“Food processing or any type of manufacturing today is going to be subject to a tremendous amount of volatility,” says Scott Kupperman, senior vice president, strategic services, A. Epstein & Sons. “In the current economy, [manufacturers] need to be pretty nimble in anticipating a need for change over the life of a building.”
A number of factors-the collapse of the real estate industry, increased concerns about sustainability, and most of all, the weakened economy-have changed food and beverage manufacturers’ site selection priorities and expectations in both positive and negative ways.
Flexibility becomes a necessity
Today, selecting a site for a new manufacturing facility requires thinking five, 10, 15 years ahead. While no one can predict when economic conditions will shift, there is one certainty: food and beverage manufacturers should expect the unexpected and be prepared to change plans suddenly.
The need to be flexible cannot be underestimated, says Kupperman. “This is something that has dramatically changed over the past three to four years. Just look at the amount of consolidating and the number of companies that are going out of business.”
TranSystems Principal and Senior Vice President Stuart Kendig says the biggest impact of the current global economy is that previously held beliefs must be cast aside. “Historic assumptions about where stuff needs to be made are probably just wrong.”
That could mean staying in a plant longer than initially predicted or preparing a back-up plan to sell or re-lease it for another use.
Forrest McNabb, senior vice president of Big-D Construction Corp., says many food and beverage companies who find themselves outgrowing a space are taking a harder look at their efficiencies, rather than opting to rebuild. “If they’ve outgrown their site they start looking elsewhere, but we continue to add on to plants for the fifth or eighth time,” he says.
Still, those that plan ahead for changing needs will end up saving in the long run. The cost of buying more land in the planning stages is much less than the opportunity cost of being constrained later on, Kupperman says. He cites mid-level, one-time niche players Epstein has worked with such as Nonni’s Foods and Kettle Potato Chips. Both, he says, saw unforeseen tremendous growth. But Kupperman adds it’s important to make sure the space isn’t too specialized in case it needs to be vacated and remarketed. Sites should be kept as “mass marketable as possible for a further user,” he says.
Abandoned communities present opportunity
A few years ago, municipalities were pushing food and beverage manufacturing facilities from more populated areas to the rural outskirts of communities, says McNabb. More recently, rising unemployment and the collapse of other industries have municipalities opening the door a bit wider to the development of food and beverage manufacturing facilities.
Hixson Senior Vice President and Project Manager William Sander says, “In the past, the list of regulations and requirements that needed to be followed when building a new facility in certain communities could be burdensome and restrictive. Today, community leaders are being challenged by their constituents to be more pro-industry.”
For example, in the Southeast where the furniture and textile industries have moved off shore, communities are left with double-digit unemployment rates and empty facilities. This has opened up some “very attractive real estate available for well less than replacement value” says Kupperman.
“In this current economic market, we are seeing existing buildings come up for sale,” says Haskell Director Darryl Wernimont. Warehouses are being converted into food and beverage processing facilities or non-food facilities are being adapted into food plants. “We find that if we work with the client in the evaluation of an existing facility, we can go into the existing facility and convert them to FDA/USDA food manufacturing facilities,” he says.
Many times, a qualified labor pool has been left behind as well. Quality of workforce has become an increasing concern as plant machinery grows more sophisticated. “Today there is a growing need for more highly skilled labor to operate and maintain complex equipment and processing lines,” says Sander.
Choosing an existing building or plot of land in a community where vacancies are plentiful and there is a qualified and available employment base has other incentives as well.
“The current economic climate has actually made site selection a little easier for food processors,” Sander says. “Communities, even those which had not been pro-industry previously, are offering incentives to attract facilities-and the jobs and tax revenue that come with them-to their areas. Even though all the regulatory restrictions still need to be followed, there is an attitude of ‘let’s work on this to satisfy all.’”
