Q4 Flash Report: A Tale of Milk, Tuna and Ch. 11
We could have made a healthy lunch of the most notable bankruptcy filings of the fourth quarter: milk and tuna.
Although the final quarter of the year wasn’t without the usual bankruptcy suspects —including a steady stream of headlining retailers and no shortage of energy filings—two food companies gave us some of the most noteworthy filings: Dean Foods Co. and Bumble Bee Tuna.
On Nov. 12, the Chapter 11 filing of Dean Foods was blamed on Americans’ rejection of “old staples.”
But the real reason behind Dean’s entrance into Chapter 11 was much more complicated than a growing dislike for cereal and new-found fondness of nut beverages.
Of course, Americans are drinking less cow milk. Milk demand has fallen about 2% per year during the last 10 years in North America, Dean said in court documents.
However, Dean’s declines have outpaced that—volume declines broadly for the milk category were 4% year-over-year through September 2019, Dean said, while its own declines for the same period were 11.4%— as it faced trends that made somewhat less-sexy headlines.
In its first-day declaration, Dean pointed again and again to tightening margins. Much of that was due to increased transportation costs and the expansion of private label milk.
“Through 2018 and 2019, Dean Foods experienced an accelerated shift from branded to private-label milk products,” Dean said. Retailers lowered the price of their private label milk in order to increase foot traffic, Dean said, which widened the price gap between its milk—sold under brands like Dairy Pure—and private label milk.
Although the company produces private-label milk (approximately 50% of its milk is sold private label) the margins in this segment are much smaller and tightening.
Additionally, Walmart Inc, which accounted for 17.5% of Dean’s net sales in 2017, opened its own dairy manufacturing plant in 2018 that resulted in the loss of 100 million gallons of milk in annualized sales for Dean. It lost another 40 million gallons from another customer, it said. The company sold 2.2 billion gallons of milk and other dairy products in the 12 months ending July, it said.
In response, Dean moved to consolidate seven plants in eight weeks. But the effort wound up increasing costs, including freight, labor and product loss costs, and offset any anticipated savings for the year.
So almond milk alone didn’t send Dean into Chapter 11.
But tuna lovers need not worry that the woes of Bumble Bee Foods LLC, which fi’s filing on Nov. 22, tuna lovers need not worry that the company’s woes are the result of changing tastes in that segment.
Instead, Bumble Bee’s bankruptcy is more the stuff of true crime novel than changing tastes at the lunch counter. The company entered bankruptcy in the wake of a $25 million criminal fine related to price-fixing allegations.
Bumble Bee’s Canadian operations, Clover Leaf Holdings Co., also filed for bankruptcy under Canada’s Companies’ Creditors Arrangement Act.
Both Dean Foods and Bumble Bee Foods plan to sell their assets in bankruptcy.
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