Ross Iverson Chief Investment Officer and Co-Founder of Manna Tree Investment Partners.

Russ Alan Prince: How is inflation affecting health and nutrition focused PE companies like Manna Tree?

Ross Iverson: Food is a basic human need that will never go away. Consumers are aware that their daily decisions affect their health. Even in the face of inflation, the health food sector has generally proven to be a resilient and steadily growing asset class. While the greatest impact of inflation has come from higher raw material costs, at the same time higher prices have helped offset those higher costs, and we believe many of these price increases will continue.

After three difficult and unpredictable years for the food industry as a whole, 2023 and beyond is expected to be even more stable. Many parts of the supply chain have been fixed, which should alleviate some of the sticker shock consumers were experiencing in supermarkets.

In most industries, companies in the middle are struggling. Currently, the best-performing groups in the food industry are either in the health-conscious segment or marginally cheap food options. It is the brands and companies in the middle that are not differentiated. They are either too expensive to be cheap or have no added functional benefit to human health.

prince: Not surprisingly, eating a more nutritious diet becomes more difficult, especially in a recession when food prices are skyrocketing. How do you think this is shaping consumer buying habits?

Iverson: At Manna Tree, we focus on a specific niche market we call the ‘health conscious consumer’. Carefully examine incentives or disincentives to trade up or down within a category before making an investment. For example, many consumers will not trade in if they are affected by food allergies, regardless of price. We found that the consumers we target, including when dining out, generally make food choices based on convenience, taste, and perceived health benefits. If you have a product with a similar ingredient profile to a brand that sells for $1 less, that doesn’t mean you shouldn’t consider switching within the category.

With that in mind, our investment paper calls for investing in category leaders with highly unique ingredient profiles. , asks for prices more frequently.

Health-conscious consumers also demand adjustments in social values. Usually, during a recession, people are reluctant to throw their values ​​out the window. For example, some consumers may choose a particular brand because it has good animal welfare practices or inclusion policies. If you are allergic to certain poultry feeds in your eggs, you can upgrade your egg quality to a premium brand to avoid egg allergies. there is no.

prince: How difficult has this environment been for portfolio companies to continue to grow?

Iverson: In such a big market cycle, we see a lot of innovation, which leads to growth. One of his in our company, Gotham Greens, has brought very labor-intensive outdoor farming indoors, adding technology and significantly reducing labor. One of the big drivers of inflation is labor costs. So Gotham Greens continues to scale well in this environment.

Another great example is Cheetah Technologies, which partners with small independent restaurants. If you’re running a small, independent restaurant during this difficult time, you’re trying to control the cost of your food and not necessarily passing it all on to the consumer. Cheetah is a technology-enabled logistics business that enables restaurants to have more just-in-time inventory and a wider set of SKUs than traditional suppliers to small, independent restaurants. The switch has enabled Cheetah to help restaurant customers save margins, reduce food waste, and increase profitability. Cheetah delivers orders later than regular foodservice distributors, so restaurants can dial in exactly what they need for the next day’s ingredient count.

Manna Tree is focused on health conscious consumers who want functional benefits such as energy and reduced disease risk. In our view, the last time we faced a recession, that consumer didn’t really exist as a demographic. That market has remained resilient post-corona, and products in that category should be able to weather inflationary markets better.

Russ Alan Prince He is Executive Director of Private Wealth Magazine (pw-mag.com) and Chief Content Officer of High-Net-Worth Genius (hnwgenius.com). He consults family offices, wealthy and fast-growing entrepreneurs, and hand-picked professionals.