Shanahan told Food Navigator-USA.com that companies that rely on investment to fund continued growth are struggling to find funding, leaving them in a ‘wait-and-see’ situation. But he is optimistic that confidence is already beginning to thaw.
He said: “Right now it’s really hard to find funding. Over the last ten years the strategy was finding funding or going into debt to grow your business…Obviously debt is not available. Sources have dried up and investment is frozen – but it is starting to melt.”
If he is right, the news will be welcomed by companies like the ingredients standards researcher ChromaDex which is looking for investment in order to continue with its expansion plans.
ChromaDex recently filed its first quarter financial results, showing that compared to many others, it is doing remarkably well during the economic crisis. But despite a 40 percent increase in business compared to 2008’s first quarter, it remains cautious about whether it will find the necessary capital to expand its business.
An article published on FoodNavigator-USA.com last week detailing its concerns about finding investment prompted a number of calls to the ChromaDex asking if it was going out of business. CEO Frank Jaksch explained to uneasy callers that the company was simply concerned about how much of its planned expansion would be possible right away, rather than whether the company would remain financially viable.
He told this website: “That was testament to the current financial conditions. If we do need capital it’s not going to be very favorable…We want to have access to capital to continue to grow at the rate we want to grow at.”
He added that “forty percent growth is pretty good in probably the most challenging economic quarter” across the industry. For now, Jaksch said he hopes the company’s strong balance sheet will, in itself, prompt further investment.
“We are going to keep looking out to the investment community,” he said. “Strong performance helps add to funding.”
Growth in 2010?
Meanwhile, Frost & Sullivan’s Shanahan predicts that investment will most likely continue to be low into 2010 and therefore companies will be focused on “least-cost methods of growth”.
“We are seeing consumer confidence going up slowly,” he said. “If the cost of investment goes down that would be positive. Companies would be more confident to take on debt to fuel entrepreneurialism.”
He added: “The companies that did well in 2007 and 2008, if they can remember what they did in those years, they should do well…Every one in the food industry is on a wait-and-see.”