June of last year saw some pretty grim responses to the COVID-19 pandemic: Shut-down plants, broken supply chains, input shortages to food plants, scattered protein outages, closed restaurants and food service facilities—and people working at home, placing an unfathomable demand on grocery and big-box stores, their distributors and supply chains.

Here we are a year later, having learned some lessons the hard way—and the results of this year’s annual plant construction survey certainly point to the resilience and agility of our industry and its suppliers to respond to changing needs and requirements. Especially, kudos go out to the A&E/C (architectural and engineering/construction) firms who kept working on necessary and vital projects when states closed projects and facilities.

Last year, Mark Galbraith, co-owner of GALBRAITH Pre-Design had reported, “In Pennsylvania, the deeming of construction as non-life essential has hurt construction projects across the board. Other than maintenance (in order to keep facilities in compliance with food safety regulations), projects are shut down.”

While the food sector remained strong during the pandemic, decision making on construction projects was initially affected due to work at home and redirecting staff to mitigation work, says Darrin McCormies, Epstein senior vice president, director of industrial services. “Many of our clients in the meat industry have initiated physical changes to their high-density areas to create social distancing and as a result, more projects relating to renovation and expansion of employee welfare areas were undertaken.”

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Fortunately, most food and beverage projects have gone on, though challenges remain—such as getting materials and equipment delivered to site on time as well as commodity price escalation, says Dan Oberlies, VP, market leader at Alberici Constructors.

Even so, the results in this year’s Food Engineering Annual Plant Construction Survey seem to show a strong response to righting the faltering supply chains and physical plants that were simply no longer able to keep up with product flow, human movement and social distancing. Hence, this year’s numbers show a huge increase in the number of fulfillment and distribution centers/warehouses and a significant increase in building new greenfield facilities, and renovating and rebuilding on brownfield sites where space is ample.

What’s driving all the activity? Tyler Cundiff, president, Gray Inc., food & beverage market, offers a few thoughts: manufacturing enterprise consolidation, increased focus on food safety upgrades, as well as dynamic and growing global consumer demands. “However, much of the current new project activity is a result of a drastic disruption to the global food supply and delivery system due to COVID-19.”

Though this year marks the 10-year anniversary of the passage of the Food Safety Modernization Act, most A&E/Cs report that recent projects already incorporate FSMA, so most of the issues driving projects have been directly related to A&E/Cs and processors adjusting their efforts, plants and distribution centers (DCs) to keep up with changing consumer demands brought about by COVID-19. In fact, Greg Marconnet, vice president at Mead & Hunt, says the focus is on speed to market and increasing automation, driven by the availability (or lack thereof) of labor and pandemic risk management.

Polling this year to see what’s driving A&E/C firms and their food and beverage customers no longer puts FSMA at the top of the list. Rather, for A&E/Cs, the top three drivers were fast project deployment, controlling costs and being flexible in plant design to accommodate quick manufacturing changes. (See “Top 10 A&E/C Hot Trends.”)

According to A&E/C firms, processors and DC operators pretty much have FSMA under wraps, but their top three concerns are designing plants to accommodate flexible manufacturing, increasing production to meet demand and having fast project deployment. After automation at fourth priority is FSMA, and not far behind workforce availability, which has been a perennial problem for engineering firms as well. (See “Top 10 Trends A&E/C firms say are of most concern to food processors.”)

What the numbers show

Food Engineering’s 44th Annual Plant Construction Survey revealed a total of 717 reportable food and beverage-related projects, 17.7% higher than last year’s number of 609 reported for the year 2019. New projects counted for 272 or 37.9% of this year’s total and are 35.3% higher than last year’s number of 201 reported new projects. Plant renovations and expansions accounted for 445 projects or 62.1% of total projects reported for 2020. This year’s number of 445 projects is 9.1% higher than last year’s number of 408.

Number of Projects

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plant construction projects from 2010 - 2019

Since 2015, the total number of projects seemed to be tapering off a little, though this could be due to reporting and searching inaccuracies. However, 2020 changed the trend big time. (See the chart, “Plant construction projects from 2011 to 2020.”) Compared to the 10-year, simple average this year’s survey shows that the total number of reportable food and beverage projects is 15.4% above the yearly average of 621; the number of new projects (272) is 34.9% above the ten-year average of 202 projects; and 445 plant expansions and renovations exceed the 10-year average of 419 by about 6%.

