2006 Annual Capital Spending Outlook

The biggest or most plants are going to those proteins, but broad-based growth plans hint at an 11 percent increase in capital outlays this year.

By Dave Fusaro, Editor in Chief

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"Demand is particularly high on the East Coast, where consumers still struggle to find our products on store shelves," says Tim Fallon, president/GM North America. "Building a plant in Beloit allows us to keep pace with demand while reducing the environmental impact of fuel and distribution." Kettle also is increasing capacity by 30 percent at it flagship Salem facility with $2 million in new fryers.



C. Larry Pope served notice last September to competitors in the processed meats business. The president/COO of Smithfield Foods said in a presentation to analysts he's betting $354 million Smithfield can become the leader in the category.

While not all of that funding is allocated to the current year's budget, that's how much Smithfield Foods and its subsidiaries have in expansion projects under way. They include a $100 million new plant in Kinston, N.C., and major expansions of the following:

Subsidiary Investment Location Products
John Morrell $92 million Sioux Falls, S.D. Sausage, ham and precooked bacon
Farmland Foods $68 million Denison, Iowa Cooked ham, sausage and hot dogs
Curly's $23 million Sioux City, Iowa Precooked ribs and beef
Northside $20 million Cummings, Ga. Precooked sausage
Gwaltney $15 million Smithfield, Va. Precooked bacon
Northside $14 million Arnold, Pa. Precooked sausage
Patrick Cudahy $13 million Sioux Center, Iowa Precooked bacon
John Morrell $9 million Springdale, Ohio Smoked sausage and lunchmeat

"Deli products to precooked ribs and beef and cooked ham and sausages to precooked bacon … there's a theme here," Pope explained at the time. "The theme is we're committed to this 2-billion-lb. processed meats business. We're committed to putting [forth] the resources and being the most efficient producer of these products in the marketplace.

"Here's how we see our processed meats business growing over the next several years: relatively stable [but] minor growth in the traditional products, and the value-added and convenience products growing dramatically … dramatically. When we go to the category [of] convenience and fully cooked products, our margins double and triple. We are moving this raw material from that 1- to 2-cent [margin] category to this 8- and 10-cent [margin] category, which gives us a profit margin five or six times what we can get from the fresh category. That is where those products are going."



New R&D centers for Tyson, Heinz, Wrigley

Capital spending will benefit not just the plant operations people. The lab coats have come out ahead, too.

The past 12 months saw new research and development facilities for some of the food industry's biggest names. Tyson Foods is nearing completion of its Discovery Center, a $52 million new building across the lawn from its Springdale, Ark., headquarters. In addition to R&D, it will include a pilot plant, training and consumer testing. It should total 184,000 sq. ft.


Capital Spending feature: H.J. Heinz Innovation Center
H.J. Heinz Co.'s new R&D center north of Pittsburgh opened last September.

Last summer, Wm. Wrigley Jr. Co. unveiled a $45 million product development lab and pilot manufacturing plant a few miles away from its Chicago headquarters. The two-building complex, designed for 250 workers, totals 193,000 sq. ft.

Also last summer, H.J. Heinz Co. dedicated a $13, million, 100,000-sq.-ft. R&D center just outside its hometown Pittsburgh, home to more than 100 chefs, food technologists, researchers, experts in nutrition and quality assurance and package designers.




Food processors are delaying their purchases of new equipment for new product production lines until they see that the products are indeed successful, according to empirical observations by officials at The Frain Group.

The Franklin Park, Ill.-based provider of used food processing and packaging equipment notes that its rental business grew 40% in 2005. A Frain Group spokesperson says customers have told them that the high failure rate of new products - estimated at 80%  - has left processors with idle machinery investments.

Another reason processors use pre-owned equipment is to gain better control over the time pressures they face. In addition, while used equipment is less expensive to purchase than new machinery, renting it can provide an even more compelling economic benefit.


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