36th Annual Plant Construction Survey
The push for ROI
It’s been a rough-and-tumble five years since Food Engineering reported 613 food and beverage plant construction projects for calendar year 2007. From there, the number of reportable projects went downhill with the state of the economy. But it seems 2012 is the year processors freed up some money to upgrade their plants or build new facilities to keep up with an increased demand for product.
Reportable projects hit 600 in 2012, 32.5 percent higher than 2011’s total of 453 projects and just 2.1 percent lower than the 2007 high of 613 projects, according to Food Engineering’s 36th Annual Plant Construction Survey. Reportable projects are those that have been made public by the processor itself, a government entity (including local or state economic development groups) or the architectural and engineering/construction (A&E/C) firm responsible for the project.
Most A&E/C firms tend to agree on what’s driving the higher 2012 numbers—although the order changes depending on whom you ask. Curtis Manns, E.A. Bonelli + Associates senior designer, suggests improving food safety, increasing automation (to achieve higher plant efficiency) and decreasing energy usage are primary drivers. But when it comes to reducing energy, processors are not altruistic. Rather, according to Case, Lowe & Hart President Kevin J. Lewis, processors are moving to reduce operating costs through energy efficiency, but LEED certification (often associated with sustainable design) has not attracted processors lately due to the high cost and low return on investment.
Charles K. Dietz, Middough Inc. senior vice president and general manager, adds to the list food quality, improved asset utilization, nutritional improvements and margin improvement. In addition, there are more infrastructure and new product introduction projects.
“The Food Safety Modernization Act [FSMA] is stimulating renovation projects as companies grasp the seriousness of this regulation,” says Forrest McNabb, Big-D Construction Corp. senior vice president, food and beverage group. “The financial institutions are still restrictively conservative, and most projects we see breaking loose are self-funded.” Activity is expected to pick up the end of this year and into 2014.
“In protein [beef, poultry and pork], we’re seeing increased focus on sanitary equipment design,” says Brian Kappele, Stellar divisional vice president. Food processors are taking more of the responsibility—rather than relying on OEMs—to ensure food safety. They present their sanitary design requirements and challenge OEMs to meet them. Previously, processors focused more on operational concerns. Now they are proactively involved in the design phase with specific sanitary guidelines.
The accelerating pace of the changing demands of the food and beverage market and the arrival of new technologies and construction materials require processors to be much more agile, according to Michael J. Steur, Hixson Architecture & Engineering director, business development. Plants must be able to be modified and expanded quickly and cost effectively to produce new products and take advantage of new technologies and materials. Processors are also turning more to automation for a variety of reasons, including increased flexibility, elimination of hazardous and hard-to-fill job positions, improved product traceability and faster reaction time using real-time, point-of-sale (POS) data.
To upgrade or not to upgrade?
The question of whether to upgrade existing facilities or build new is becoming more complex as processors evaluate existing facilities and their ability to meet the new food safety regulations imposed by FSMA. Whether these facilities can be automated to improve production efficiency is another issue as space is critical, and older equipment may not lend itself to automation. In addition, applying automation technology piecemeal to old equipment doesn’t make much sense; what does make sense is purchasing an entire line or unit operation with modules that are linked together. Then, there are architectural issues that can affect both food safety and plant safety—and may not be easily fixed in an old facility— such as airflows, water flows and outdated drainage systems or ammonia piping. For example, OSHA recently fined a Massachusetts processor because there was insufficient space between the plant’s anhydrous ammonia piping and stored materials immediately below the piping, causing a potential for pipe damage and deadly leaks when pallets were moved. The plant also lacked effective lock-out/tag-out systems to protect workers during maintenance.
In 2012, 382 projects or 63.7 percent of total projects were for expansions or renovations, a 22.4 percent increase over 2011’s 312 expansion/renovation projects. The 2012 number also reflects a 6.1 percent gain over 2007’s number of 360 projects.
Many food processors are opting to renovate existing building space for their growing production demands versus new, ground-up construction with either plant expansion or greenfield facilities, says Tyler Cundiff, Gray manager business development – food and beverage market. Several factors may contribute to this trend, such as the availability of existing space, equipment technologies requiring a smaller footprint, capital budget constraints and the overall global pressure of raw material costs and consumer spending.
“Trends we have seen include adaptive reuse of light industrial buildings that have access to enhanced transportation infrastructure, such as inland ports for food processing and distribution,” says Robert Graham, The Austin Company vice president, food and consumer products. Building reuse often allows processors to begin production sooner rather than using a greenfield site, but it can also keep them from having the state-of-the-art complex they initially intended, due to limitations with the existing space. Graham also sees processors moving to states with favorable conditions related to labor, fewer regulatory restrictions and incentives.