Reportable food and beverage-related projects are those valued at over $1 million. They have been made public by the processor, a government entity (including local or state economic development groups) or the A&E/C firms responsible for them. The survey (though the table lists “Completion Date” at the header) includes projects begun, announced by any entity or completed in 2020. If dates listed are beyond 2020, they reflect the projected completion date for a project either announced in 2020 or under way in 2020. Projects that appeared in last year’s table with a 2020 date were carried over—unless there was an obvious duplicate. Keep in mind, some projects can be announced, and then dropped at the last minute for any number of reasons, e.g., legal problems, lack of expected funding, site issues, changing needs, politics, etc. In the table, “D/W” refers to distribution/warehouse, and “DC” refers to distribution center; “Exp.” refers to expansion and “Ren.” is for renovations, and some projects include both.

Ratio of expansion/renovation projects to new construction 2011 - 2020

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Ratio of expansion/renovation projects to new construction 2010 - 2019

For the last four years, the share of the pie for new projects compared to expansions and renovations has been increasing. (See “2017 through 2020 projects (percent of total).”) Conversely, the ratio of expansions/renovations to new projects has been dropping and has reached 10-year low at 1.64. (See “Ratio of expansions/renovations to new projects 2011-2020.”)

distribution/warehouse and alcoholic beverage projects 2011 - 2020

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distribution/warehouse and alcoholic beverage projects 2010 - 2019

Distribution centers on sharp rise

Working at home and ordering online has changed the way we procure our food, and there have been clear winners, as Alex DeMartini, vice president, industrial business unit at Clayco points out. “Distribution and e-commerce are as busy as ever and these projects showed no sign of slowing during the pandemic. In fact, they accelerated as well.”

Our online food shopping habits have changed the scope of our industry. “Many of our clients are accelerating their adoption of e-commerce to adapt to the changing marketplace,” says Alex Garland, Burns & McDonnell project manager. “For instance, packaging format has evolved to support individual versus bulk shipments and distribution or automated storage and retrieval system inclusion with capacity increases and facility expansions.”

Previously processors were reluctant to have extra capacity in warehouses or production lines, however, what processors have learned about supply chain disruptions will change and drive extra capacity in the supply chain, says Keith Perkey, VP - Food & Beverage Division at The Haskell Company.

This extra capacity has really demonstrated itself in terms of warehouse and fulfillment/distribution center projects. The number of DC/warehouse projects for 2020 was 140, the highest number recorded since 2007. This represents a 40% increase from 2019 when 100 projects were listed. Of this year’s 140 projects, I counted 76 (more than half) to be new projects.

Pet food, CBD, alcohol and plant-based projects

Some A&E/C professionals also contend that COVID-19 was responsible for an increase of pet food manufacturing projects, which numbered 28, five more than the previous year of 23. But these numbers don’t tell the whole story. Mike Vetter, PE, senior project manager at SSOE, says pet owners will spend $99 billion on their pets this year. “We have seen a huge growth in our pet food business as people turned to and/or added pets to their families during the pandemic.”

Hemp/CBD projects, which are hard to number and track, counted for 24 projects in 2020, an increase of 11 projects recorded the previous year. While a little easier to track, alcoholic beverage projects have increased, but these projects range from the macro/micro distillery and brewery level up to the gigantic projects at 500,000 or more square feet. Our survey counted 50 projects, up 22% from the prior year’s number of 41 projects. (See “Distribution center/warehouse and alcoholic beverage projects 2011-2020” for more details.”)

Also included in the count is the category of plant-based meats or seafood and vegan products projects, which numbered 20. This category also includes vegetable proteins that wind up as an ingredient for plant based meats and cell-based lines producing meat or seafood sans animal.

Top 10 A&E/C Hot Trends

  1. Fast project deployment
  2. Overall cost/controlling costs
  3. Flexibility in plant design to accommodate flexible manufacturing
  4. Virtual reality/augmented reality/3-D facility design tools
  5. Scheduling equipment arrival to job site
  6. Ability to easily manage subcontractors
  7. Ability to change design when building
  8. Workplace safety
  9. Automation: process control, robotics, packaging, etc.
  10. Distribution center with AS/RS capability

* 3&4 were tied in weighted score

** 7&8 were tied in weighted score

*** 9&10 were tied in weighted score

Top 10 Hot Trends A&E/C firms say are of most concern to food processors

  1. FFlexibility in plant design to accommodate flexible manufacturing
  2. Increasing production to meet demand
  3. Fast project deployment
  4. Automation: process control, robotics, packaging, etc.
  5. Food safety: FSMA regulations/GFSI (design. layout, etc.)
  6. Workforce availability (line workers)
  7. Ability to change design when building
  8. Workplace safety
  9. Sustainability (energy, water, etc.)
  10. Distribution center with AS/RS capability

The big issues: Change for A&E/Cs and food processors

It’s been said—and attributed to Heraclitus, a Greek philosopher—that “change is the only constant in life.” Faithful+Gould has noticed its clients are focused on changing consumer demands and are redefining their production lines in response to those changes. Speed to market for food and beverage products is a high priority, says Gregory Franzen, LEED AP, director, agrifood.

