CHICAGO — The market for consumer packaged goods is in the midst of a volatile period. While some commodity costs, most notably oil, have declined, structural changes at the retail level, with some retailers shrinking the space allocated for center-store offerings, are challenging some of the industry’s largest companies.
“When you look at the big C.P.G. companies, they are making less money and they are struggling with certain pieces of demand,” said Chris Nay, senior managing director of food and beverage for GE Capital. “Middle market companies out there in the health and wellness category are seeing a consumer who is much more educated about diet today.
“This is starting to come into play with retailers. You look at retailers like Jewell Osco or Mariano’s, which are focused on fresh, whole food distribution. Jewell Osco still has a tremendous, packaged goods section but there is no doubt the consumer is moving to outside the center of the store. There is still a huge market in C.P.G., but growth has been soft.
“The whole foods category, the natural and organic segment, is taking the business by storm. I think it boils down to the C.P.G. companies are really struggling to figure out the millennial world. Millennials are health conscious and some companies are starting to deliver that to them.”
Mr. Nay said the low price of oil has the potential to propel consumer demand for products with a premium positioning.
“The low price of oil is putting more money into the consumers’ pockets,” he said. “Both the away from home and at home sectors are benefiting, and I think it bodes well for the manufacturers of higher price food products. There is a wind at the consumer’s back and we see the pull of value lessening. Value is still important, you will still see it at Wal-Mart and others, but I think you are starting to see the consumer be willing to pay a little extra when they go out to eat.”
He noted that he is seeing the increased demand reaching the quick-service restaurant category, where Mr. Nay said, “Everyone is trying to copy Chipotle.”
“The consumer likes that fresh ingredient feel that is out there,” he said. “You are even seeing McDonald’s talk about it. I think away from home will benefit more. It’s the convenience factor; the consumer is looking for that convenience.”
In his role with GE Capital, Mr. Nay works with middle market companies, those with sales between $50 million and $1 billion in sales, and he sees that segment of the market faring well in this period of volatility in food and beverage.
“Most are not ingrained in how they have done things for 20 years,” he said. “Many are creating products for the consumer that are catching fire.“Middle market companies are better suited to develop new brands and products. It is coming from the retailers. The retailers are looking to companies to co-innovate. Those middle market companies are more apt to do that. Big C.P.G. companies are pushing their products on retailers. I think some C.P.G. companies do that (co-innovate) a little bit, but the retailers need that next big thing and I think middle market companies are more open to working on it.”