35th Annual Plant Construction Survey: Processors Prepare for Future Initiatives
Processors are making do with existing facilities, reducing energy and other resources while preparing for FSMA-related inspections.
It could have been worse. While the number of reportable food and beverage projects for the year 2011 was the lowest in the last five years and below the 2010 numbers, it was just slightly lower than in 2009, according to Food Engineering’s 35th Annual Plant Construction Survey. Political uncertainty and lack of cash from banking institutions have held new projects at bay, much as they did the two prior years. Meanwhile, increasing energy prices and the clamor for more output and greater agility have sustained the expenditures for primary process improvements, line expansions and renovations. With the Food Safety Modernization Act (FSMA) beginning to take hold, processors are wondering if their existing plants can pass muster without major redesign or even replacements.
But there are also more immediate concerns. Marketing specialty foods to consumers has made keeping up with new SKUs and customer-driven product launches tough challenges for processors that find the only way to stay on top is by automating lines and making them more flexible to changing product and packaging designs. The rising popularity of single portions—either for “your way” food for people on the go or for portion control—has been driven by advertising and is forcing competing processors to get on board or lose out. The rising popularity of Greek and natural yogurt products is a great example of how quickly consumer interests create new demand, according to Jonathan Marshall, Faithful+Gould senior vice president.
In addition to the pressure to keep developing new products, processors are facing efficiency improvements, plant consolidations and attempts to standardize production across facilities, says Michael Murphy, SSOE vice president food/consumer products division. “Our clients are making these changes to maintain margins in response to the ever-increasing cost of raw materials, ingredients, energy and shipping.” Murphy reports his clients, too, are launching new convenience food products to satisfy busy consumers and maintain or increase market share.
At the same time, business models and supply chains are rapidly changing, and capital costs are rising. Therefore, leading manufacturers are reducing their overall plant sizes and developing master plans for future growth that minimize current capital expenditure by only building today what is required today, according to Joe Bove, vice president of engineering, Stellar Food & Beverage Facility Services.
About the numbers
The survey on pages 52-74 lists food and beverage plant projects underway, completed or in progress in calendar year 2011. Projects include those submitted by A&E firms or those obtained from public sources—local newspapers, government agencies, marketing organizations and press releases. Projects for the year 2011 totaled 453, down 7.6 percent from 2010’s 490 reported projects. However, 2011’s projects were only down 11 from 2009, when a total of 464 projects were reported.
Although new projects in 2011 (141 new facilities) dropped by four units compared to 2010 (145 facilities), as a percentage of total projects, they were slightly higher (31.1 percent) in 2011 than in 2010 (29.6 percent). In 2009, new projects, which include both manufacturing and warehouse spaces, accounted for 31.5 percent of total projects.
Separate warehouse and distribution center (DC) space may be reaching an adequate level as the percentage of projects dedicated specifically to warehouse/DCs in 2011 (41 projects) dropped by 18 percent from 2010 level of 50 projects. In 2011, DC-only projects accounted for 9 percent of total projects (453) compared to 2010, when DC-only projects (50) accounted for 10.2 percent of total (490) projects. This category did not track combined projects where both manufacturing and warehousing spaces were included. However, several plant expansions also included warehouse or DC space, which is indicated in the “primary product” category with a “+” and “whse” or “DC” or both.
Meeting the challenges
As family lifestyles and domestic and international migration patterns have changed in the US, food processors have responded by continuously identifying new products and potential areas of growth. Food manufacturers also are more effectively targeting their existing and potential client base, explains Tony Delgado, Alliance Engineering food and personal care market sector leader. “To meet this business goal, they are ‘fast-tracking’ many projects to be first to market with their offering so they can have a distinct competitive advantage.”
Most of these projects, according to Forrest McNabb, Big-D Construction senior vice president, food and beverage group, continue to be expansions and renovations as greenfield plant projects linger until money becomes available. “The financial institutions are still locked down. Most projects we see breaking loose are self funded. Owners are still reluctant to unleash capital investments during an election year.” Is there light at the end of the tunnel? McNabb thinks so, as projects seem to be prepping for action in 2013 and 2014.
For “new” facilities, food processors continue to gravitate toward a readily available inventory of both newer, lighter industrial buildings and older manufacturing plants for their “adaptive reuse,” says Robert Graham, The Austin Company’s vice president of food and consumer products. “For established manufacturing sites, expansion and upgrades to accommodate new food products and/or clients continue to increase as the economy rebounds, but this is more evident in the higher-margin, value-added/private-label segments than the commodity brands of major manufacturers.”
Capital funding requirements for projects in this economic cycle are stringent, and ROI calculations are daunting, according to Food Tech Executive Vice President Michael Golden. “Once that hurdle is crossed, however, clients realize that both money and construction costs are the lowest they are probably going to be. So they are actually spending more on materials, technology and systems that further fuel that ROI.”