With so many working at home because of COVID-19, the construction industry in general has seen big changes, too. For example, according to Brian King, founder and president of A M King, commercial (offices and retail projects) and institutional markets are significantly down and are expected to remain so over the next few months. Manufacturing—and especially food and beverage—are extremely active and will remain highly active for months to come.

Labor and materials

While food companies have invested in new projects, labor may get harder to find due to infrastructure markets opening up and creating new competitive jobs. “We further expect the Biden administration to significantly increase spending on infrastructure given its bipartisan support,” says King. “While it will take 18-24 months for the construction industry to realize the mobilization of these projects, once they begin, there will be a tightening on the construction labor markets, which will affect all construction sectors.”

New construction vs. renovations/expansions
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New construction vs. renovations/expansions

But the availability of skilled specialty labor is not a new problem, and COVID-19 didn’t help. Ronald Rens, P.E., president of Gleeson Contractors & Engineers, says, “It is challenging to hire skilled artisans due to people receiving unemployment during the pandemic and the lack of young people entering the trade.”

“Over the past few years, confidence derived from the strong economy has benefited our industry by driving a surge of capital investment in plant improvements and expansions,” says Heath Catt, Burns & McDonnell construction leader. “This spending increase heightened the demand for craft labor at a time when labor availability was at an all-time low, followed by additional challenges that the COVID-19 pandemic introduced to the workplace. Demand for construction materials industry-wide also has risen while the pandemic, in parallel, has negatively impacted the supply chain.”

Mark Redmond, Food Plant Engineering president, warns processors about project delays. While the construction industry has been brisk, it does take prior planning to line things up for any given project. “The current supply chain does not allow for immediacy.”

“Lead times for construction materials, particularly structural steel and steel-related products, have increased significantly over the past six months and are continually increasing,” says Nate Larose, CMC Design-Build director of project development. This can result in a much longer project cycle and significantly increase the risk of escalating costs if not managed properly.

Steel prices have a significant impact on food processors since it’s used in everything from the building shell, to the equipment, to the piping and instruments used throughout a facility, says Mary Frances Stotler, Dennis Group senior partner. “We’re seeing food manufacturers hedge against rising prices in a variety of ways. Some are pre-purchasing steel for planned projects, while others are building additional contingency into capital budgets. In some instances, selecting alternative materials or finishes is also a viable option.”

But high costs and excessive lead times go beyond steel. According to Chris Allen, R.A., Hixson manager, construction administration, costs and lead times for shell materials are very volatile right now. For example, lead times for steel joist and deck have increased to 4-5 months instead of 8-10 weeks. In addition, the cost of mill steel, softwood lumber and aluminum are also spiking as demand exceeds expectations.

Amidst these challenges, COVID-19 has caused a rethink of interior design. Increased workflow space and ventilation, employee welfare areas, multiple shift alignments, and new security practices have to be implemented, says Tim Nguyen, senior VP at ESI Group USA. “Food plants have always placed high scrutiny on food and product safety integrity. That same emphasis must now be applied to employee and worker safety interaction with each other and the food product itself. These new trends will affect food facility sizes, layouts, space programming, and security infrastructure.”

Flexibility is the operative word

“Food and beverage manufacturers need to be able to make changes rapidly—for example, as the coronavirus pandemic impacts emerged in the U.S. in March/April 2020, there was a demand to quickly change from food service to retail,” says David Ziskind, Black & Veatch director of engineering. For a manufacturer who was focused on food service, this was not an overnight change. “Now, manufacturers want to preserve this flexibility, so we are seeing a demand for flexibility in design to accommodate this, as well as flexibility to make design changes during construction to respond to emerging market trends and forces,” says Ziskind.

“At the start of a multi-year construction project, which probably has been the culmination of a multi-year design, it’s unrealistic to expect an owner to know exactly what type or manufacturer of equipment they will end up utilizing by the time the project is finished,” says Galbraith. Therefore, it’s important for the design and construction teams to remain flexible and willing to change plans, pivoting as necessary to accommodate an owner’s changing and evolving needs. “A new or renovated production facility is a major capital expenditure, and to put design or construction constraints on the end-user is not right, in my opinion,” adds Galbraith.