Today, communities are “romancing” food plants with promises of tax incentives and discounted utilities. In NY state, the Fulton County Economic Development Corp. (FCEDC) wooed FAGE USA, a subsidiary of the largest dairy producer in Greece, to build a $70 million state-of-the-art yogurt manufacturing facility in Johnstown, NY. The 110,000-sq. ft. plant employs 111 people in the upstate New York community and is one of the Gloversville-Johnstown Wastewater Treatment Facility’s largest customers, as well as a major customer of local power.
“The magnitude of these investments will create a positive impact on agriculture, construction, transportation and manufacturing job sectors of the entire Mohawk Valley region,” said Jeff Bray, executive vice president of the FCEDC at the time the project was announced in 2006. He added that at full production capacity, FAGE will become the No. 1 customer of the wastewater treatment facility, which would add “a positive impact on the revenue stream and our bottom line.” FAGE received approximately $1 million in government incentives including a $250,000 grant from National Grid, according to Albany’s Times Union newspaper. In addition, the project was eligible for a $300,000 Empire State Development capital grant, a $375,000 grant from the Governor’s Office of Small Cities and energy efficiency assistance from NYSERDA as well as Empire Zone Benefits.
Hixson’s Sander cites another example in Graeter’s, a family-owned ice cream company based in Cincinnati, which needed to expand its capacity and brands into new markets. “Graeter’s was courted by multiple cities before deciding to build a new multi-million dollar, 28,000-sq. ft. production facility in the city of Cincinnati,” Sander says. In March of this year, the company announced plans for the $11 million facility. In exchange, the city offered incentives worth a net value of $3.3 million-a 4.5-acre land parcel valued at $450,000; a loan of $10 million to be repaid over 20 years with terms of 2% interest in the initial two years during the construction period, and 4% interest for years three through 20. In exchange, the city required Graeter’s to commit to “stay and grow” in the city for a minimum of 20 years.
The struggling economy has caused state and municipal budget cutbacks in the amount of money available for economic development incentives, but some local governments are finding other ways to offer manufacturers incentives. “There are so many communities and states with budgetary short falls that the last thing that they want to do is give a company a half million dollar grant rather than give that money to schools or potholes,” says Kupperman. “Communities can get very creative by basing incentives on expedited permitting.” He adds that some communities agree to drop permitting fees by a certain percentage for every day a project is delayed from its target timeline.
Timeline incentives can be a very attractive perk, but tax incentives and energy rebates are appreciated too. Depending on the size of the project, knowing that a local government is amenable to intangible adjustments like these can be a significant factor in site selection. Vincent DiPofi, senior vice president of the biofuels division at SSOE Inc., says his company’s civil group rates municipalities on how easy they are to work with. “Certainly these days tax abatements and tax credits for jobs are always key,” he says.
Energy boost needed
Energy use incentives from both public and private sources also should be considered, says Christopher Sirat, project manager for The Dennis Group. “Hefty rebates are available if energy efficient equipment or building components are used in the project.”
TranSystems’ Kendig adds, “The typical approach is to benchmark a standard facility and then provide funds to include items that reduce the energy use as compared to a standard facility.” These might include: additional wall and roof insulation, high efficiency doors and motors, lighting or day lighting and geothermal or other high efficiency systems in lieu of standard HVAC systems.
DiPofi adds that manufacturers often ask for help in energy reduction-steam, water, air, etc. “I would say one of the biggest demands that we’ve had in the past six months is energy reduction,” he says. “It’s more about how can we save on our utilities? How can we be more efficient?”
Energy-based incentives can be an effective lure for food and beverage companies depending on the size of the project. “Nebraska’s electric rates for typical industrial customers are 40.1% less than the US average and are among the lowest of the 48 contiguous states,” says Ken Lemke, Ph.D., economist for Nebraska Public Power District (NPPD).
Prime Power Parks in Gastonia, NC, touts itself as the “state’s only industrial parks featuring on-site backup power generation.” Brenda Daniels, manager of economic development for parent company ElectriCities of NC Inc., says, “That means tenants can protect their plant operations from power outage disruptions without the cost of buying and maintaining their own redundant power systems.”
