I don’t know if this is the case. There is a lot of venture capital money out there for companies to use to break into things.
For meat packing and food industry, often times those companies don’t start at a nationwide scale. You will have regional factories that scale up.
I mean, look at the beer brands that went from local brewery to national chains in the last few decades.
To think that startups can’t exist because of the current level of consolidation is weird. The only places where that is the case is with infrastructure heavy sectors, like power, etc.
Again, this is something that time will pan out.
In terms of meat packing, you have brands like Beyond Meat and Impossible foods as startups competing directly with the large meat industry companies. Innovation will always occur, and small agile companies is where most of that happens. They do tend to be bought up by the big brands, but to say that this won’t happen in the future is short sighted.
I am not saying that the current state of corporate consolidation is not a concern, but I guess I don’t see it as the largest driver of price increases and inflation.
If we really want to help small businesses and startups, we could nationalize healthcare. Benefits are such a humongous cost for small businesses.
Impossible did about $1.8 billion in sales last year and was recently valuated at $10B for its IPO. The beef industry produces about $120 billion worth of beef per year. That’s analogous to the difference between Coke and Sunny Delight. If Sunny Delight’s pricing schemes cause even a moment of heartburn for Coke’s most junior board member’s executive assistant’s babysitter, I’ll eat my hat.
There is surprisingly little cultural etiquette in English around the courtesy of admitting when you’re wrong. I usually just post an egg-on-my-face image. But, more formally I want to apologize for my snarky tone and for not giving your points more consideration.
I think @CraigM is probably correct in that barrier-to-entry for certain industries is high enough that small-scale market entrants are precluded. I think of semi-conductor foundries for instance. But you’re also probably correct that many/most industries do not require this scale, there are niches an innovating company can occupy anywhere, and those niches do present competitive pressure to the big boys.
There are several methods of competition. Not all industries are equally vulnerable.
Take meat packing. If your job is butchering chickens or pigs, there isn’t really any room for differentiation. Cutting the breast meat using one method versus another yields the same output, there is no practical customer differentiation. And those processors that exist wield huge power over the farmers due to consolidation. But because the end of market product to the customer is identical, there is very little room or reason to go for anything but the lowest cost option.
But notably Beyond and Impossible are not competing with meat packers. They are competing with the finished product as a substitute good. Its not a direct competition. As such at the consumer level there is factors other than price that matter. They are creating a different product in a potential growth market, one with the potential to supplant some traditional meat production. As such the economics of building into that market are very different. You aren’t trying to build a slaughterhouse and process beef. You are creating a separate good that competes on the consumer market under different economic pressures. The finances are very different, as are the availability to capital. I am certain that a bank is far more likely to approve a business loan for a company building meat substitute than an identical loan for a meat processor, simply because one is a better growth market and has better financial prospects.
For the record I have in laws who are farmers. and have raised chickens for years. They even helped run a local farmers coop that processed the chicken, but had to shut down about 20 years ago because it was simply unviable due to the consolidation. They simply could not compete with the big dogs, and so shuttered.
How much the massively increased cost of energy impacting US inflation? In Europe, the price of gas has got much, much higher. In some countries (e.g. UK) a huge amount of electricity is generated from gas turbines, so all energy is basically increased in price. And everything is impacted by the cost of energy in some way.
I don’t think that it has hit the U.S. yet entirely, it hasn’t had enough time to resonate up the chain. Also, the increase has been bad but not catastrophically so.
I feel like I could talk about this for days, and I’m sure I will get some comments, but for the sake of some anecdotal evidence from the inside.
My company is a manufacturer and has gone from a 2% - 5% monthly net profit to 25% - 30% monthly net profit.
Our backlog went from 3 weeks prior to the pandemic - 3 months during the pandemic - and today we are currently we are booking orders into October.
We are B2B - often, but not always - working with brokers. Costs increased for sure, but our revenue and profit margin has increased faster. Our largest direct material is paper - and sometimes our procurement team has to fight tooth and nail for it, but in prior years our average paper cost to revenue ratio was about 36%. Today it is 28%. COGS as a whole went from 88% to 63% for every dollar sold. Basically, whenever we have a price increase handed on to us we add that to our quotes plus 5%. The thing is - that adds up when you get 6 price increases in 6 months. We are constantly shocked at how much we are able to sell our time for. It’s stupid (and yes, we realize we are part of the overall economic problem), but obviously we are taking advantage of the demand while it exists. I’m sure stones will be thrown for that comment - I get it.
We mandated a $15 minimum before it was cool. Yes hiring is still difficult. Yes, wages have had to go up, but no, not in line with profits. We have had a hint of “The Great Resignation”, but so far that bullet has been mostly dodged. We really feel like we are the best at what we do, we are investing a lot in machinery and people, and that we have a nice clean and safe facility to work in which is worth something in the manufacturing sector.
My industry is an old school industry which is not easy to enter into/compete due to the investment needed. No foreign competition. There is a lot of old school family/private business that are aging out and selling out - so mergers/acquisitions. There is a real argument on whether the industry will be around in 10 years. Nobody thinks that the gold rush will stay, and that these increased prices and long turn times will eventually force our end users to pursue other options - but the overall sentiment appears to be to cash in on the gold rush while you can. Yay Capitalism?
Not a good report as inflation is steady even as shifting from goods to services. Biden Administration is incoherent on inflation with economists at Treasury (Yellin et al) wanting to end Trump Tariffs to ease supply chain constraints. Others want to blame corporate profit and Biden not really a free trader as he mentioned yesterday.
Fed taking the lead and my guess will need to do more especially if wages start to contribute to inflationary spiral.
