This year’s FE Annual Plant Construction Survey—which covers projects planned, started or completed in 2021—reveals the lingering effects of the COVID-19 pandemic. There remain issues with supply chains and processing plants, mostly caused by labor shortages and changing consumer buying habits. Processors and distributors have responded by building new distribution facilities and plants outfitted by the latest automation.
Though the number of distribution centers (DCs) and warehouses is down a bit from 2020, it’s still the third highest number reported in the last four years. However, the number of new projects compared to renovations and expansions is a higher percentage of overall projects than it was in 2020. For more details on the numbers and trends, turn to our cover story in this issue.
Increased consumer demand drives projects
According to Rob Rainbolt, engineering manager, Burns & McDonnell Food & Construction Products Group, the combination of growth in food consumption volumes due to the pandemic and the ongoing increase in consumption that is a natural part of population growth has many food and beverage companies at or beyond normal production capacity levels. “When combined with high-capacity utilizations that already existed in the CPG industry, it created a marked increase in the need for transformational expansion projects by our clients,” he says.
An additional driver—at least in the last couple of years—has been the low cost of cash, making additional investments extremely attractive in manufacturing overall.
DCs take off
The growth of e-commerce has been a significant contributor to the increase in distribution center projects, says A M King Vice President Dan Crist. During the pandemic, more consumers turned to e-commerce. High demand for distribution facilities, both greenfield and expansions, is expected to continue in the near term but, as material prices continue to increase and more facilities are brought online, demand will inevitably slow.
When the pandemic kick started already burgeoning home delivery services, new DC construction took off. While there’s been a trend to build large, regional DCs, many processors and distributors want to locate smaller facilities closer to markets and at the same time increase inventory.
Getting smaller DCs closer to consumers has been the trend for the grocery chains, and a good example is Kroger, which has set up large DCs or “hubs” in key regional areas, and then builds smaller, “spoke DCs” or fulfillment centers closer to the urban/suburban areas they serve—much like Amazon has been doing.
Another reason for locating spoke centers closer to the areas they serve while connected to a large regional hub has to do with supply chain issues. The concept is to rely more on local transportation rather than deal with more costly and less reliable longer supply chains.
Why build new DCs rather than renovate or try to make do with existing structures? One word—automaton. Making DCs more efficient through automation is becoming commonplace today. Automatic storage and retrieval systems are being implemented as they require minimal labor and provide accurate and consistent results. New distribution centers can also be cost effective for utilities, with automatic systems in place to save energy and money.
Brownfield facilities have certain advantages
New facilities and projects have been increasing in proportion to the total number of projects, and part of the reason is due to automation—that is, not having to retrofit into an older structure. However, one plus for older structures is that it already sits on real estate, so construction site location work is not needed, potentially saving time and money.
One twist on this approach is to renovate existing dry storage warehouses and turn them into processing facilities, DCs or cold storage buildings. Retrofitting existing facilities can shorten a project’s duration, enabling processors to get to market more quickly.
There are other practical reasons to turn an existing warehouse into a process facility. Some firms have taken on projects where brownfield warehouse space is land-locked and is better suited as a production facility. At the same time, this is then an opportunity for a processor to expand into greenfield projects, creating new warehouse/DCs in areas with more available space
In sum, renovating or expanding a brownfield site may be advantageous for processors who want to maintain more localized processing and distribution. Then as noted, there is the option to find less crowded geographical space and build new where real estate costs are lower.
SSOE Group has worked on numerous greenfield projects, many of which required specialized configuration or features that would be hard to find in an existing facility. Many sites are being located outside of metro areas for improved transportation access, lower land costs, and less constrained utility infrastructure. DCs are being designed to take advantage of improved technology related to ASRS and LGV/AGV.
For processors who can locate to more remote sites to build greenfield facilities, cheaper land is an advantage. “I am seeing stabilizing land prices at least in the plains regions coupled with aggressive lending terms and rates as a big reason for greenfield projects,” says Timothy Nguyen, ESI Group USA senior VP. Attractive borrowing rates and the limited availability of viable existing facilities can make a leap into greenfield projects a profitable endeavor for the long term.
Just getting away from major metro areas like the six counties surrounding Philadelphia or the New York City/Connecticut suburban areas, processors can likely find affordable locations to build new or renovate. For example, one popular area lately is just west of Allentown, Pa. and has around six major food companies in the area. It’s also close to Philadelphia, New York City, Washington DC and many other Northeastern U.S. urban areas via major north-south and east-west interstates, along with an international airport and other commuter airports nearby.
Another drawing card is rail access, as this was a prerequisite for Keurig Dr Pepper to locate both a bottling plant and DC (1.5 million sq.-ft.) there. No doubt, there are many other regional areas away from major cities like Chicago, Denver, Los Angeles, Atlanta, and more, with similar amenities at more attractive pricing.
“Given a range of projects covering greenfield and brownfield sites, we see that objectives can be achieved with either option as long as the tradeoffs are understood very early in the planning process,” says Tyler Cundiff, president, Gray Food & Beverage Group. Speed-to-market, design flexibility and capital cost always seem to be at the forefront of discussions when considering brownfield vs. greenfield.