Unease over the condition of the economy and the uncertainty it brings to the marketplace have forced processors into tough—and-not-so-sound—decisions. “We have seen clients wait until the eleventh hour to make a decision about a project moving forward,” says Steve King, ESI Group regional vice president. “Once a decision is made, they want the work done immediately to meet some specific timing goal. This results in a less-than-adequate planning, design and bidding effort. As a result, they are not as happy with the cost and end results of the project.”
But working closely with an architectural firm helps a processor make a sound business decision, putting funding where it belongs. The relationship between an architectural and engineering/construction (A&E/C) firm and a food processor is often a matter of commitment, loyalty and trust, and a good relationship can have meaningful benefits. However, when processors have fewer resources to set up the design/bid/build process, they’re more likely to bypass the bid part of the process, explains James Bingham, Middough business development director.
Mark Shambaugh, CEO of Shambaugh & Son, believes 50 percent of all US construction now utilizes design/build construction versus other delivery means for plant retrofits and new construction projects. There are a couple of reasons why design/build is becoming more acceptable than design/bid/build. “First and foremost, there is a speed-to-market driver with new projects for which design/build can result in 20 to 30 percent faster project delivery,” says Shambaugh. “Design/build has also proven to be more of a collaborative approach (i.e., fewer change orders and cost surprises) with reduced project risk for the owner. Design/build has also proven to be more conducive to a lean construction approach, thereby reducing overall project costs,” adds Shambaugh.
One reason processors have fewer resources to set up a design/bid/build process is the lack of in-house engineering staffs they once had. As a result, the outsourcing of key engineering sources continues to grow and fills a gap in facility design, process and packaging systems development, according to Darryl Wernimont, POWER Engineers director of marketing. Often this brings two groups working in tandem on a project. Wernimont says, when this is the case, the engineering houses provide the “inside-the-box” specialists that concentrate on system integration, processing, packaging and food safety design, while the contractor focuses on the needs of the box: site development, construction and transition to joint occupancy.
Green: No longer nice but necessary
Many processors see being “green” as an important marketing tool since environmentally conscious consumers feel good when they purchase a product from a green company. However, for processors with the luxury of a site selection process for a new operation, resources and energy issues are looming larger, and being green is no longer a nice PR gesture, but a means of curbing expenses—decreasing the cost per pound to produce food. (See “Site selection: Redefining location, location, location,” FE, December 2011.) On the other hand, for processors with existing sites, changing weather patterns and energy prices are becoming critical deterrents to a good bottom line.
“We are seeing clients wanting sustainable green solutions in their expansion requirements,” says Lloyd Snyder, Woodard & Curran senior vice president and principal. “That being said, there is a definite cost justification process that goes along with that desire,” he states. “As water and energy costs increase, these are areas that I see for development of innovative ways to optimize, recycle and reuse,” Snyder says.
“For the enlightened manufacturer that can take a long-term view, energy-saving construction methods are attractive, even if they might take four to five years to pay out,” says Dan McCreary, The Dennis Group principal/project manager. “For the manufacturer conscious of its self-image, or one that has touted its ‘green-ness,’ energy-conserving construction is perceived as enhancing its public image.”
“The management of water continues to be one of the next big things we expect to see happening, in which all water types (waste, product ingredient water, process heating and cooling water, water reuse [gray water] and domestic, potable water) are more strictly managed,” says Michael Steur, director of business development at Hixson Architecture & Engineering. Water treatment, water distribution and wastewater systems in many municipalities are stretched to capacity. Water scarcity in some parts of the country results in hefty fees and infrastructure modifications, the costs of which are usually borne by the user. However, the need to heat and cool water provides opportunities to reduce energy consumption, according to Steur.
LEED principles are the norm
The trend toward sustainability and LEED certification in food facilities is often a component of the marketing strategy of some processors, states King. However, as King suggests, sustainability for site selection, alternative transportation, reduced water usage, system efficiency, recyclable materials and other management controls are already considered in designing food facilities.
“The use of recycled materials, water conservation and energy efficiency are normal design considerations for any competent engineer,” says Golden. “The reality is that food processing plants and cold stores are highly insulated and energy efficient in and of themselves, so the jump to LEED is not as dramatic as with other industries.”
Steur says he often sees companies looking at the possibilities of LEED certification from the standpoints of practicality, cost and feasibility. “Even when they choose not to pursue LEED certification, the LEED checklist has proven to be a tool many companies find useful in evaluating, prioritizing and selecting sustainability measures for their projects,” Steur adds.
“Sustainability is being treated by many of our clients as not just a ‘responsible’ action to take, but as a distinct business advantage that can decrease their operating costs, improve their profitability and improve their public image,” says Alliance Engineering’s Delgado. Delgado suggests more governmental incentives (operational and investment tax credits) to embrace LEED initiatives would accelerate the timeline for how many of these projects food manufacturers would be willing to undertake.
Food safety to the forefront
Recalls are increasing the awareness of food safety. “Processors are being more proactive in guarding against potential cross-contamination during planning and design phases,” says Middough’s Bingham.
