Annual Manufacturing Trends Survey: Squeezed

The bad news is the U.S. food industry shuttered more plants last year than any other sector of manufacturing, save metals and electronics. And the good? Well, whenever a manufacturer closes a plant door these days, it opens a window of opportunity for leaner, meaner and more profitable operations or so the backpedaling company would have investors believe.

The trouble is, it's also a leaner and meaner world out there. Global unease and a sluggish economy may have dampened the industry's enthusiasm for new capital outlays, but they've done little to dull the razor-thin margins by which food companies either thrive or perish.

"We're still seeing a shakeout [from consolidations]," says Mark Shambaugh, president of Shambaugh & Son, a Fort Wayne, Ind.-based specialist in food plant construction. Although his company has performed feasibility studies on a number of projects, none has materialized, and probably won't "until food companies begin to see better margins," Shambaugh says.

While the overall food industry undoubtedly is taking a breather, there are some companies that are expanding.

Despite the ease of transportation in this country, some plants still seem to sprout where their sources of raw material are located. Smithfield Foods is looking at a possible $100 million expansion of a plant in Monmouth, Ill., because that's where the hogs are. The huge buildup of dairy herds the past few years in New Mexico is providing the raw material for a $200 million cheese facility for Glanbia Foods in Clovis, N.M. On the small end, American Purpac Technologies this year opened a $10 million plant dedicated to aseptic copacking in Beloit, Wis. While the investors hope to bring in raw materials and manufacturing contracts from around the country, the launching contract was to pack beverages based on the abundant cranberry crop in the immediate area.

Ten largest U.S. food plant construction projects (in cost)

"There hasn't been a lot of new plant construction in the food industry," admits D. Scott Eckman, chief executive officer of American Purpac. "But we talked to potential clients before we built this plant, and we think there is a need for a facility like this for short runs and trials of new products."

Maybe it's not so important where the raw material comes from as where the finished products go. According to Norcross, Ga.-based, Conway Data, which collects data relating to food plant construction, current emphasis for a lot of manufacturers is on ensuring that distribution networks tie in with those of larger retailers, most notably Wal-Mart.

According to a study undertaken by Hanscomb, Faithful & Gould, an Atlanta-based construction management and project services firm, the increasing demands to quickly bring new products to market not only impact plant locations but, increasingly, plant design, particularly as it relates to assembly line changeovers. The study also found:

* Due to shrinking profit margins, manufacturers are placing more emphasis on energy-efficient mechanical and electrical systems. Since plants can't afford downtime, redundant energy systems also are becoming more pervasive.