BOTTOM LINE UPFRONT
PE-backed food and beverage manufacturers are being squeezed between sustained cost volatility and consumers’ diminishing tolerance for price increases, turning margin pressure into a liquidity risk. In this environment, performance is won through operational discipline: protecting controllable margins, enforcing procurement and inventory rigor, maintaining real-time cash visibility, and managing the business on weekly KPIs to identify issues before they become covenant or liquidity problems.
Food and beverage manufacturers – who make up 10% – 25% of all US manufacturing – are facing significant macroeconomic headwinds. A lot’s converging all at once: rising input costs, consumers who have reached their inflation limit, and mass retailers, club stores, and retail grocers unwilling to absorb margin compression.
For PE-backed businesses operating with leverage, that convergence goes beyond an earnings story. It’s a liquidity story.
This is a structural squeeze
Costs remain elevated and volatile. Core input costs – traded grains, animal proteins, plastics, metals – continue to fluctuate, while fuel and freight costs compound across the value chain. Under normal conditions, manufacturers could offset some of that pressure through wholesale price increases that ultimately reach consumers. In today’s market, that pressure release valve is largely closed.
Volatility is being reinforced by geopolitics. Tariffs on key inputs, import restrictions on certain proteins, labor disruptions tied to immigration enforcement, and ongoing conflict in the Strait of Hormuz are creating sudden cost and supply shocks with limited ability to hedge.
The immediate impact for F&B operators is across three cost lines:
- Fuel surcharges and freight: Shipping disruptions have forced rerouting that adds 10–14 days to transit times and drives freight costs higher.
- Petroleum-based packaging: Oil disruptions are pushing up prices for plastics used in bottles, bags, and trays, while some suppliers have invoked force majeure and pushed buyers into higher-priced spot markets.
- Fertilizer and agricultural input costs: Roughly one-third of global fertilizer demand normally transits the Strait of Hormuz, and disruptions arriving during planting season are expected to push agricultural input costs higher through the year – with much of the impact still not reflected in P&Ls.
Demand is no longer absorbing the pressure. Consumers have absorbed several years of cumulative food inflation, seeing a total cost increase of 30% since 2020. On top of that, behavior has shifted: private label penetration is rising, basket sizes are shrinking, and GLP-1 medications are creating a structural headwind to volume.
The result is a squeeze that lands squarely on the manufacturer. When the consumer won’t take more inflation and the retailer won’t either, the middle of the supply chain absorbs the cost. For sponsors and CFOs of F&B manufacturing businesses, this means performance in this environment is as much about reacting to the market as it is about how tightly the business is managed within it.
Where to focus now
The macro environment is outside your control. Whether your business can manage through it is not.
1. Protect the margin you control
The gap between well-managed and poorly managed operations can mean the difference between a profitable quarter and a difficult conversation with lenders. Yield management through training and preventative maintenance, overpack controls through disciplined execution, and overtime mitigation through balanced contract labor programs are all levers that, if mismanaged, compound into material EBITDA leakage.
None of these are strategic problems. They are execution disciplines, and they require weekly visibility and accountability to stick.
In action: A frozen food manufacturer landed in default with its secured lender after a flawed packaging refresh drove cost overruns for months – undetected because the reporting infrastructure didn’t exist. With product-level margin visibility and a rebuilt budgeting process in place, the company drove price increases, secured a new lending relationship, and ultimately sold to an institutional buyer.
2. Maintain disciplined procurement and production
In a constrained liquidity environment, working capital discipline becomes a critical lever – and where operational expertise creates the most value. When pricing power disappears and macro headwinds become structural, margin recovery must come from inside the four walls. Inventory, procurement, and payables decisions directly determine how much cash the business ties up in operations.
S&OP processes need to be anchored to a realistic forecast, not an optimistic sales plan. Integrated business planning (IBP) connects sales, operations, and financial plans into a collaborative view of the business to reduce excess inventory, spoilage, and avoidable costs while improving stakeholder credibility. Strong inventory management also improves visibility into timely purchasing decisions, aging inventory consumption, freight lanes, and fill rates, where every underutilized truck represents avoidable cost.
When real-time metrics lack visibility and the end-to-end business is disconnected, surprises occur (and rarely favorable ones).
In action: Following disruptions stemming from a plant relocation, a manufacturer and wholesaler of perishable Hispanic foods appointed us as Interim CFO and financial advisor to provide accurate reporting on the operational recovery and align stakeholders across the capital structure. With a cleaned-up balance sheet, robust budget, and transparent production metrics, they successfully navigated liquidity challenges and secured additional capital.
3. Know your cash position in real time
A rolling 13-week cash flow model built from real operational assumptions should not be viewed as a quarterly lender exercise, but as a critical management tool that provides weekly visibility into cash position, liquidity, and emerging pressure points. A reliable direct weekly cash flow represents sound financial hygiene and should be a core responsibility of the Office of the CFO.
We’ve seen it time and time again: companies that experience liquidity stress lack this visibility. By the time problems surface in monthly financials, the range of available options and operating levers has narrowed considerably.
In action: A frozen poultry manufacturer was facing a confluence of working capital intensive factors – plant consolidation, unprecedented poultry price peaks, increasing demand, and poor inventory management. With fatigued capital partners, the Company needed an accurate forecast capable of sizing and timing its investment needs, while also being capable of managing day-to-day operational expenses. The resulting cash flow model supported multiple rounds of investments and remained in place even after the company returned to profitability.
4. Run the business on weekly KPIs
The same principles apply to broad performance visibility. Monthly reporting is too slow when input costs are moving and margins are thin.
Businesses that operate on a weekly cadence (tracking operational metrics alongside cash flow reporting & forecasting) have a structural advantage over those relying on monthly reporting with the standard lag. The underlying KPIs are not complex and can be aggregated across various data environments. What differentiates companies that manage through cycles from those that are managed by cycles is the discipline to produce these metrics accurately, consistently, and in a timely fashion.
Where performance is won or lost
Performance in this environment erodes through small, controllable misses: operational inefficiencies, excess inventory, missed cost actions, and delayed cash visibility.
The companies managing through this cycle are identifying issues early, responding quickly, and maintaining visibility into where cash is, and is not, being generated.
In a market where both consumers and retailers are constrained, that level of control is what preserves liquidity and optionality. For PE sponsors, the question is whether portfolio companies can respond faster than competitors… and faster than their debt covenants require.