But that doesn’t mean you should jump at the first site that comes along.
“I have seen a few cases where economic development agencies or property representatives advertise properties they say are particularly well suited for food processing operations,” says Andy Mace, supply chain solutions managing director of Cushman & Wakefield. “While this may help draw the attention of a food industry company seeking a location, it does not remove the need for full due diligence of the site’s suitability for a given project’s needs.”
In the present weakened economy, communities are wooing manufacturers. The food and beverage industry has generally been regarded as a good match for several reasons, but especially because it puts people to work. In fact, according to Mace, the food industry has been one of the most active segments in terms of adding new production capacity.
Brad Lindquist, specialist leader for Deloitte Consulting, notes that his company’s food and beverage processor clients tend to have solid funding in place. These processors usually have free capital or access to credit and are looking to expand to meet market growth whether in metro, state and/or countrywide markets.
Dean Foods located its Meadow Gold dairy, milk and ice cream greenfield facility in North Las Vegas. Big-D Construction guided the processor through the site selection and due diligence process, including the short listing of feasible properties to meet the dairy’s needs up to the purchase of the property. While this process was ongoing, the A&E firm’s team was well on its way in the schematic and conceptual design of the facility. As a result, when the purchase was complete, construction began immediately.
But growth and expansion are not limited to just large processors. The decision to expand is more a function of a processor’s business strategy (e.g., growth plans, competitive advantages a new plant can provide, etc.) and the condition of an existing facility, says Chris Harmon, Hixson Architecture & Engineering senior vice president and project manager.
Monogram Meat Snacks, located in Martinsville-Henry County, VA, makes beef jerky and prepackaged cheeses that are sold in convenience stores across the nation. Starting out with relatively limited distribution, the processor soon had national coverage and needed to pick a site where it could expand to meet its growing customer base. The processor opened a plant in Henry County in 2004 with 105 workers and has expanded a couple times since then, according to Spencer Johnson, director of research, Martinsville-Henry County EDC. The company now employs more than 400 people and is one of the area’s largest employers.
In this economy, there is a focus on expansions and remodels rather than greenfield sites. “The banking industry still has the handcuffs on the business world,” says Forrest McNabb, Big-D Construction Corp. senior vice president. He explains that while large processors often have funds for capital investments, the smaller ones are limited by their ability to free up capital or obtain loans. Processors are, however, getting more creative in funds allocation and looking at multiple options for financing.
Beyond location, location, location
What makes a location great? Some might argue that it’s the warm climes of the South, the manufacturing know-how of the Midwest or the high-tech industry of California. But beyond these stereotypical regional features, several factors add up to equal a nearly perfect site (assuming no site is 100 percent perfect). These include the cost of energy (electric, natural gas, etc.), water, access to transportation, labor availability, incentives and sustainability issues.
Some other important issues, according to SSOE Project Manager Roger DeGood, include:
• The neighborhood (distance to residential areas, shopping, hospitals, low crime rate)
• Quality of site (soil bearing, groundwater table, no expanding clay, no rock, height restrictions [usually related to air traffic], number of site owners, no nature reserve nearby, nearness to seismic zone, wind loads, tornado/hurricane area, floodplain, etc.)
• Business climate (right-to-work state, high degree of industrial engagement, political stability)
• Education environment (close proximity to high schools, universities; region willing to support further qualification of workforce)
• Risks/permits/schedule impact (site already owned by state or city, connection time of utilities to the site, grading/leveling of site, 404 wetland permit required, blue lien stream permit required, PSD [Prevention of Significant Deterioration] air permit)
• Costs (incentives, tax abatements, site development, funding)
• Existing amenities (for example, a building that can be converted to meet a processor’s needs).
Sometimes a processor wants to expand in the same area to minimize disruption to production as well as to its employees. “After all,” says Bob West, A M King Construction business development manager, “one of the biggest and most expensive disruptions involves replacing the workforce if a facility needs to be geographically relocated.” Keeping a new facility within 10-15 miles from the original site causes the least disruption, but may pose the bigger challenge when searching for a location.
While open ground may not be available for a new facility, a brownfield site in the community may offer a solution. Mark Redmond, president of Hendon & Redmond, tells the story of a bakery client that was experiencing a growing customer base. The existing operation could not be expanded, so a search for a greenfield site was initiated. Desiring to relocate near its existing facility limited the options available for open land in this urban area. Not being able to find a suitable site caused the processor to change direction and consider using existing building structures.
A building of the correct size was found in a desirable location, but the building was too low in height. Hendon & Redmond’s engineers and designers devised a way to raise the entire 120,000-sq.-ft. roof by 12 feet to accommodate the operation. The creative use of an existing building helped the owner remain in the area of choice and saved the cost of a new building project by reusing an existing structure.
