Restaurant Mergers, USDA Regulation Repeal, and the Year Ahead

Posted Leah Douglas Leah Douglas, Newsletter

Photo from Flickr user jeepersmedia

This week, we’re bringing you a holiday edition of Food & Power. Here are a couple of trends we’ve watched over the past few months, and some stories we’ll be following at the start of 2018.

Private Equity Expands in Restaurants

There have been at least 33 acquisitions of restaurant brands with more than 10 locations this year. Some of the highest profile acquisitions came from private equity and investment firms, who are already major owners in the restaurant sector.

Restaurant Brands International, which is owned by the Warren Buffett-backed Brazilian investment firm 3G Capital, bought Popeyes. JAB Holdings, a German investment group that is rolling up control of the coffee sector, boughtPanera in April and Au Bon Pain in November. Apollo Global Management, owner of Jack in the Box, bought Qdoba in December for $305 million.

One notable and high-profile acquisition came late in the year, when Arby’s parent firm, Roark Capital Group, bought Buffalo Wild Wings. Since its founding in 2001, Atlanta-based Roark has acquired 60 franchise brands. Wendy’s sold control of Arby’s in 2011 to Roark for $430 million. Roark’s restaurants include Carvel (bought in 2001), Cinnabon and Seattle’s Best Coffee (2004), Moe’s Southwest Grill (2007), Auntie Anne’s (2010), Carl’s Jr. and Hardee’s (2013), and Jimmy John’s (2016). The firm also owns several auto shop franchises and health brands.

USDA Rolls Back Regulations After Pressure from Big Ag

Farmers were furious when, on October 17, the USDA suddenly withdrewrulemaking that would have strengthened protections for farmers under the purview of the Grain Inspection, Packers, and Stockyards Administration. The “GIPSA rules” were a result of nearly ten years of farmer advocacy, and would have improved farmers’ protections from anti-competitive tactics used by the top meatpackers. The USDA wrote in their announcement of the withdrawal that several livestock and poultry trade associations had expressed concern with the rules.

This month, USDA withdrew another set of highly anticipated regulations, the Organic Livestock and Poultry Practices rules. Those rules would have strengthened animal welfare requirements for organic producers by requiring that organic livestock be given more access to the outdoors, and by mandating improved handling, transportation, and air quality. The rules were widely supported among animal welfare and organic farming advocates, and were protested by the livestock industry and conventional farming groups like the American Farm Bureau Federation and the National Pork Producers Council.

After several delays, USDA withdrew the rules on December 14. USDA suggested in its decision that the rules amounted to “overly prescriptive regulation” which would “discourage technological and social innovation.” The Organic Trade Association called the repeal “groundless,” and noted that of the 47,000 comments USDA received on the rules, 99% were in favor of passing them.

What We’re Watching in 2018 

  • Ranchers Sue USDA: A farmer and rancher group is suing USDA after the agency repealed the aforementioned GIPSA rules. Working with Democracy Forward, the Organization for Competitive Markets is suing USDA for “arbitrary and capricious” behavior when it rolled back the rules. The rules would have provided protections that many farmers and ranchers argue are essential to restore competition in the highly consolidated livestock industry.  
  • Snack Buy-Ups: Two big acquisitions in the snack sector will see the center aisle of the grocery store controlled by even fewer companies. In a nearly $5 billion deal, Campbell Soup Co. is buying Snyder’s-Lance, owner of Cape Cod, Kettle, Pop Secret, Archway, Pretzel Crisps, Emerald, Stella D’Oro, and others. Hershey Co. is buying Amplify Snack Brands, maker of SkinnyPop popcorn and other healthier snacks, for $921 million.
  • Beer Distributor Consolidation: Two Southeastern distributors of Anheuser-Busch InBev products will merge, months after ABI blocked the distributors’ proposed merger with a third ABI wholesaler. Southern Eagle Distributing and Crown Beverages will together distribute nearly 15 million cases annually. The number of beer distributors in the country has droppedfrom 4,500 in 1982 to around 3,000 today, in part as a result of consolidation in the sector.  

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