2015 Capital Spending Report: Expansion on the Menu

Companies with products in tune with today’s food trends and demands are investing a lot of capital. Our annual analysis predicts an 8 percent increase in capital spending this year.

By Kevin T. Higgins, Managing Editor

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Likewise, retailers capitalizing on the healthier-eating trend present an opportunity for nimble manufacturers. “Whole Foods is an amazing partner for some of those guys,” says Redmond, with the retailer extending financing for capital projects in some cases.

Sugarcreek Packing Co. exemplifies the mid-market food companies who identify opportunities and seize them. The 49-year-old Cincinnati-based copacker’s last new facility opened 30 years ago. That will change in July, when the $600 million firm moves into a $120 million facility in Cambridge City, Ind. A former 70,000-sq.-ft. food plant on the site was gutted and converted to office space, with 365,000 sq. ft. of brick and mortar added to accommodate three production lines, including a high-volume sous vide automated cook line. Infrared baking and impingement ovens will contribute to a 50 percent boost in network capacity.

Sous vide is well established in the restaurant trade, and packaged-goods manufacturers are interested in applying the technology, according to Rob Daly, CEO, but they won’t commission any lines until market acceptance is firmly established. “We want to partner with innovative food companies who are fighting to get to the perimeter of the store,” he adds. A number of them are engaged in concept testing at Sugarcreek’s pilot plant, including some of the industry’s most visible brands.

Sous vide plays to a number of trends, particularly healthy eating (higher nutrient retention) and restaurant-quality foods in a ready-to-eat format. Shrinkage during cooking is 20-30 percent less than from conventional processes, a yield advantage any protein supplier can appreciate. Sous vide also will expand Sugarcreek’s capabilities beyond raw and processed meat and into vegetables, particularly for baby food. “It’s transformational,” concludes Daly.

Financial aid

Food processors big and small that are considering major projects are being courted furiously by state and local economic development authorities. Assistance that might have been limited to red-tape cutting now goes well beyond to include job training, tax credits, outright grants and more.

Pennsylvania’s Clemens Food Group entertained offers from Ohio before accepting Michigan’s $55 million package of state and local assistance, including land acquisition. Joining Clemens in the project will be Cooper Farms, an Ohio turkey processor with hog operations. The plant, which will come on line in late 2016 or early 2017, will be the first pork processing facility for both Michigan and Cooper.

Land acquisition was part of a package pieced together in Philadelphia last year to keep Dietz & Watson in the city. After a fire destroyed the deli-meat company’s facility across the Delaware River, New Jersey tried to lure Dietz to the Garden State with a $30 million deal, conditioned on relocation of the firm’s headquarters as well. Pennsylvania state, federal and local authorities acquired 20 acres and resold 12 to Dietz to allow the processor to expand operations and add a distribution center.

That assistance pales in comparison to the city of Richmond, Va., which was locked in a fight with Norfolk, Va., and Columbus, Ohio, for an East Coast brewery for Stone Brewing Co. of Escondido, Calif. The country’s 10th largest craft brewer scouted two score of potential sites before settling on the final trio. Richmond won the competition when officials agreed to issue $30 million in bonds to finance almost half of the project cost.

Workforce training assistance was a lure in Clif Bar’s decision to build in southeastern Idaho, reflects Wachs, but there wasn’t anything extraordinary about the region’s aid package. “They’re table stakes, honestly,” he says, and fairly consistent from one community to another. He also discounts the appeal of low interest rates, saying, “For us, the decision to make this investment had less to do with the current lending environment and more on the projected growth for our food.”

Daly also downplays the influence of economic development authorities. “We didn’t run an auction, but we got great help from the state on economic development and training grants,” he says. “Interest rates are good, the investment environment is good, but we’re a private company, and part of the beauty of being private is you can act on your convictions and think in terms of a five-year horizon.”

The vast majority of food & beverage companies are private, and a large number of both private and public food manufacturers are cash-rich. When they embark on capital projects, they are driven by the opportunity those investments present.

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