, there’s been an increased need for reclosability, whether it’s peel/reseal or rigid lid.
“Easy open and re-close is key so you can use a portion of the product, and open and close as much as a dozen times,” he said. “Grab-and-go is big right now, so anything that offers convenient packaging is in vogue.”
Dave Favret, product manager for Thermoforming at Harpak-ULMA Packaging, added that suppliers are slicing and delivering grab-and-go packages that are being handled at a facility outside of the grocery store, though it looks like it is done on site.
“The perception of freshness is important,” he said. “But there’s a number of different things that are on the mind of consumers, such as packaging formats that use less plastic, are easier to manufacture and are more sustainable.”
Grab-and-go pre-packaged items are a growing segment offering convenience and food safety. (Source: Amcor)
Environmentally sound
Sustainability continues to be important and top of mind for environmentally conscious consumers and resealability is a very important function of deli packaging today.
“The focus on sustainability continues to grow and mature,” Spencer said. “Customers are not only more concerned with the product inside the package, but with the package itself as well. What materials is it made of? Is it recyclable? If not, has the packaging been reduced to limit the impact on the environment? These are not theoretical questions anymore. Consumers are making buying decisions based on the answers to these questions.”
A good example from Multivac is the spray interleaving system on its slicer. Instead of using paper or plastic sheets between pieces of sliced meats and cheeses to allow for proper slice release, its spray system applies a small amount of oil that is allergen-free, tasteless and does not produce any additional waste.
Bergonzi has recently seen more interest in sustainability with molded fiber trays with a pouch inside and a rigid lid, or a PED tray with reseal — something that’s reducing plastic as much as possible, but also re-closeable.
“They are trying to use as much sustainable material as they can — with some deli products even packaged with a paper-feel material,” he said. “That has an appeal to many.”
Amcor’s SmartTack EZ Peel Reseal and SmartTack Die Cut Resealable Label lines are popular as they allow customers the convenience of resealable packaging while maintaining the freshness consumers expect in a deli meat package. These resealable options also offer substantial tamper evidence for added consumer safety.
“Our Catalyst program helps our customers solve market and sustainability needs through packaging innovation,” Bandari said. “Through smart insight, imagination and innovation, we collaborate to spark meaningful ideas, accelerate growth and move brands forward. Amcor’s ASSET is a third-party certified tool for performing new package sustainability metrics and can support customers’ on-pack messaging.”
The food packaging industry has seen growing demand for pre-made containers that open and close with ease. (Source: Harpak-ULMA Packaging)
On the rise
One area poised for significant growth is paper-based solutions as they offer consumers a positive end of life story with existing curbside recycle streams.
With this in mind, Amcor is bringing multiple high barrier paper-based formats to market, including Amcor Packpyrus, a new line of thermoformable paper in combination with high oxygen barrier materials for extended shelf life and a significant reduction in fossil derived materials.
“The product is widely sold in Europe today for deli meats and is expanding into the Americas,” Bandari said. “The structure is 85% paper with a barrier layer to ensure product freshness and maintain shelf life. Its lightweight footprint offers space reduction with upscale merchandising for shallow draw applications like shingled deli meats.”
The labor market was a catalyst for many companies automating and reducing the lines on the floor, and Weber is coming up with solutions so customers can repurpose labor and be more efficient through its packaging solutions.
“From a manufacturing perspective, we take a different approach,” said Mike King, technical solutions manager of packaging for Weber. “We own our own vision company, so all the components on the line are engineered and programmed by Weber in-house, which is a completely different philosophy than what else is going on out there.”
Looks matter
Packaging in the cluttered retail environment requires an exclusive look and premium appearance to stand out on the shelf and to attract consumers.
For instance, Amcor’s Amplify finishing technologies create a “stop the cart” experience with a portfolio of sensory solutions designed to create engagement opportunities, according to Bandari.
“Amcor has invested in another Amplify production asset in order to meet the high demand for shelf differentiated print technologies,” she said. “This asset came on-line in 2022 and was built for handling shorter runs with added flexibility. We are now equipped to handle demanding flexo and roto designs covering short to long run production needs with redundant manufacturing operations.”
KANSAS CITY, MO. – Add PepsiCo Inc., Coca-Cola Co., McDonald’s Corp., Starbucks Corp., Yum! Brands Inc. and Papa John’s International Inc. to the growing list of companies suspending some operations in Russia over that country’s invasion of Ukraine.
Ramon Laguarta, chief executive officer of PepsiCo Inc., Purchase, NY, said in an email to employees on March 8 that the company would suspend the sale of beverages like Pepsi Cola, 7UP and Mirinda as well as capital investments and all advertising in Russia.
“As a food and beverage company, now more than ever we must stay true to the humanitarian aspect of our business,” Laguarta wrote. “That means we have a responsibility to continue to offer our other products in Russia, including daily essentials such as milk and other dairy offerings, baby formula and baby food. By continuing to operate, we will also continue to support the livelihoods of our 20,000 Russian associates and the 40,000 Russian agricultural workers in our supply chain as they face significant challenges and uncertainty ahead.”