Mace suggests some existing buildings may be better suited to conversion than others, though available modern buildings ready for occupancy tend to be warehouses or distribution centers (DCs). Of course, reusing them for the same purpose will pose fewer problems than converting them for food manufacturing. Consideration for turning a DC into a processing plant should include floor and roof load-bearing capabilities, water supply and industrial wastewater treatment capacities, electric capacity and redundancy, and temperature and humidity control. Also important is the adaptability of the internal floor plan for manufacturing equipment and material handling.
Energy costs vary widely
The cost of electricity seems to be all over the map, and can vary by as much as 100 percent depending on location, according to Mace. As a result, food processors that consume significant amounts of electricity should carefully evaluate projected electricity costs for their specific operating characteristics during the site selection process. Lindquist suggests the cost difference from location to location can even span a 4:1 ratio. And these differences can vary greatly within a small geographical area. The two unknowns affecting rates are:
• Difficulty in determining how long these differentials will last.
• Inconsistent fuel sources and their costs for generating plants.
Lower electric rates have been a drawing card for some processors that opted to settle in Henry County, VA, which has competitive rates compared to those in the Northeast and some urban areas, says Johnson. These rates are expected to remain competitive into the foreseeable future.
For some industries like poultry processing, the cost of energy can be a major factor in site selection. But for others, while the cost of energy isn’t necessarily the number one deal-breaker when it comes to choosing a site, it can certainly be an issue that might swing the outcome when it’s time to make final decisions, says Redmond.
Bob West points out that utilities are getting involved in drawing industry to their communities by offering some attractive incentives—so much so that it’s common for the EDC team to bring the utility along and discuss future energy needs. West explains that during one recent project, the utility kicked in some very nice incentives to come up with a design that could save up to 15 percent energy usage over an original design. Other big savings come from load-shedding agreements, especially where energy is critical in summer months. Some utilities have even paid the bill to install generators on a processor’s site so the utility can take the processor off the grid in an energy crunch.
Water, water everywhere
Water issues are multifaceted. “Utility [water] access is a major concern,” says Harmon. “Wastewater discharge, storm water retention, water rights, what the plant will process and how it will operate can all be problematic depending on the locale in which a processor wants to build.”
While some areas such as Texas and parts of Atlanta have suffered droughts and water shortages, other areas have fared better. For example, Henry County, VA has an excess water capacity of 9.2 million gallons per day (MGD) and an excess wastewater capacity of 9.5 MGD, according to Johnson.
Since food processors typically require significant water and wastewater capacities, municipality capacity numbers are very important and should be part of due diligence, according to Lindquist.
“As part of the due diligence process,” says McNabb, “prior to purchasing property, verify water availability to meet needs and include written agreements with the seller and/or municipality.” The same rules apply to wastewater treatment. Also, find out what capacity the public water treatment has and whether it will be necessary to preprocess wastewater on site.
While water as a utility is indispensable, too much of it can be devastating at worst and annoying at best. West offers simple advice: Do floodplain studies and check on the infrastructure to support the floodplain. During site selection, always locate the floodplain and never build inside it. Pick a high and dry area away from rivers, creeks and streams and their immediate floodplain. While not necessarily a flooding issue, selecting a site near or on wetlands will provide lots of expensive, recurring issues and worries—especially if the wetlands is next to or registered as a nature preserve.
With the more chaotic weather that’s been occurring, heavy snows, torrential rains and hurricanes have caused flooding that seems to occur more frequently than it should. “The floodplain of a site is one of the first things that should be addressed,” says DeGood. Site selection experts should not pick a site that has been recently affected by a 100-year floodplain event, he adds.
According to the US Geological Survey, the term 100-year flood is misleading because it leads people to believe that such an event happens only once every 100 years. Unfortunately, a big flood can happen any year. The term 100-year flood is a statistical designation, and there is a 1-in-100 chance that a flood this size will happen during any year. A better definition might be a 1-in-100 chance flood. The actual number of years floods of any given size will occur varies, and big floods are affected by long-term and short-term climate changes.
In the case of flooding, maps indicating potential flooding risk and frequency are typically available for a given property as an initial due diligence step: Sites well outside the 100-year floodplain are preferred, and in some cases, the location of the 500-year floodplain may be known, says Mace. However, for large investments and in areas of perceived elevated risk, it is worthwhile to retain experts to evaluate site-specific risks and mitigation costs. This is particularly true if the floodplain maps are dated or watershed conditions have changed significantly over time.
Transportation: Take the train?
Many processors have been reluctant to look at new possibilities for transportation of ingredients and shipping of products because they stay with the familiar options, says Mace. But the volatility and overall rise of transportation costs has encouraged processors to consider new shipment modes and intermodal facilities. Choosing sites with access to rail and water transport provides opportunities to lower unit transport costs and increase flexibility/leverage with respect to road-based transport options.