In 2012, 218 new projects accounted for 36.3 percent of total projects (600), but in 2011, 141 new projects accounted for 31.1 percent of total projects (453). Warehouse/distribution centers (DCs)—whether new or expansions/renovations—accounted for 7.3 percent (44) of total projects in 2012 compared to a total of 9.1 percent (41) in 2011. In 2007, the percentage of new projects hit 41.3 percent (253) while expansions/renovations totaled 58.7 percent (360) of all projects. Of the 613 projects in 2007, 15.3 percent (94) included warehousing and/or DC capabilities. The warehouse/distribution center category did not track combined projects where both manufacturing and warehousing spaces were included. However, several plant expansions also included warehouse or DC space. As always, the survey did not count projects that were only R&D facilities or corporate offices—unless they also included manufacturing.
No throwing caution to the wind
While 2012 was a good year—or at least better than the previous four years—processors are not plowing money into projects that don’t promise returns. “We still see apprehension on releasing capital for projects,” says Lloyd Snyder, Woodard & Curran senior vice president. “Planning is being done, and selection of projects to execute is cautious. Following the 2012 election, the expected resurgence in spending is still muted. The stock market envisions the growth, and I can envision a major release of funding at the end of 2013 and [into] 2014.”
Ken Gruenhagen, SSOE Group division manager, agrees that capital plans are a little tight this year. “Many companies appear to have cash available, but approval levels are becoming more stringent.” Processors will spend money on food and personnel safety, and sustainability initiatives have momentum, including greener packaging and any type of efficiency improvement—whether it is related to energy or water conservation. Gruenhagen also sees some spending on improving supply chain efficiencies.
“Overall capital spending is up, but just as much, [so is] attention on an individual project’s financial justification,” says Darrin McCormies, Epstein vice president. “Projects focus on providing capacity to satisfy volume increases, and there is continued focus on cost reduction.”
Available capital has been tempered by product demands, the availability and costs of raw materials, and the utilization of “multiuse/multi-product” plants to reduce operating costs, according to Austin’s Graham. Ready funding has also been crimped by the costs of utilities such as water, electric and gas.
Drivers for spending will be projects that support rebuilding the infrastructure of an aging industrial base, says Snyder. Also, processors will invest in new products and processes in 2014 and 2015. “We see a major focus on wastewater treatment, water reuse and energy,” adds Snyder. “Companies and communities want to revive their factories with new technology, but still must fix their old problems first.”
“There is a growing focus on plant optimization and/or existing asset optimization, and it is this focus that is driving most construction-related projects we are seeing in the US,” says Darryl Wernimont, food and beverage specialist, POWER Engineers. Greenfield construction in the US is far and few between with most greenfield activity in select international markets. Optimization, according to Wernimont, is occurring in manufacturing processes, packaging, plant consolidation and rationalization, plant and line relocations, brownfield conversion, automation upgrades and in distribution and logistics.
Processors are placing their money where consumer spending is. Two areas that have taken hold are value-added convenience and health foods, and quick-serve, fast food and casual dining, according to Michael Golden, Food Tech LLC vice president, who reports the latter has been “driving the bus on the expansions we are doing for our foodservice clients.”
As might be expected, larger companies have the capital, but smaller and startup businesses are finding it more difficult to move ahead. “Capital seems to be freeing up for established businesses with strong balance sheets and equity positions,” says Jack Michler, ESI Group USA regional sales manager. “But startup enterprises seeking funding or SBA loans are almost non-existent. A recent prospective client sought out an SBA loan, and when it thought it was nearing approval, another ‘truckload of forms’ just showed up for it to complete.” Now the processor, according to Michler, is seeking private financing alternatives.
“We are seeing companies investing in larger capital projects—game changers for them,” says Hixson’s Steur. Some smaller projects that had been postponed are now moving forward to address infrastructure and utility needs, reduce costs and improve productivity and safety.
Chobani’s Twin Falls, ID one-million-sq.-ft. facility was certainly a game changer for the yogurt company. Equally impressive was its fast tracking from design to building completion. According to Mark P. Shambaugh, Shambaugh & Son CEO, the design-build approach to constructing this plant reduced the time to build the structure from an average 24 months to just 10 months. This translates to money well spent and a system online much sooner than the traditional bidding process allows. However, the design/build process does require a very close relationship between the processor and the A&E/C firm. (For more information, see “Plant of the Year: Chobani,” FE, April 2013.)