New Plant of the Year: The Age of Specialization
The trend is easy to miss because the specialists don’t compete in multiple categories. In their field of expertise, however, they are the lowest-cost providers, the most highly automated, and among the fastest-growing and financially profitable players in the industry.
Dry pasta and noodles are a case in point. Almost three-quarters of the pasta sold at retail in the United States is produced by one of three companies, only one of which had a U.S. manufacturing presence five years ago: New World Pasta, Barrilla and American Italian Pasta Co. (AIPC). With a U.S. tradition dating back to 1988, AIPC is the granddaddy of the group and the market leader. Production from its Tolleson, Ariz., facility will boost AIPC’s output to in excess of one billion pounds, about one quarter of market consumption.
AIPC is the king of a much different hill than existed 10 years ago. Borden Foods and Hershey Foods were the premier producers then, and the market was fragmented. Borden’s manufacturing base included the building where AIPC established this year’s Food Engineering Plant of the Year. More than 300 Borden employees were needed to output 15 percent less pasta than AIPC will produce with fewer than 50.
Product consistency and low operating costs have enabled AIPC to dominate the private-label and, increasingly, the institutional and foodservice segments of the pasta segment. The company estimates its cost per pound of production is substantially below competitors. Some of the biggest food manufacturers in the world apparently agree and have shut down their own pasta plants and outsourced the work to AIPC.
Being the low-cost provider has not meant being a low-margin supplier: in an industry characterized by profit margins of 1 to 2 percent, AIPC reported net earnings in fiscal 2002 of $41.3 million, almost 11 percent of sales. With AIPC just beginning to flex its muscles in the more profitable branded segment, the best may be yet to come.