By Chris Nay
GE Capital recently conducted a national survey of c-suite executives at middle market food and beverage companies (ranging from $10 million – <$1 billion in sales) that captured their opinions on financial performance, operational issues and the economic outlook. And, generally speaking, they are upbeat on the prospects for their firms, the industry, and the economy. Looking forward, they said they plan on taking strategic steps, including hiring and investing, as they seek to best position themselves for sustainable future growth.
The State of the Industry and the Economic Outlook Is Positive
Food and beverage companies are doing well; nearly three quarters (72 percent) experienced improved overall performance in the past year and more than two thirds (68 percent) saw an uptick in financial performance during the same period. Moreover, the future is bright as seven out of ten (71 percent) executives expect their company’s revenue to grow over the next year and the majority (54 percent) expect the industry to expand. Conversely, just 4 percent of respondents expect the sector to contract during this same time period.
Food and beverage executives are similarly upbeat when looking beyond their own companies and are confident in the economy’s strength on a global, national, and local level. Specifically, more than half are confident about the world economy, greater than two thirds are confident about the U.S. economy, and nearly three quarters are confident about their local economy.
Companies Are Investing and Growing
Given this combination of strong performance and optimism about the economy, it is not surprising that food and beverage executives are investing in their businesses. Almost half (46 percent) are planning increased capital expenditures while just over than a third are maintaining their present level of capital expenditures.
From an employment perspective, all signs point positive for food and beverage companies. Over the past 12 months, firms increased their headcount on average by 2.8 percent, with nearly half of companies adding employees. With very few companies (5 percent) reducing their headcount, the food and beverage industry saw the smallest workforce contraction amongst other major industries surveyed by GE Capital. Moving forward, this trend is expected to continue as average growth of 2.2 percent is forecast for next year, more than half of firms (55 percent) are planning to add employees and just 4 percent expecting a decrease in their workforces.
Margin Growth and Maintenance are Priorities, and a Focus of Investment
This growth will be accompanied by increasing margins, which are poised to rise 6.4 percent in 2014, though food and beverage companies remain cognizant of the difficulty of maintaining margins in the face of rising commodity costs. An overwhelming majority of respondents identified maintaining margins and being able to pass commodity price increases on to consumers as challenges (96 percent and 88 percent, respectively). Additionally, nearly two thirds of executives selected commodity pricing as one of the two issues they are most concerned about impacting their businesses. Accordingly, many companies are investing in new technologies to maintain and improve their margins.
One area that food and beverage companies are focused on as a path to maintaining margins in the face of commodity cost increases is by improving operational efficiencies, a step nearly three quarters of companies are planning to take in 2014. Specifically, roughly half of executives are planning to increase automation and replace old equipment with more efficient models (47 percent and 45 percent, respectively). It follows then that capital will be deployed towards equipment with more than half of companies (53 percent) identifying that as a potential use for additional financing.
As the data shows, food and beverage executives’ sentiments are highly positive, and while margins are a concern, the industry is poised to continue its growth. As revenues climb and hiring expands, companies are wisely investing in their businesses to position them for what should be a bright future.
About Chris Nay
Chris Nay, Senior Managing Director, GE Capital, Corporate Finance, specializes in providing mid-size food manufacturers and distributors with financing for working capital, growth, equipment and turnarounds. For more information please visit gecapital.com/food.