After two years of dramatic growth, capital spending in the food and beverage industry appears to be leveling toward normal. Thirty-six of the top companies in the food business plan to spend nearly $18.3 billion on plant improvements in 2012, just 4.1 percent more than the checks they wrote in 2011.
We say just a 4.1 percent increase because of the dramatic jumps reported in the two previous years. Spending projections for 2011 and 2010 were 20 percent and 19.5 percent higher respectively than the years that preceded each. But while the companies on our list budgeted an additional 20 percent last year, we now realize they only spent 16 percent more, shaving $600 million, probably because of the year's uncertainty. (Numbers in the table at right won't show so dramatic a drop because three companies were added to this year's list.)
Of course another way to look at it is the 2012 industry budget is more than 30 percent higher than the $13.5 billion spending of 2008, when the economy faltered and the brakes were applied. Maybe now the pendulum has swung both ways.
Consider this year's capital expenditures budget as a whole as being in maintenance mode. That said, some companies are cutting loose the funding for big projects.
"There is definitely an ongoing trend, driven by consumer confidence, toward more spending in food manufacturing," says Brian Kappele, vice president of the food and beverage division at Stellar (www.stellar.net), a Jacksonville, Fla., architecture/engineering/construction (AEC) firm. "In the past year or so we see projects that are starting to be funded. These are projects that have been in the planning stages and are getting cut loose."
Click on the image above to see an enlarged list of the Capital Spending projects for 2012
Some of the key motivators of plant construction include consolidation of older and less-efficient plants, modernization to meet new regulations and growth opportunities, particularly in emerging international markets.
"Expansion and renovation are still the two drivers — not a bunch of greenfield construction," says Forest McNabb, senior vice president at Big-D Construction (www.big-d.com), Salt Lake City, Utah. "Companies are trying to get all they can out of the quarter-horses they have."
There is a small number of giant projects, at least one or two new HQs and plenty of expansion and renovation taking place.
Among the largest companies from our Food Processing Top 100©, some plan to spend significantly more this year. In our top 30, the biggest percentage increases belong to Ralcorp (up 91 percent, the biggest increase anywhere on our list) and Smithfield Foods (up 69 percent to $300 million) But neither would identify any single project worth focusing on. A spokesman for Ralcorp said the additional funds will be put toward an accelerated cost reduction program to increase efficiencies.
Other sizable companies budgeting sizable increases include Tyson Foods (up 28 percent to $825 million), H.J. Heinz (up 29 percent to an estimated $432 million), Dr Pepper Snapple Group (up 30 percent to $280 million) and Dole Food Co. (up 34 percent to $110 million). Despite its impending split, Sara Lee is budgeting $370 million, a 27 percent increase (although its 2012 fiscal year will be over July 1).
Among the companies that are spending less, some, like Hershey (down 11 percent), are coming off the completion of major projects. Others, including Dean Foods (down 19 percent), are tightening their belts on expansions as a way to improve bottom line performance -- although Dean will spend $45 million on a retrofit of a Dallas plant for the bottling of products in the White Wave-Alpro division.
With a 50 percent increase in its CapEx budget, J.M. Smucker might simply have moved some of work from one fiscal year to the next (by the way, it's fiscal 2012 ends around April 30). The company spent considerably less money in FY2011 than it had budgeted for -- $180 million compared to $235 million – but is allocating $270 million for the current fiscal year. The maker of fruit preserves, jams and toppings is in the midst of renovating its headquarters and expanding its flagship plant in Orrville, Ohio.
Click on the image above to see an enlarged list of the top projects for 2012.
Smucker's efforts speak to the ongoing consolidation trend. Its new facility will replace or reduce capacity at as many as six other facilities in an effort toward greater efficiencies.
Great big projects
Five of the projects appearing on the Top Projects graphic are greenfield plants, and one of them, revealed just over a month ago, is the result of a new business venture driven by the most recent consumer trend in food.
PepsiCo and German dairy company Theo Mueller Group have formed a partnership that will make and sell Greek-style yogurt in the U.S. A new yogurt factory in Batavia, N.Y. is expected to come on line next year. It will cost $206 million and will employ 186. The joint venture, dubbed Project Wave, apparently is getting some $11 million in tax abatements. Greek yogurt has been growing at triple digits for the past three years. One media outlet said Greek yogurt now accounts for more than $1 billion in U.S. sales, about a quarter of total yogurt sales. (See our report on the partnership at PepsiCo Partners With Muller Group for a Yogurt Plant)
Batavia, N.Y., appears to be the epicenter for Greek yogurt. Agro-Farma Inc., headquartered in Batavia, just changed its name to Chobani Inc. to coincide with its category-leading brand. While it's sitting pat in Batavia, the company is expanding its facility in nearby New Berlin, N.Y., which is dedicated to Greek yogurt. Plus it plans a new plant in Twin Falls, Idaho, that will be 900,000 sq. ft., will cost $250 million and should open later this year. Company officials hinted the Twin Falls plant is not entirely dedicated to Greek yogurt: "It will house additional product lines and innovations," a spokesperson said.
Dannon Co., a U.S. subsidiary of France's Group Danone, operates three production facilities in the U.S. It is currently at work on a 400,000-sq.-ft. expansion of its Minster, Ohio, plant at a cost of around $88 million.
General Mills announced last July it will spend $36 million for a new distribution center in Fort Wayne, Ind. The new DC will measure 1.5 million sq. ft.