Build new or renovate/expand?

This decision is not always easy, and requires some careful consideration. Spec Engineering is finding that processors need to revamp facilities due to growing customer demand, says Jeff Jendryk, VP of business development. Building new facilities takes more time compared to retrofitting existing facilities. Retrofits are typically less expensive and require less time to execute. The important factor is, and will always be, speed to market and to get the product to the end consumer as soon as possible.

While building new can take time, certain types of snags or “surprises” can set back retrofits and expansions. Marconnet explains. “Many sites are landlocked, and the client isn’t ready to look at a new site. It may seem easy to move dry storage off site, remodel that area and move forward, thinking this is the lowest cost option—until you need to remove the floor to install drains, add structural support to roof-top HVACR units and so on.”

There are a number of new greenfield facilities in either the planning stages or under construction, says David Watson, engineering SME—food, baking & snacks at The Austin Company. Many of these projects were in development for years while the number of renovations and expansions of existing facilities has remained steady. There are a number of older manufacturing facilities that don’t allow for expansion, or are unable to meet strict sanitary design standards. This has led to many companies going greenfield. Mergers and acquisitions have also played a role in new plant construction. The influx of capital from a private equity firm can often be the catalyst to go greenfield versus renovating an existing facility.

“At Gray, we are seeing a combination of both greenfield and brownfield project development,” says Cundiff. “We recently partnered with Nestlé Purina PetCare as the fully integrated services provider on two simultaneous, large-scale projects. They decided on a new, greenfield for one facility in Ohio, and the other includes the retrofit of an existing brewery facility in North Carolina. Many factors contribute to the decision of greenfield or brownfield, but with this example, we see that objectives can be achieved with either option as long as the tradeoffs are understood very early in the planning process. Speed to market, design flexibility, and capital cost always seem to be at the forefront of discussions when considering brownfield vs. greenfield.”

Brownfield sites disappearing

When processors are looking for a new location, it’s possible they’ll have to build new for one reason—lack of available brownfield facilities to renovate, says Clayco’s DeMartini. “We are seeing a consolidation of operations into common, new manufacturing facilities. Some of this consolidation could be from increased capacity or demand, cost efficiencies, or because land/real estate values continue to increase.”

Dennis Group’s Stotler concurs that in several markets, brownfield sites are evaporating, and build-to-suit greenfield sites can make a better business case for suitability and future flexibility—as long as timing works out favorably.

In some areas the real-estate market has become so competitive that processors would have to jump at a brownfield property as soon as they’re aware of it, according to Larose. “However, the industrial real estate market has been so hot over the past 18 months that there is very little inventory available for brownfield projects.”

In other areas bargains can be found where processors can build new. “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 Andrew Nelson, regional manager at ESI Group USA. Attractive borrowing rates and the limited availability of viable existing facilities make a leap into new greenfield projects a profitable endeavor for the long term. “My recent experience has illustrated a trend of large corporations gobbling up smaller competition, thus taking potential user-friendly facilities that may have been solid candidates for brownfield renovation to no longer being available due to acquisition.”

“It is our experience that the consolidation trend continues in some sectors, which drives greenfield projects,” says Tom Aurich, Shambaugh & Son VP, Refrigeration Group. “The meat industry, ravaged by Coronavirus, is the outlier on this. The frozen food industry continues to expand market share, which requires additional frozen warehouse volumes. This represents a large portion of the work for the refrigeration industry nationwide.

Automation: A helper in the time of need

Whether it is on the plant floor or the warehouse/DC floor, COVID-19 has shown that automaton can help when help is hard to find. “The pandemic shifted the point of sale of many products, specifically food production, moving from commercial to consumer and creating production bottlenecks for many companies,” says Alfredo Valadez, project manager, manufacturing group, Burns and McDonnell. It also created demand for certain products. Overall, this altered the investment of capital from strictly an ROI exercise to maintaining business continuity. Thus, the combination of evolving demands, production bottlenecks and social distancing have significantly increased the need for automating manual tasks, especially those requiring close contact.

“There are many benefits to automation, but there are associated costs to consider,” says Jason Robertson, CRB VP, food and beverage. Often automation can increase throughput and reduce operator count, which allows for easier social distancing. Once appropriately tuned, automation can help produce more consistent product and maintain tighter tolerances. A large benefit to the staff is reducing repetitive and dangerous tasks that can lead to employee injury over time. Plus, as you’ll often hear, robots show up for work every day.

We just scratched the surface on automation and its role in the COVID-19 age. To read more on this topic, check out “Automation in the time of COVID-19: An A&E/C perspective” on the FE website.

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