2025 Capital Spending Outlook: An Ominous Sign
It appears the post-Covid era of big budgets and big plans for capital expenditures has come to an end. For the first time since our 2009 report, the 31 largest publicly traded food & beverage companies for which we track capital expenditures annually have decided that 2025 is the year to trim those capex budgets.
It’s only a 1.1% decrease, and actual spending this year could exceed budgets. But that previous budget decrease came amidst the 2008-2009 recession, which saw the stock market crash, bank failures, the housing market collapse, economic contraction and high unemployment.
It’s a slowing of the bankrolling that seemingly began sliding a bit in fiscal 2024, when food & beverage companies still budgeted more capex (about 3% more), but not at the double-digit percentage increases of years prior – and then underspent those budgets by 1.6%.
“A lot of firms have been spending pretty significantly behind capex for the past handful of years, and a lot of the initiatives that they’ve been undertaking are starting to wrap up — meaning we’re getting back to more normalized levels,” says Erin Lash, director of consumer equity research for Morningstar.
“So, we’re easing off the elevated levels, being at a point where firms want to leverage the capacity and the investments that they’ve made,” she says.
This is just the first seven and last four companies in our chart of 31 companies' capital spending budgets for 2025 (and actual spending in the two previous years). For the full chart, see foodprocessing.com/55271608.
Further evidence lies in the results of two surveys published in the past six months. First, our own Manufacturing Outlook Survey, published in the January 2025 issue, showed a significant sea change, with “cost control” ranking higher in a weighted score for plants this year than perennial top priority “food safety” — for the first time in 24 years.
Additionally, in December, CRB published the results of its own capital spending survey in its “CRB Horizons: Digital Age of Food Manufacturing” report (www.crbgroup.com). More than 300 manufacturers responded to that survey, and the capital spending insights support the adjustments seemingly underway across the industry.
“Food & beverage manufacturers are facing extraordinary pressure to protect their margins and shrink their capital spending,” said Monte Vander Velde and Dennis Collins of CRB, the report’s authors. Capex budgets reflect that push, with 51% of manufacturers stating they’ve reduced their overall annual capital spending budgets — with 34% saying that budgets increased, but only slightly.
A slower stream of investment
Even though processors appear to be recalibrating their capex outlay in 2025, they are still writing checks for projects already under construction or soon to be. To be clear, the 31 companies we track plan to spend some $19.3 billion on capital projects this year — though that number is about $500 million lower than the $19.8 billion they budgeted in 2024, and lower than the $19.5 billion actually spent last year. So, investments are happening, just at a slightly lower level than in the past.
“There’s still significant focus on investing more as it pertains to automation and digitization, to drive efficiencies to either boost profitability or offset the persistent cost headwinds that they’re continuing to face,” Lash explains. “We expect that will continue to remain in the cards, just at a lower level than what we’ve seen more recently.”
Billy Roberts, senior analyst of Food & Beverage CPG for CoBank, agrees that companies have room to run when it comes to improvements that were set aside for a few years.
“There are areas where, frankly, some investment is warranted and could save ultimately in the long run,” he says. “The past couple of years haven’t been ideal for thinking long term. I think we’re entering into a phase now where companies can start thinking longer term, not just survival mode, about what the next phase of this industry is going to look like.”
Projects revolving around digitization and ERP implementation appear to be back on track, with companies at various stages in the process. Lash says the environment seems to support a return to getting those initiatives either wrapped up or rolling along.
“A lot of firms put ERP upgrades on the back burner during Covid, because it was really all hands on deck from a supply chain perspective, making sure that they could get product to shelf,” she says. “Since some of those headwinds have died down, you’ve seen a re-acceleration as it relates to that.”
Top Projects Underway
This is just the first five projects in our chart of the top 56 projects currently underway. To see the whole list, go to foodprocessing.com/55271608.
Hershey Co. stands among those who have finished their ERP initiatives, pointing out in its annual report that the decrease in capex in 2024 was driven largely by “the wind-down of our key strategic initiatives, including completion of the upgrade of a new ERP system across the enterprise in 2024,” and that it would return to “historic levels” of capex as a percentage of sales.
Yet, other companies have yet to embark upon ERP and digital initiatives, and Lash believes we will see those processors move down that path with more earnest in the near future.
CRB’s Horizons report shows nearly half of respondents to its survey (48%) said automation installations, upgrades and additions were part of their company’s capex plans over the next three years, with packaging and process installs, upgrades and additions taking up residence in the planning for another 44% and 37% respectively. Meanwhile, only 25% said they had greenfield projects in the works for the next three years.
It stands to reason that adding capacity by building new facilities or expanding existing ones simply isn’t generating the same interest as it has historically. Lash says that’s driven directly by the lackluster volume growth experienced by food companies recently.
There’s no denying the success of the Uncrustables brand in recent years. Driven by that success, J.M. Smucker Co. invested big-time and recently opened its new Uncrustables processing plant in McCalla, Ala. — the highly anticipated greenfield project that has been under construction for years opened in November 2024. But companies dealing in more commodity-type products appear to be turning away from adding significant manufacturing footprint until consumers demand it.
“When you’re dealing with an environment where it appears that demand is more muted, the appetite to invest further in capacity — at least to the extent of large projects that add to their manufacturing footprint — isn’t all that likely until we see more of a stabilization as it relates to the volume profile of these businesses,” Lash says.
As consumers continue to pinch their pennies in response to higher food prices, they’re looking for standout products that are worth their price, and volumes simply won’t rebound until those products show up. At that point, capacity-driven capex should follow suit. Until then, expect food & beverage companies to rein in their spending and keep it under control.
To see our full charts of 31 companies' capex budgets and 25 largest projects underway, see foodprocessing.com/55271608