FSMA is also playing a role in project considerations. “Because FSMA requires manufacturers to minimize the use of chemical pesticides, we are seeing more of them take a non-chemical approach to battling insects, including tighter fitting doors; better filters on exterior openings such as exhaust fans and louvers; revisions to lighting that attracts insects; review and modification of landscaping that may attract insects; and improved sealants at wall and roof/floor junctures to minimize intrusion,” states Bove. “We are also seeing an uptick in new audits and more stringent documentation and recordkeeping of chemical use.”
“In terms of FSMA, we’ve found that FDA is looking from floor to roof at everything and anything that can affect food safety,” adds Hixson’s Steur. Processors will need to have the proper design in place to improve food safety, and if not, remediation will be necessary to address any concerns. Steur points out that while FDA has not yet fully developed and issued all of its requirements, there is an aggressive move to inspect facilities over the next five to seven years. Therefore, it makes sense to start planning now, working at a comfortable pace to fix problem areas, rather than get hit with a large and unplanned, mandated remediation project that could potentially jeopardize production.
“GFSI and FSMA will require new levels of documentation and testing,” says ESI Group’s King. “The law represents a continuing change for food production with a specific focus on prevention.” For instance, food manufacturers and distributors will be required to verify safety and accountability throughout the food chain, and existing facilities will be required to renovate or, in some cases, construct new facilities to meet these standards, according to King.
GFSI may be a little more difficult than FSMA for processors to grasp initially (See “GFSI Update", FE, March 2012). “HACCP was widely embraced because it was codified and fairly easy to understand—and resulted in some tremendous benefits such as fewer recalls, easier and more accurate traceability, etc.,” says The Dennis Group’s McCreary. The tangible benefits of GFSI may be more difficult to quantify, but if consumers and retail chains like Costco or Walmart demand that processors adhere to GFSI, processors will get in line, says McCreary.
While many large processors have been anticipating these changes and working to improve food safety systems, small and medium-sized processors could face some serious issues, according to Snyder. “The increased regulation will cause many to adjust the way they do business today, potentially putting some out of business. We feel, depending on how the political winds blow this summer, companies will start targeting changes within the supplier base of the food industry,” warns Snyder.
“The new food safety initiatives and regulations are good for the food industry in that they will help bring up the current Good Manufacturing Practices [cGMPs] level for all food manufacturers and restore consumer confidence,” adds SSOE’s Murphy. “Most of our clients are on the leading edge of sanitary facility design and food production. They are playing an important role in the new initiatives and are working on committees to share best practices. Plants that are behind are rushing to bring their facilities up to today’s sanitary standards.”
Operational safety not forgotten
With all the emphasis on food safety, it might seem that operational safety gets short shrift. Not so. According to Hixson’s Steur, processors are auditing and upgrading their existing facilities to comply with current OSHA, building code and insurance carrier requirements, as well as industry standards, even though they comply with the codes and standards under which the facilities were constructed. In addition, some manufacturers have developed their own standards that exceed the required, minimum standards for critical systems.
“Operational safety continues to be a day-to-day focus; machinery performance, associated recordkeeping and scheduled maintenance are at the heart of these efforts,” says Wernimont. “Coinciding with these efforts are routine cleaning and inspection supplemented by verification and, as needed, modification to procedures to ensure compliance.”
“In over 25 years of designing/building food process plants and cold stores, I have never seen more genuine concern by clients on safety and environmental responsibility,” says Food Tech’s Golden. “You would think just the opposite in a challenging economy. But [our clients] know that PSM (process safety management), HACCP, etc. are not buzz words, but sound business models that benefit them as much as the communities where they are located.”
The road ahead
When asked whether A&E/Cs are seeing an uptick in projects as the economy begins to improve, the general consensus was yes, but with some reservations. McNabb notes upgrades for maintenance and operations that were held off during the recession are being planned and executed, and unavoidable upgrades—those driven by regulatory compliance or product changes—are also being put in gear.
Steur reports processors are investing in larger capital projects, often game changers for them. Some small projects that were postponed are moving forward to address infrastructure needs, reduce costs and improve productivity and food safety. Companies that have sold businesses now have more money to invest in larger projects.
Most A&E/C firms responding to FE’s survey believe processors are on the road to recovery, and they must speed up to catch the competition and meet consumer needs. The projects they are undertaking will help them decrease resource and energy costs, improve output and efficiency and be better prepared for FDA inspections when FSMA goes into high gear. But a word to the wise: Proceed with caution, but be prepared to do the speed limit and maybe even exceed it.
The following companies assisted Food Engineering in compiling this survey:
A M King Construction Company
The Austin Company
Big-D Construction Corp.
Forrest D. McNabb
E.A. Bonelli + Associates, Inc.
Burns & McDonnell
The Dennis Group
A. Epstein and Sons
ESI Group USA
Steve King & Tim Nguyen
Food Tech LLC
Gleeson Constructors LLC
The Haskell Company
Hendon & Redmond Engineers/Architects
Hixson Architecture & Engineering
Michael J. Steur
KBR Building Group
Jane Gray Boland
Shambaugh & Son, L.P.
Stellar Food & Beverage Facility Services
Woodard & Curran
Lloyd Snyder, PE