2014 Capital Spending Report: New Projects Line Up

Small brewers are among the leaders in our annual look at construction, which foresees a 15 percent increase.

By Kevin T. Higgins, Managing Editor

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Top Capital Spending Projects for 2014Stable commodity prices are giving many firms the confidence to go ahead with capital projects. “Barring a major drought or other disruption, no one sees corn going to $11 a bushel,” says Nay. Sugar prices are “at an all time low,” he adds. “It can’t go any lower” without triggering price supports.

Craft beer is becoming mainstream, and the micro-breweries of the not-too-distant past are growing up and expanding. The West Coast was an incubator for the category in the 1990s, and many of those brewers are setting up shop east of the Mississippi to be closer to their thirsty customers. Chico, Calif.’s Sierra Nevada led the charge with a new plant that opened in Mills River, N.C., this year, 10 miles upstream from a New Belgium brewery under construction in Asheville. Lagunitas is set to start brewing in Chicago, and Ruckus Brewing is developing a 100,000-bbl. plant in Allentown, Pa. San Diego’s Stone Brewing Co. is scouting sites in the Northeast.

The West Coast invasion has inspired a counterinsurgency by the granddaddy of the craft brews. Besides adding a canning line in Upper Macungie Township, Pa., for Sam Adams lager and Rebel IPA, its answer to hoppy West Coast brews, Boston Beer Co. acquired Angel City Brewing in Los Angeles and turned the reins over to its Alchemy & Science division, which also is managing a greenfield brewery project in Miami.

Craft beers have stolen much of imported beers’ luster over the last 20 years, but that isn’t deterring Constellation Brands from making a nine-figure investment to double capacity at a recently acquired brewery in Mexico. Constellation paid $4.75 billion last June to turn Mexican malt beverages into a big part of its portfolio.

Constellation was the long-time U.S. importer of Grupo Modelo’s brands. Last year, Anheuser Busch InBev acquired Modelo, and part of the deal lets Constellation maintain its import rights. It also gives Constellation ownership of Modelo’s Compañia Cervecera de Coahuila brewery in Nava, Mexico.

Highly automated and efficient, Compañia Cervecera opened in 2010 with a three-phase plan to increase capacity to more than 25 million barrels, equal to almost half the combined output of Modelo’s seven other breweries. Compañia Cervecera’s operational costs are pegged at 40 percent less than the other breweries.

In a January earnings report, Constellation CEO Rob Sands called the firm’s beer business “the highlight of the third quarter,” adding “the Nava brewery in Mexico is executing successfully in all key performance areas, and expansion activities continue to proceed.”

The means of production

The investment community may be indifferent toward food manufacturing, but the same isn’t true of lenders. “Currently, we see value-added food products that are convenient and healthy [as a] tremendous growth opportunity,” maintains Elizabeth Hund, senior vice president and head of the food industries division at U.S. Bank in Denver. When a company’s growth forecasts match industry trends, bankers will provide capital, she adds.

Gluten-free products are a case in point. The category is growing at about a 17 percent annual clip. When Boulder Brands Inc. acquired Udi’s, it not only gained control of North America’s largest gluten-free production facility, it transformed itself from a sales and marketing organization to a full-fledged food manufacturer. Before that, co-manufacturers were responsible for production. Boulder Brands’ capital budget also has ratcheted up sharply, with last year’s investments up $16 million over 2012.

Co-packers and a network of small plants had filled Bob Evans’ processing needs until a transformation got under way in 2010. Over the past two years, the company has realigned its manufacturing capacity, closing some facilities and investing in two fresh plants for sausage products and two ready-to-eat facilities for refrigerated side dishes, “the fastest growing segment of our business,” according Mike Townsley, BEF Foods president. The company estimates its retail share of that category at 45-50 percent, yet co-manufacturers handled all of the production until 2012.

BEF acquired Kettle Creations, one of its copackers, that year and added a third production line at that Lima, Ohio, facility last year, with plans for a fourth line when demand builds. BEF also invested in an overhaul and expansion to an RTE plant in Sulphur Springs, Texas.

“It’s been a fairly systematic execution of a strategy that stretches back to 2007,” explains Townsley. A new CEO brought in consultants from AT Kearney that year to help set a long-term strategy for both the restaurants and manufacturing. BEF now is poised for “aggressive growth over the next five years,” he says.

Besides retail, BEF is active in foodservice. The additional capacity and flexibility is driving speed to market and innovation in the restaurants. Sausage gravy is an example: Although all the restaurants used the same recipe, “we had 560 different chefs producing it,” says Townsley. Now the gravy is made in the plants and only heated in the stores, resulting in consistent quality.

Lean manufacturing and Six Sigma programs that launched in 2009 have carved out about $25 million in production savings over the last two years, relieving some of the pressure on capital needs. Manufacturing investment was critical, though: “We couldn’t grow without it,” says Townsley.

Clif Bar & Co. is another firm investing in the means of production, with an initial commitment of $90 million to build a new bakery. Like Boulder Brands, it will mark the 23-year-old company’s first manufacturing venture. Currently, copackers produce the firm’s energy bars.

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