After a banner year of M&A activity, consolidation in the food waste sector is expected to plateau.
Why it matters: A healthy exit market goes a long way in winning over investors in new industries, and a slowdown in M&A activity can dampen investor enthusiasm.
Context: Managing food waste in a sustainable way is a complex problem unlikely to be solved by one company.
- The logistics of decreasing food waste during production, for example, look a lot different from turning waste into other materials like natural gas for fuel.
- "It's not one problem, so it's not one solution or one solution provider that can impact it across the board," ReFED executive director Dana Gunders tells Axios.
By the numbers: Last year saw one of the largest increases in M&A activity in the food waste sector, with nine deals totaling more than $173 million in publicly disclosed value.
- In 2022, the sector has seen just three M&A deals so far.
Yes, but: Investors and founders expect consolidation within niches of food waste as each area matures and growth levels off.
- The food industry dynamic is "really prone for network effects because it's all so connected," Dan Khachab, CEO of restaurant food waste management startup Choco, tells Axios.
- Khachab notes there aren't many players large enough to roll up smaller competitors, as was the case in grocery delivery when Misfits Market acquired Imperfect Foods for an undisclosed amount this fall.
Zoom out: Food waste accounts for about 10% of global greenhouse gas emissions.
- About 50 million people in the U.S. will face food insecurity this year, according to ReFED.
Meanwhile, as retailers face inventory glut and social pressure to meet sustainability goals, demand for food waste tech will grow — as will investment, Susan Flake, global director of food and logistics at packaging giant Avery Dennison, told Axios in July.
The bottom line: "We are very much in this trial and error period with an explosion of innovation, but some of it will work and some of it will not," Gunders says.