Contributed By Elise Couston, SIOR, Senior Managing Director at Newmark Grubb Knight Frank
This Industrial Insider is a continuation of my conversations after attending a 2015 Market Outlook sponsored by Industrial Info Resources. I interviewed two of the panelists.
Last month, Dave Pickering, Global VP of Research-Industrial Manufacturing at IIR, and this column is conversation with Randy Godet, VP of Research for IIR. Randy’s specialty is in the food and beverage industries. He had some insightful views into not only what some of the newest trends are, but also as to what companies are doing to attract more consumers.
Q: What are some of the newest trends in the Food and Beverage industry today?
A: We expect to see capital expenditures outpace the 2013 to ‘14 spending across all of the food and beverage industries.
With more companies providing nutritional ingredients geared toward health-conscious consumers, this opens an opportunity for new developments and enhancements of their products and labeling to address consumers’ interests.
A shifting focus for families and Millennials as to a focus on the health aspects of food along with been products developed for the aging population has resulted in more products being manufactured which are geared to health-conscious consumers.
Automation is also an influential trend in the food and beverage industry. This results in reduced costs to the manufacturer, and provides a higher-level of food safety to the consumer.
Companies are increasing automation and utilizing fewer production employees, as the possibility of contamination is reduced based by less human interaction with the products.
Overall, automation improves production efficiency, reduces costs, and reduces the risk of health and safety concerns.
Q: What are the most important elements that food and beverage manufacturers look for when making locational decisions?
A: We are seeing that the largest factor is currently tax incentives, generally at the state and local levels, depending on the size of the facility. The incentives are typically based on the size of the investment and number of employees that are generated at the new location.
Multi-state searches are now very common, and the biggest weight is placed on the size of the available incentives. Labor supply is also a very important component in where to locate a new facility.
The food and beverage industry very wide and segmented, so it is difficult to make some large generalizations. However, most of the segments are currently growing at a good rate, and growth is expected to continue at a fairly rapid pace.
In summary, the top three locational factors are available incentives, labor supply, and proximity to the markets (i.e. consumers, institutional, and restaurants).
Q: Why is the food and beverage industry globally experiencing such large growth?
A: From a macro view, the primary reasons are:
- The pace of global population growth
- Economic stability in the U.S.
- An increase in income in the emerging economies
While China is not as mature a market as the U.S. because their economy has cooled, there are other locations that are experiencing large growth, such as India and the Middle East. Markets are now viewed from a global perspective, not just as the U.S. markets.
The manufacturing plants can be in the middle of nowhere, but the distribution channels are going to be located close to the major connections that give access to the global markets (i.e. port access).
From a micro viewpoint, the U.S. manufacturing base is becoming more of a supplier to countries whose shopping carts are increasing (i.e. Saudi Arabia). The Saudis have cut back on growing their own agricultural products, such as wheat and corn. This is mainly due to water constraints because of their arid land. It is much more cost prohibitive for them to grow their grains than to have it shipped.
Also, interest rates are relatively low, and M&A activity is very healthy. For companies that are merging and acquiring other companies, a consolidation of production facilities boosts the bottom line.
A lot of off-shore countries have seen an increase in shopping and buying up U.S. assets that can be imported. This is one of the primary reasons that the U.S. economy is currently in growth-mode.
Additionally, the worldwide appetite for processed foods has grown. Historically, much of what the countries outside of the U.S. ate what grew. That is now changing. For example, a box of macaroni and cheese is now available in India, which is a new development.
The growth inside the U.S. will always be larger than outside the U.S., however. The U.S. does not import a lot of food, except for fruits and vegetables that are primarily imported from South America.
More and more companies that have established a base in the U.S. are also growing their footprint outside of the U.S. to accommodate the population growth globally.
Q: Are there any interesting trends you could share with us about the food and beverage industry in the U.S?
A: One of the topics generating a lot of attention right now is the bird flu issue. Although it is less of a concern that it will affect humans, it is nonetheless spreading at the farm-production level.
It is estimated that more than 22 million birds have now been affected, and it is spreading rapidly. Ultimately, that means is that there will be a steep price increase for eggs, which are used in a lot of different products. We are already beginning to see a shortage in supply. One of the largest food producers is already reporting that they anticipate profits to be affected by the increase in egg prices.
This not only affects chickens, but also turkeys. One concern is that birds are migratory and move around, and this could impact the price of turkeys Thanksgiving.
We also believe that bricks–and-mortar construction will be strong in this coming year. The drivers for this trend are a mix between the available incentives, and the lack of available properties coupled with an expanding market and increased demand.
Also worth noting is the drought conditions in some parts of the country, which is a major issue in key agricultural locations. Beef has been particularly affected by the drought conditions because the cows cannot graze and feed. Consequently, prices have gone up.
There is definitely a connection between “drivers” and “trends”. Oil and gas prices are a large driver at both the consumer and manufacturing levels. Consumers have more money to spend right now, and that means people are eating out more, which has positively impacted the restaurant industry. This speaks to the institutional part of the manufacturing sector growth. There would need to be a pretty dramatic increase in oil and gas prices for this trend to change, which we are not anticipating.