Laguarta added that PepsiCo has suspended operations in Ukraine and is working to provide aid to Ukrainian refugees in neighboring countries through donations to aid agencies and the ramping up of production at other PepsiCo manufacturing plants in Europe.
The Coca-Cola Co., Atlanta, released a brief statement March 8 that it was “suspending its businesses” in Russia, but did not provide details.
McDonald’s temporarily will close all its restaurants in Russia and pause all operations in that market, according to an email sent March 8 by Chris Kempczinski, CEO, to employees and franchises.
On the same day, Kevin Johnson, president and CEO of Starbucks, wrote employees saying the company was suspending all business activity in Russia. The company has approximately 130 locations in the country.
“Our licensed partner has agreed to immediately pause store operations and will provide support to the nearly 2,000 partners in Russia who depend on Starbucks for their livelihood,” he wrote.
Russia’s invasion of Ukraine also drew a reaction from Yum! Brands. The owner of the KFC, Pizza Hut and Taco Bell brands suspended all investment and restaurant development in Russia.
In Russia, McDonald’s at the end of 2021 had 847 restaurants with 84% operated by the company. The chain had 108 in Ukraine, all operated by the company. The two countries accounted for 2% of McDonald’s systemwide sales in 2021.
“We understand the impact this will have on our Russian colleagues and partners, which is why we are prepared to support all three legs of the stool in Ukraine and Russia,” Kempczinksi said of restaurants closing in Russia. “This includes salary continuation for all McDonald’s employees in Russia.”
Chicago-based McDonald’s also is paying full salaries to Ukrainian employees, has donated $5 million to an employee assistance fund and is supporting relief efforts by the International Red Cross.
“Across the rest of Europe, we will stay focused on how McDonald’s can best help those in need, both now and in the future,” Kempczinski said. “We have already seen extraordinary leadership by our Ukrainian and Russian teams, and I know the rest of the McDonald’s system stands ready to support the large number of refugees who have been displaced by this conflict.
“As we move forward, McDonald’s will continue to assess the situation and determine if any additional measures are required. At this juncture, it’s impossible to predict when we might be able to reopen our restaurants in Russia. We are experiencing disruptions to our supply chain along with other operational impacts. We will also closely monitor the humanitarian situation.”
Louisville, Ky.-based Yum! has about 1,000 KFC restaurants and 50 Pizza Hut locations in Russia. Independent operators run nearly all the restaurants under license or franchise agreements. Yum! is donating $1 million to the Red Cross, is activating a disaster relief fund to support Ukrainian franchise employees and is matching donations from employees to charities providing relief in Ukraine.
“McDonald’s and other fast-food outlets are under pressure to withdraw from the Russian market,” said Ramsey Baghdadi, a consumer analyst for GlobalData, March 8. “However, this is easier said than done for the fast-food industry. Russia represents approximately 0.7% of the global fast-food restaurant’s value in 2020. Such a small proportion of value generation in Russia tells us that fears of losing sales is not the main factor at play here.
“The challenge that foodservice providers have is the very nature of their business model. Fast-food chains such as McDonald’s and KFC often have complicated agreements with their outlets as a large proportion of them are franchises and are not enterprises. So, it becomes a much more challenging negotiation to completely stop operations compared to other industries.”
A GlobalData consumer survey released in March showed consumer concern for social causes, however.
“As 72% of consumer purchases are driven by a brand’s ethics or support shown toward a social cause, it becomes difficult for these companies to balance consumer expectations and their operational needs, putting pressure on international fast-food restaurants,” Baghdadi said.
On March 9, Louisville, Ky.-based Papa John’s International added itself to the list of corporations suspending operations in Russia.
The brand committed to providing aid and is actively supporting humanitarian efforts through financial contributions and the donation of dry goods and ingredients to feed refugees in Eastern Europe through a partnership with World Central Kitchen.
Papa John’s suspended all corporate operations in Russia and stopped all operational, marketing and business support to, and engagement with, the Russian market. Papa John’s International does not own or operate any restaurants in Russia. Its Russian restaurants are all owned by independent franchisees, and a master franchisee who controls operations and provides all supplies and ingredients for the restaurants through a supply chain that it owns and operates.
Papa John’s International is not currently receiving any royalties from these franchised stores in Russia.
Like much of the world, Papa John’s condemns aggression and violence and hopes for a peaceful resolution to the crisis in Ukraine, the company said.
SEATTLE – Starbucks Corp. is ceasing business operations in Russia. The company had suspended activity in the country on March 8 and has now decided to no longer have a brand presence there.
Starbucks has approximately 130 stores in Russia. The company will continue to support its employees in Russia, of which there are approximately 2,000, for six months and will assist employees in finding new opportunities outside of Starbucks.
Starbucks’ announcement comes a week after McDonald’s Corp. said it was divesting its business in Russia. Following its announcement, McDonald’s entered a sale and purchase agreement with its current licensee Alexander Govor. A Russian businessman, Govor will acquire McDonald’s entire restaurant portfolio in Russia but will operate them under a new brand, which will include changes to the restaurant name, logo and menu.
