Here we highlight 2 microcap food plays which seem to be weathering the inflationary pressure on consumer discretionary spend. So what is their “secret sauce”?

Let’s start with Dallas, TX-based Rave Restaurant Group, Inc. (RAVE), which franchises out two pizza restaurant brands: Pizza Inn and Pie Five Pizza. The Pie Five brand has arguably struggled but represents only about 10% of total franchise revenue. Pie Five offers fast-casual restaurants and ghost kitchens.

Pizza Inn, on the other hand, offering buffet-style, delivery/carryout, and express services, has resonated with consumers with its affordability pitch. In the quarter ending January, same-store sales increased 2.3% YOY despite major weather headwinds which the company estimates trimmed about 3.3% from same-store figures.

Pizza Inn ended the quarter with 97 units, which include 82 buffet locations, and are located primarily in the South with an outsized presence in Texas, North Carolina, Arkansas, and Mississippi.

Importantly, Rave Restaurant Group (RAVE) plans to open 13 new Pizza Inn locations over the next 3 quarters, adding another growth lever to same-store growth while potentially diluting the profitability strain from Pie Five underperformance.

It is also noteworthy that the chain may pick up some market share due to the highly publicized struggles of other competing pizza chain brands.

BranchOut Food Inc. (BOF), meanwhile, is a growth-stage consumer packaged food company focused on developing, manufacturing, marketing, and distributing clean-label, plant-based dried fruit and vegetable snacks, as well as private-label products and industrial ingredients.

Examples included dried pineapple, banana, and mango.

BranchOut Food Inc. (BOF) has landed several major deals with club stores which is accelerating growth. Thus far, the initial sell-through with these retailers has exceeded expectations, but the risk is always re-order consistency.

The sales decline in Q1 was attributed more to planned maintenance for its Peru facility which impacted order fulfillment vs. any type of structural demand issue. The company expects Q2 to be a record revenue quarter.

The secret sauce for BranchOut Food Inc (BOF)? Arguably its licensed and patented GentleDry dehydration technology as well as its geographical closeness to fruit suppliers. And various port modernizations in Peru through a partnership with China may also provide logistical cost advantages.

Also of note, the company has multiple growth levers including private label expansion into Europe, a slew of proposed new sku’s, and a possible tolling structure deal whereby the customer assumes raw material pricing risk. So lots beneath the surface of the headline club store deals.

Note that there has been some ATM leakage and debt raising of late, so ongoing growth initiatives may require additional financing.

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This article originally published on Zacks Investment Research (zacks.com).

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