Speaking of consolidation, JR Simplot announced in November it will build a new potato processing plant in Caldwell, Idaho, with site preparation anticipated to begin next month and start-up expected by spring of 2014. The new plant will replace the company's existing potato processing plant in Caldwell, with additional closures of facilities in Aberdeen and Nampa, Idaho, in the next two to three years. Those will result in the loss of just under 800 jobs.
The 380,000-sq.-ft. plant, which will be built on the site of the company's original processing plant in Caldwell, will help Simplot remain competitive while providing significant environmental benefits, says president and CEO Bill Whitacre.
"Competition in the food industry has become challenging, with profit margins shrinking and costs continuing to rise," he said. "These factors and other considerations have made it important to the future well-being of our food business that we build this new plant."
Simplot won't give the cost of the new facility, but Whitacre said it will be the largest single investment the company has made in Idaho. The new plant will employ about 250 people.
Although it is not giving cost or square footage figures, Tyson announced in March it will expand its Dakota City, Neb., plant as part of a consolidation effort. Sara Lee completed a 200,000-sq.-ft. Kansas City facility in December that is now producing Hillshire Farm and Sara Lee Deli sliced meats.
Just last month, Abbott Nutrition, Abbott Park, Ill., announced it would build a new $270 million plant in Tipp City, Ohio. The facility will produce Ensure and Glucema brands of adult nutritional supplement beverages. It will employ 240.
Mars Chocolate North America announced in June it will seek gold level LEED certification for a new $250 million plant it will build south of Topeka, Kan. The plant is slated to open next year, producing M&Ms and Snickers bars. The local economic development agencies helped Mars select a 91 acre site on which it plans to build a 350,000-sq.-ft. first phase.
Mike Wittman, vice president of supply at Mars Chocolate North America, said the Topeka plant would be the company's first new manufacturing facility built in the U.S. in more than 35 years. Interestingly, Mars hoped to build a 300-ft.-tall wind turbine for the plant, but the Federal Aviation Administration disallowed it because of a nearby airfield, according to TV station KAKE. Mars reportedly is seeking permission to build a solar field at the plant.
There is a big project underway in Canada, too. Toronto-based Maple Leaf Foods recently announced plans to build a $395 million processed meat plant near Hamilton, Ontario. Plans call for a 402,000 sq. ft., plant that will employ 670.
“There is definitely an ongoing trend, driven by consumer confidence, toward more spending in food manufacturing.”
- Brian Kappele, Stellar AEC Firm
"The final phase of this plan will establish Maple Leaf Foods as a more streamlined and profitable company, well positioned to deliver significant and sustainable value to its shareholders," said Michael McCain, president and CEO. "We are creating, through one of the largest single investments in the Canadian food industry, a highly efficient, world-class prepared meats production and distribution network that will markedly increase our competitiveness and close the cost gap with our U.S. peers."
The plant will produce deli meats, processed meat and wieners. No slaughtering or rendering will be performed at the plant, so the facility is expected to produce minimal odors. The new location will "make the majority, not 100 percent, but the majority of wieners for the entire country," said McCain.
Plans for the new project were announced in October as part of a $560 million infrastructure and technology upgrade. That news came just a month after the company launched what it calls Canada's largest bakery, also in Hamilton. The 385,000-sq.-ft. "Trillium" bakery benefits from efficient design flow and best-in-class technologies, the company says.
Kellogg has begun an expansion of a plant in Belleville, Ontario, spending $43 million to add a Mini Wheats line.
Back in the states, Minneapolis-based Malt-O-Meal Co. (recently renamed MOM Brands) expects to wrap up a $136 million expansion of its Asheboro, N.C., production facility this year. Plans include the addition of more than 200,000 sq. ft. of production space, two additional lines and the construction of an 80,000-sq.-ft. warehouse.
In September, Campbell broke ground on a 34,000-sq.-ft. innovation center to be located at Pepperidge Farm's headquarters in Norwalk, Conn. The $30 million investment reflects the company's efforts to accelerate innovation across its Baking and Snacking portfolio, the company's second-largest reporting segment, which includes both its Pepperidge Farm unit and its Arnott's biscuits unit in Australia and Asia Pacific.
On the smaller end of the scale, Pierre's Ice Cream of Cleveland celebrated the start-up of its new plant last summer, while a southern Ohio neighbor opened its new plant in the fall. Pierre's new 35,000-sq.-ft. production facility began filling carton's with French-style ice cream last June. Sustainability features include high-performance insulation, hot and cold recapture and windows and skylights to provide natural light.
Graeter's Ice Cream in Cincinnati opened a 24,000-sq.-ft. plant last September to expand its fairly local distribution. The company says it will continue to make flavors like its famous Black Raspberry Chip with a French pot system that produces just 2.5 gallons per batch.
Consumption of craft beer in the U.S. keeps growing (dollar sales were up 15 percent for the first half of 2011 according to the Brewers Assn.). While the brewing giants InBev and Miller-Coors continue to acquire and partner with craft breweries, some of the top independents are also scaling up and going bi-coastal.
Craft beer pioneer Sierra Nevada Brewing Co., Chico, Calif., is ready to break ground on a new brewery in Mills River, N.C. The project will cost close to $100 million, and produce 95 full-time jobs. Meanwhile, at last report, New Belgium Beer Co., Fort Collins, Colo., was looking at either the Philadelphia area or western North Carolina to site a new canning facility.