GARDABAER, ICELAND – Marel announced on Nov. 28 that it rejected Chicago-based John Bean Technologies (JBT) Corp.’s offer to acquire the food equipment company.
On Nov. 24, JBT submitted a non-binding proposal to Marel’s board of directors. According to Marel, the initial proposal from JBT offered the Icelandic company 3.15 euros per share, including all Marel shares and current debt.
Marel said its board carefully evaluated the unsolicited proposal.
“The board unanimously agreed that the proposal is not in the best interests of Marel’s shareholders since it does not account for the intrinsic value of the business, as well as the inherent risk of executing the proposed transaction,” Marel said.
The company also said there are benefits in further consolidation in the sector and has been executing this strategy.
“In line with its fiduciary duties, the board would evaluate any proposals that fully reflect the value of Marel,” the company said.
The Court of Appeal has reversed a decision regarding an offer under a Bankers Association for Finance and Trade (BAFT) Master Risk Participation Agreement (MRPA), in a case between Kimura Commodity Trade Finance Fund Limited and Yieldpoint Stable Value Fund, LP.
Explaining the BAFT MRPA
The BAFT MRPA – the most recent version of which was released in 2018 with a few updates since – has been regarded as a market standard document by which holders of trade assets such as loans, receivables and contingent payments (e.g. letters of credit) can act as sellers of participations in the risk in those assets to a counterparty, the participant.
The sale can either be funded, where the seller receives payment upfront from the participant, or unfunded, where the participant only pays if there is a default.
The purpose of such an arrangement is to transfer the credit risk of default in the underlying transaction from seller to participant. The seller sells ‘without recourse’ to itself and leaves the participant to take the risk of non-payment in the underlying transaction by obtaining recourse against the obligor in that transaction – the recourse party.
The parties enter into the BAFT MRPA which, as its description implies, is a master agreement so either party can be a seller or participant in a specific transaction. The mechanism is to document the participation by an Offer under which the seller offers to sell and the participant agrees to purchase a participation. So far so good?
The current case
In this case, Kimura was the seller and Yieldpoint was the participant. The parties had a BAFT MRPA and the specific transaction was documented by way of an Offer and Acceptance – and this is where the problem emerged.
The parties appear to have discussed the fact that Kimura wanted to have a funded participation and so transfer the risk of non-payment to Yieldpoint. Yieldpoint wanted to participate for only a limited period even though the underlying transaction might not have the same maturity.
In an attempt to reflect what Yieldpoint wanted, a maturity date was inserted into the Offer without any further qualifications or provisions.
By the time of the maturity date of the participation, the obligor had not repaid the underlying transaction. Yieldpoint claimed its funding back. Kimura resisted, arguing that that Yieldpoint had recourse only to the obligor and it had not paid.
The decision
The exact terms of what the parties intended were the subject of the court decision. The court at first instance accepted Yieldpoint’s argument that, because of the maturity date provision in the Offer, the participation was to be repaid on its maturity date without regard to the position in the underlying transaction.
That drove a coach and horses through the without-recourse structure of the BAFT MRPA. However, the document does say that in case of conflict, the terms of the Offer prevail.
Now, the question is whether a simple change – like inserting a maturity date – was sufficient to turn the participation into one of full recourse or not.
Fortunately for Kimura, the Court of Appeal reversed the decision and held that participations under a BAFT MRPA, including this specific Offer, were indeed without recourse to the seller. Notwithstanding the insertion of a maturity date, that was not sufficient to make Kimura liable. So Yieldpoint was only entitled to repayment of its participation if the obligor had repaid.
Outcomes
People will argue whether the case was rightly decided or not.
The fact that the parties litigated is a stark reminder of what can happen if a transaction does not go how the parties envisaged. Simply put, Kimura wanted funding and would have regarded their document as achieving funding on a without-recourse basis.
Yieldpoint appeared to believe that they were funding Kimura but without concern for what might happen in the underlying transaction.
At first glance, this seemingly strange conclusion turned on whether inserting a maturity date achieved the complete reversal of what a BAFT MRPA is normally used for. In other words, ignoring all the provisions about an obligor being a Recourse Party and the seller’s obligation being limited to paying over Recoveries – these being defined terms in the BAFT MRPA.
The fact that Yieldpoint convinced a judge of their argument is a lesson in itself, but the reversal by the Court of Appeal would appear to restore reason and reflect the support of the BAFT MRPA structure of a without-recourse sale by the seller with recourse limited to the Recourse Party.
How will the BAFT MRPA be used in the future?
If funding is to be by way of full recourse then perhaps using the BAFT MRPA is not the best way of proceeding. Or, if it is to be used, then it would be beneficial to include far more detail on what exactly is being agreed upon.
Maturity dates per se may work to this end, but where they do not exactly reflect the repayment date of the underlying transaction, care must be taken to reflect whether or not repayment of the participation is contingent or not.
Perhaps the main conclusion to draw is that careful drafting is needed when reflecting whatever is the subject of an Offer. The BAFT MRPA form of Offer is but a list of headings to be completed correctly to reflect what is offered and on what terms.
Failure to be specific can result in potentially costly litigation and an unpredictable result.
