NutraDried Expands Moon Cheese Distribution Into Major Retailer Costco

EnWave Corp’s (TSXV:ENW – $1.15 CAD & OTC:NWVCF – $0.89 USD & Frankfurt:E4U – €0.75) 51% owned subsidiary NutraDried has secured additional distribution for its Moon Cheese snack in approximately 70 Costco stores in the Midwest of the United States. The initial order is worth approximately $400,000.

Starting in December 2017, the all-natural REV dried cheese snack will be available in Cheddar and Pepper Jack flavors. They will come in a brand new ten ounce package format – the regular packages are only two ounce – and will retail for about $10.

Obviously, further orders is dependent on the success of the trial launch. Note that this is also how Moon Cheese got placed at Starbucks. The adventure at the world’s largest coffee chain started mid-July 2015, when Moon Cheese became available at approximately 3,400 Starbucks locations in the United States, as part of a 16-week long trial.

Because the snacks were a big hit, Starbucks quickly expanded distribution to all of its 7,500 corporate stores in the US. Moreover, less than a month later, it also started selling Moon Cheese at its 1,400 corporate stores in Canada.

Currently, Moon Cheese sales at Starbucks have stabilized at a high level. The Company expects them to remain consistent in coming quarters.

The new distribution at Costco was another deal won through NutraDried’s non-exclusive distributor, Slant Design, which so far has excelled at expanding distribution.

Solid Distribution Expansion

In August 2015, NutraDried appointed Spire Brands as the exclusive distributor of Moon Cheese in the United States. However, since Spire didn’t meet its minimum volume purchase obligations, EnWave terminated the agreement in late 2016.

NutraDried subsequently retained Slant Design and Marketing, as a non-exclusive distributor. The two companies knew each other well as Slant had been responsible for the very successful introduction of Moon Cheese at Starbucks.

This switch has most definitely paid off, as Slant has expanded the distribution of the dried cheese snack into several large U.S. chains, such as Rite Aid pharmacy stores, CVS stores, Target, and now Costco.

Consequently, during the first nine months of fiscal year 2017, ended June 30, 2017 NutraDried’s revenues were $4.55 million. Moreover, gross margin improved to approximately 50%, compared to 25% in 2016 mainly due to better operating efficiencies and the switch from Spire to Slant. All of this resulted in a net profit of $385,000 for NutraDried during the first nine months of fiscal year 2017.

Despite these fine results, it is noteworthy that the results from NutraDried for the nine months were negatively impacted by the slow transition of customer accounts from Spire Brands to NutraDried. This situation was rectified in the third quarter.

Conclusion

Somehow the launch of Moon Cheese at Costco reminds us of Starbucks. Also in this case there are plenty of expansion opportunities. After all, Costco has 741 warehouses worldwide, of which 514 are located in the United States and Puerto Rico.

It is also interesting that this trial launch represents NutraDried’s first sale of the 10 ounce package format – coined the club format – and the Company plans to target additional future club format distribution opportunities. Unfortunately, no images of the new packaging are available as of yet.

With solid profit margins and additional revenue opportunities, NutraDried is well positioned for growth which in turn further solidifies the business case for the use of EnWave’s technology to produce high quality, nutritious snacks. Recommendation BUY.

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