“We have seen rail play a larger role from an inbound raw material perspective,” says Lindquist. Bulk inputs to the system can typically be moved more efficiently for many processors. The outbound rail and intermodal needs are highly dependent on the regional scale of the market, he adds.
Five to 10 years ago, processors would not have entertained the idea of shipping perishable products by rail car since temperature controls on the rail car were not sufficient to preserve the food for longer than 48 hours, says West. Today, however, technology has made it possible to monitor and control the temperature of refrigerated/frozen products on the rails and assure food will stay at the intended temperature during intermodal transfers. And with access to ports, processors find intermodal transport economical and practical.
DeGood suggests another reason for choosing a site with rail access relates to the construction of the plant. Heavy and large processing equipment and building materials can be brought in by rail where they may not fit on a truck or on the highway system.
Incentives: Scrutinize carefully
According to Harmon, the current economic situation has had a profound impact on local communities’ willingness to embrace industry. Communities that in the past were not particularly open to development are now quite interested and are offering inducements that make their sites very attractive to a processor. While incentives are always a factor in the site selection decision, processors need to make sure the site is suitable before considering incentives. “A less desirable site may increase production and operating costs or create other limitations,” Harmon explains. “These issues need to be considered when evaluating the benefits of the incentives offered.”
Besides incentives, EDCs provide much more in the way of helpful services. When San Jose, CA-based Frank-Lin Distillers had to relocate due to an imminent domain proceeding, the City of San Jose tried unsuccessfully to find another location within the city. The processor made inquiries within California, with a successful contact to the City of Fairfield. Curt Johnston, Fairfield economic development division manager, provided background on the suburban San Francisco area with access to I-80 and a railroad system, which was a sought-after amenity.
Johnston’s city staff served as a liaison to the brokers and property owner, facilitating the land transaction. It also worked with the PUC for a rail siding and railroad crossing and made improvements to an access road. In addition, Fairfield allowed a four-inch connection to the water system at the cost of a two-inch connection, saving Frank-Lin $200,000. Also, the City of Fairfield worked through the California Enterprise Development Authority to issue a $22 million tax-exempt Recovery Zone Facility Bond whose proceeds were used to finance construction of the $34 million, 288,000-sq.-ft. building. The project was finished late last year, and several employees moved from San Jose (75 miles away) and bought homes in the area at $200,000 less than the cost of comparable homes in San Jose.
The right incentives combined with a brownfield site proved worthwhile for Sara Lee’s Kansas City plant, according to Hixson’s Harmon. Hixson helped the processor by selecting the right brownfield location, evaluating the sustainability of the building for its intended use. The A&E firm then provided a comparison of costs and schedule as opposed to other options, and procured incentives from the city. In the end, the Kansas City plant received a 75 percent property tax abatement from the improvements.
Labor concerns
Harmon points out that workforce concerns are always a major factor in site selection. Processors need reliable workers who are able to function in a team environment and are willing to do repetitive jobs. Skilled workers must be able to operate and maintain highly complex equipment such as robots and packaging systems and understand process control. Therefore, processors should consider sites near colleges, technical schools and technical training centers. After all, maintenance people need familiarity with technology—the days of the “wrench turners” are over.
Labor is typically the largest recurring, geographically variable cost for processing facilities. Processors should know who is competing with them for employees when they consider sites, says DeGood. This competition is good for employees, but can push up the cost of labor.
Processors that automate more are less likely to be concerned about filling some jobs, says Redmond. However, locating near urban areas can help in finding labor across the board. In addition, areas where jobs have been lost in skilled manufacturing (e.g., autos, textiles, etc.) can be an excellent opportunity for both the processor and the community, says Johnson.
For more information:
Andy Mace, Cushman & Wakefield, 717-505-8046,
andy.mace@cushwake.com
Brad Lindquist, Deloitte Consulting, 312-486-3000,
blindquist@deloitte.com
Spencer Johnson, Martinsville-Henry County, VA EDC, 276-403-5940,
sjohnson@yesmartinsville.com
Forrest McNabb, Big-D Construction
801-415-6000, fmcnabb@big-d.com
Mark Redmond, Hendon & Redmond, 513-641-0320,
markredmond@hendonredmond.com
Bob West, A M King Construction, 704-365-3160,
bwest@amkingconstruction.com
Roger DeGood, SSOE, 419-255-3830,
roger.degood@ssoe.com
Chris Harmon, Hixson Architecture & Engineering, 513-241-1230,
charmon@hixson-inc.com
Charles Ching, City of Fairfield, CA, 707-428-7039,
cching@fairfield.ca.gov
