From the Wall Street Journal:
“Private-equity funds went on a buying binge for food companies before markets crashed in 2022. Now they have indigestion that is contributing to rising prices at the grocery checkout.
“The funds snapped up a record 786 makers of food and beverages worth $32 billion in 2021, using bundles of debt to pay for their purchases, according to data from S&P Global Market Intelligence. The financiers projected that staple goods would keep making profits no matter how the economy fared. But that forecast changed, with the food industry soon hammered by higher labor costs, supply-chain disruptions and surging inflation.
“Now food manufacturers are earning less cash to cover their heavy debt loads. The squeeze is heightening pressure to further raise prices that have skyrocketed over the past year. It is another example of how the Federal Reserve’s aggressive rate-raising campaign is shaking up every corner of the economy.”
The story notes that “food prices rose far faster than the 6.5% jump in the consumer-price index last year. Processed-food prices shot 14% higher last year, almost four times the 20-year annual average, while fruits leapt 18% and vegetables soared 51%, according to the U.S. Bureau of Labor Statistics.”
You can read the entire story here.
KC’s View:
In some ways, this is an old story. Companies get acquired by investment firms that then load these companies down with debt, which means that prices have to be increased – sometimes putting the brand’s equity at risk – in order to service the debt.
I hadn’t thought about the increase in food prices in this context until reading the Journal story, but it is a great point.
The post <strong>Worth Reading: Food Industry Investors Suffer Indigestion</strong> appeared first on MNB.
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