Don't look now, but the tortoise is about to lap the rabbit.

While yesterday's Internet moguls stare at their portfolios and wonder where the paper fortunes went, "old" economy firms keep chugging along. Some are doing better than others, of course, but on an industry-to-industry basis, what would you rather be doing in 2001: selling software for the virtual world or supplying the essentials of three square meals day for the real one?

Some leading food firms couldn't resist sly swipes at the once-high flying technology sector. "Many investors initially had high hopes for technology shares for 1999 and 2000, but these hopes were dashed," notes the annual report for Sudzucker AG (No. 57 in this year's ranking of the world's 100 largest food and beverage companies). "Equities of established companies with product know-how and a proven track record of profitability were again in demand." The German sweetener's per-share earnings soared 25 percent, and it was hardly alone.

The new-economy high-rollers have fallen, the fundamentally sound keep chugging along. Distillers, vintners and brewers had strong earnings in 2000 as Internet millionaires toasted their success, and they are among the food majors who are posting even more impressive 2001 quarterly gains as those people drown their sorrows. London-based Diageo plc (No. 9) had enough cash on hand to finance its $5 billion share of last year's joint purchase of the House of Seagram with Pernod Ricard (No. 60) out of cash flow.

Breweries making plant improvements

Volume growth has slowed for the world's leading breweries as they await the coming of age of the next baby boom. Even so, those companies are spending heavily on plant improvements that will position them for the next growth spurt. Anheuser-Busch (No. 16) spent $5 billion on plant modernization in the last five years and intends to spend a similar amount over the next five. "Companies that make value-added products have the margins, and they're not reluctant to spend on systems that solve manufacturing problems and produce fast paybacks," observes John Clemons, a systems integrator with EnteGreat Inc. Food and beverage assignments are booming, he reports, with companies like Miller Brewing instituting batch execution overhauls that will take several years to fully implement.

Value-added is the operative phrase. For commodity a player like IBP Inc. (No. 8), there isn't a lot of wiggle room for capital investments. Raw material costs represented 93.4 percent of net sales for the beef packer last year, with only 3.67 percent dropping down to the bottom line. Compare that with General Mills and Kraft, whose cost of sales accounted for 42 and 51 percent of gross sales, respectively. More than 14 percent of sales went to gross income, and both corporations continue to look for ways to squeeze more cost out of the operations.

In fact, many companies take the opportunity in a down economy to position themselves for future growth. The investment community continues to be unkind to Campbell Soup Co. (No. 35), but that didn't deter Campbell from recently announcing a $100 million increase in capital improvements in the next 12 months to "enhance quality, increase efficiency and expand manufacturing capacity." As with other food companies, marketing still rules the roost in Camden, N.J. The company is plowing an extra $200 million into marketing, boosting that budget to $1.5 billion. Still, the fiscal 2002 plan for $300 million in manufacturing infrastructure improvement is not insignificant.

Much of that spending will go for packaging equipment at Campbell's four U.S. soup plants. Pull-top lids will become standard on the familiar red-and-white labeled condensed soup cans. It's the kind of market-driven upgrade that many food companies are making, regardless of short-term corporate performance.

Like other cheese makers, Foremost Foods (No. 100) saw its revenues nosedive $108 million because of depressed pricing brought on by supply-demand imbalances. Still, the Baraboo, Wis.-based dairy cooperative is pressing ahead with $32 million in cheese-plant upgrades this year.

In some food categories, business is booming. Nissin Foods (No. 81) just completed a major expansion of its California plant, and the company is eyeing a third U.S. facility to meet demand for its Kikkoman soy sauce. The Japanese company already commands 55 percent of the U.S. soy sauce market, and strong growth in sales to restaurants and home-meal-replacement vendors are giving added meaning to the joy of soy.

French fries are another profitable niche, and Canada's McCain Foods (No. 39) is putting the finishing touches on a new $100 million plant in Aroostook County, Me. Three years ago, McCain spent $70.8 million to double capacity at the nearby Easton, Me., fry operation.

Thirty of McCain's more than 50 global production facilities make french fries, but the company will become more diverse when it takes over Anchor Food Products' three plants.

Mega-mergers continue to grab headlines, but joint ventures are playing a bigger role in food companies' growth plans. In January, Coca-Cola (No. 6) and Nestle (No. 1) renamed their ready-to-drink teas and coffee venture Beverage Partners Worldwide to reflect a broader focus that includes healthful beverages. In February, Coke and Procter & Gamble (No. 48) announced formation of a stand-alone joint venture to develop and market juices and other products.

Joint ventures and organic growth are the favored strategies at Nestle, which also entered into an alliance with Snow Brand Milk Products (No. 15) last year to share management and technological expertise to develop yogurts, lactic acid drinks, desserts, dairy drinks, ice creams and infant formulas.

Another notable joint venture was the January formation of Molson USA LLC, owned by Molsen Breweries and Adolph Coors (No. 80). The two North American breweries formed Coors Canada Inc. three years ago, and that arrangement is expected to produce 500,000 annual barrels of contract-brewed Coors within a few years.

Shifting consumption patterns are forcing many major companies to rethink their business strategies. Itoham Foods (No. 53) is raising productivity and expanding its line of ready-to-eat meats to regain lost sales volume. Danish Crown (No. 52) has decided that slaughtering 16 million hogs a year is quite enough. Future growth will hinge on increased value-added processing at the cooperative's own plants.

Ready-to-eat meals have become so big internationally that Unigate Dairies Ltd. reinvented itself to take advantage of the trend. Founded from the merger of two dairies a quarter century ago, the firm divested its dairy and cheese businesses, demerged another unit and renamed itself Uniq plc (No. 66), a company focused on convenience food in the UK and continental Europe.

The Wall Street slowdown reined in the blockbuster food-company purchases of a year ago, although significant mergers continue to occur. The biggest change is greater attention to the efficiencies that will accrue. Kiwi Cooperative and the New Zealand Dairy Board (No. 56) are putting the finishing touches on their merger, and management is emphasizing the $310-332 million it expects to save each year in efficiencies. Likewise, Pepsi Cola (No. 7) has ballyhooed the $400 million in annual savings it expects to reap from the purchase of Quaker Oats (No. 42).

Increased efficiency and shifting consumption patterns also can be code words for job cuts, and food industry workers didn't escape unscathed in the last year. Noting the need to downsize is global operations, primarily in fresh fruit, Dole (No. 47) disclosed it took a $31 million hit last year in severance and early-retirement costs. Likewise, ConAgra (No. 3) noted 8,450 employees, 26 percent more than originally estimated, have been terminated as a result of a restructuring plan.

Food and beverage firms of all sizes are leaner and meaner. The Top 100 also are bigger than ever, posting an average sales gain of 6.7 percent last year and topping $684 billion. Now they're positioning themselves for more profitable growth.