GE Capital analyst outlines the issues that are affecting both large and small food and beverage companies.

CHICAGO — Business situations are too often presented in a context that is black and white. In the food and beverage category, for example, the sales slump many center-of-the-store consumer packaged goods companies are currently working through is presented as a triumph of the little guy. Small, more nimble food and beverage companies are presented as supplanting their larger rivals. But Chris Nay, senior managing director of food and beverage for GE Capital, sees it in a more nuanced light.

“Smaller companies are the innovators, but it’s still pretty hard for them,” Mr. Nay said. “When you look at some of these smaller players you have to ask, how are they going to continue to grow at the rates they have in the past? There are a lot of them out there and a lot of these companies aspire to get bigger, but to keep showing really good growth numbers is hard.”

Mr. Nay pointed to the example of the ready-to-eat cereal category, which he says is missing out as consumers shift their attention to such growing categories as yogurt.

Nay, senior managing director of food and beverage for GE Capital

“When you look at the big established brands, they rarely go away,” he said. “When you look at those big brands, they lose 2% a year and it hurts them, but it is a big category. I look at all of this stuff from a numbers standpoint. Small companies may be growing, but they are not saturating the market.”

One area of concern for all companies, large and small, is the millennial demographic, Mr. Nay said.

“I think there is something to the millennial population and a desire to not acquire the same brands as their parents,” he said. “I know there are companies that worry about their (millennials’) buying trends. These companies worry that their product is selling to the over-40 demographic and its penetration is next to nil with millennials.

“Companies are trying to figure out what they are going to do. They are looking for new ways to position their products.”

One way is through price. Having grown up during the most recent economic slowdown, some millennials are focused on price and value.

“Price points are very important,” Mr. Nay said. “Some commodity prices are low and that makes food companies make irrational decisions regarding the competition. From a competitive standpoint food manufacturers are trying to gain share.”

As the economy has improved, the definition of value also has changed for some consumers, Mr. Nay said.

“Our customers will say with the reduction in commodity prices now food is costing less and less,” he said. “Where consumers have good incomes in the U.S., anything considered innovative or valuable to nutrition plans may be considered a value. Customers are defining what is valuable to them. Food manufacturers are trying to figure it out.”

From his perspective, Mr. Nay sees food and beverage manufacturers getting squeezed. On one hand, they are striving to do more with less and deliver innovative products to market as efficiently as possible. On the other hand, many are doing it in plants that were not designed to accommodate such efforts.

“There are a lot of things that have changed,” he said. “You have, for example, a 20 year old food plant using technology that is just as old and they are behind the times. Now, to stay competitive, the runs are getting faster, the waste needs to be less. We are seeing new ways of doing things, whether it is waste management or using different energy sources for heat and power solutions.

“There are a lot more opportunities for food manufacturers to save money, today. Some are trying to make it work in plants that are not designed for these types of changes.