Access to a wastewater treatment facility also often is a key point of attraction in site selection, says Lisa McCoy, marketing director for FCEDC. “We have a state-of-the-art wastewater treatment facility.” she says. “It was a key element when we negotiated for FAGE when they located their yogurt plant here.”
Many communities have limited wastewater capacity, says Sirat. It’s important to understand these limitations before selecting a site because there may be fees involved or restrictions on the time of day facilities can be used. Sander says Hixson once discovered that a municipality was on the verge of running out of wastewater treatment capacity during the site evaluation. “Had the processor gone forward with that site they may have been saddled with the burden of building their own wastewater treatment plant,” he says.
By land or rail
Processing may be more difficult and expensive without convenient access to power and wastewater treatment facilities, but access to affordable transportation comes into play as well. As fuel costs continue to fluctuate, rail access has become an almost essential aspect of the site selection decision.
McNabb says rising fuel costs have caused clients to consolidate operations into strategically-located mega plants. “The cost of transportation is definitely a factor that people are looking at. I think almost every plant we do now has access to rail,” he says.
“For food manufacturers, rail access is always important,” says DiPofi, “especially if you’re in a grains industry. Whether you’re brining in oils, sugars, syrups, grains-rail access is always critically important.”
It’s no accident that so many plants are located in the Midwest, essentially the crossroads of American transport, says Karl Landgraf, principal and project manager of The Dennis Group. “Many localities advertise that they are ‘within 500 miles of half the US population,’” he says.
Lemke says Nebraska’s central location is a main selling point for NPPD and has helped the region score projects such as the $40 million Green Planet Farms, a soy isolate processing plant in South Sioux City that began operation in September 2008. Green Planet’s site is located approximately equidistant from both coasts and is near to many of the nation’s largest soybean producing areas.
Selecting for sustainability
Locating close to your suppliers has the added benefit of reducing your carbon footprint. “Lowering one’s carbon footprint has long been an opportunity for good public relations. No longer does this appeal to just the ‘tree huggers’ and environmentalists among us,” says Landgraf. “Most large companies now have a mandate to ‘go green’ and apply LEED principles in the design and construction of food processing facilities.”
Katrina Spade, sustainability coordinator for The Dennis Group, says that it’s not just about the carbon footprint but how and where the building actually is constructed.
“At times, existing construction can be renovated to house processing plants, which reduces the amount of raw materials used and waste created,” she says. “Where that is not practical, a site that has been previously developed is best. If incentives make it financially viable, cleaning up a brownfield site and building on it is ideal.”
Spade adds that other criteria, including adjacency to natural wetlands and dense forests, which should be avoided, and building freezer and refrigerated spaces facing away from natural light exposure, can help increase a property’s sustainability.
As food and beverage companies continue to operate as lean as possible, and sustainable processing becomes more of a concern, site selection will continue to be a big part of the equation.
For more information:
Forrest McNabb, Big-D Construction Corp., 801-415-6030, email@example.com
Alyssa Boudreau, The Dennis Group LLC, 413-77-1785, firstname.lastname@example.org
Scott Kupperman, A. Epstein & Sons, 312-454-9100, email@example.com
Lisa McCoy, Fulton County Economic Development Corp., 518-773-8700, firstname.lastname@example.org
Darryl Wernimont, Haskell, 904-357-4820, email@example.com
Mike Steur, Hixson, 513-241-1230, firstname.lastname@example.org
Brenda Daniels, ElectriCities of NC Inc., 919-760-6363, email@example.com
Ardith Behlen, Nebraska Public Power District, 402-563-5538, firstname.lastname@example.org
Vincent DiPofi, SSOE, 419-255-3830, email@example.com
Stuart Kendig, TranSystems, 717-741-6451, firstname.lastname@example.org