Bankruptcies Common for Private Equity-Backed Grocers
By Victoria Campisi, The Food Institute
Feb 12, 2020
Eight large private equity-backed grocery chains have announced bankruptcies since 2015, compared with three that weren't owned by private equity, according to data from S&P Market Intelligence and PitchBook Data Inc.
In the first month of 2020 alone, three grocery chains filed for bankruptcy, with two of them being owned by private-equity firms: New York specialty grocer Fairway Market and North Carolina natural-goods market Earth Fare Inc., reported The Wall Street Journal (Feb. 11).
"There are several major causes of Fairway's bankruptcy, but the main reason lies in the owners' decision to sell a majority stake to a private equity firm with little experience in the specialty grocery store industry," said Food Institute CEO Brian Choi, CFA. "Once control was taken away, the private equity owners piled on insurmountable amounts of debt and pursued a growth-at-all-costs strategy."
Fairway's total debt was 15 times its adjusted earnings before interest, taxes, depreciation, and amortization last November, according to a Moody's Investors Service Inc. report.
"As someone who has worked as an investment professional in the food and agricultural industry, I've seen numerous examples of private equity firms take over food-related businesses and ultimately do harm because of over-leverage and lack of experience and understanding," said Choi. "Private equity's involvement in specialty grocery industry is no different. Given the new competitive dynamics coming from players like Amazon and Wal-Mart, I expect to see more bankruptcies coming in the supermarket space. To survive, these businesses need conservative balance sheets, and the ability to adapt quickly to changing customer preferences."
However, there have been some positives for private equity in the grocery business. For example, Albertsons, one of the largest private equity-backed companies in the U.S. is planning an IPO.
Additionally, in 2015, Apollo Global Management LLC scored...