Food and Drink - Spring 2014 - 39

expanding smart

I

It should be no surprise that even during the recession, the
U.S. food and beverage industry continued to expand. A growing population, a shift by consumers to more ready-to-eat food,
and growing international demand for safe products meant that
many companies added manufacturing capacity over the past
five years. Siting such a facility, however, is often far more
complex than other types of facilities because of the food and
beverage industry's unique needs.

The economics of expansion also
brings its own set of challenges, which
leads to rigorous internal analysis of
logistics, expectations of future product
demand and the identification of experienced managers. Because food and
beverage facilities continue to expand,
they are actively sought by communities that are eager to offer economic
development incentives, but may not
have the right financial tools to align
with the industry's needs.
Not just any piece of land or existing
building is suitable for a food and beverage manufacturing operation. Because
the manufacturing process is productspecific, rarely will an existing building
meet the needs of a new occupant.
Further, most food and beverage manufacturing facilities have infrastructure
and location demands atypical of other
plants. For example, large volumes of
water are often needed, and waste disposal can create special challenges.
Although most people find food aromas pleasant, nearby neighbors who are
subject to them 24/7 may generate nuisance complaints, and three daily shift
changes and large truck volumes create
traffic issues.
As a result, manufacturers look for
sites where all of these issues have been
taken into consideration or can be
addressed at minimal cost. Locations
away from neighborhoods or even other
manufacturers because of concerns
about contamination are desirable.

Site Considerations
Even before making a site decision,
companies must carefully analyze their

needs to determine the size and scope
of a new facility. Gaps in the logistics
chain, such as increased transportation
costs to get the raw material to a production facility, often motivate the decision to proceed with a new facility.
After narrowing the geography of a
new site, a manufacturer must decide
whether the expense of a new facility
and the demands of developing it can
be effectively managed with a company's existing resources.
Will customer demand continue to be
so strong that a new facility is preferred
to expanding an existing plant? Is there
unused capacity on a manufacturing
line now that could be ramped up to
meet short term needs and push off a
decision to expand for several years,
when there could be more certainty?

Lowering Development Costs
Because the food and beverage industry continued to expand during the
recession, economic developers in
communities across the nation have
made attracting new facilities a
priority.
As previously noted, not every community will be a good host for these
plants. Even after addressing siting
issues, traditional economic development incentives are often ill-suited for
new or expanding food and beverage
facilities. Instead, companies need to
be clear in outlining their needs up front
to align proposed incentives with their
balance sheet.
First, if there are any infrastructure
gaps, such as water, wastewater, gas,
electricity or transportation, the commu-

nity and the company should work
together to close those gaps quickly and
at a minimal cost to the company.
After dealing with the utility infrastructure, the ongoing cost of providing
service should be considered. Rate
plans need to be put in place that lower
long-term operating costs.
Training prospective workers often
requires a strong partnership with the
local secondary education and community college system. Some communities
already have strong culinary or food
manufacturing programs in place, which
demonstrates a pre-existing commitment to the growth of the industry.
Funds need to be readily available to
train or retrain workers on equipment,
and the workforce itself needs to be
deep enough to accommodate potential turnover.
Finally, tax credits are often of little
value, because new facilities have a
financial structure that does not allow
them to tap those benefits. In the case
of an expansion, tax credits often
reward job creation and not capital
investment, even though new equipment is often just as important to the
continued viability of an existing
plant. Thus, grants and other cash
benefits that reduce the cost of developing and operating a facility are
preferable.
While companies used to have years
to plan for new facilities, that development time is now often reduced to
months. Having a knowledgeable internal and external team identified early
in the project concept phase is essential to effectively deal with each of
these three areas and ensure that your
next project is a success.

Christopher D. Lloyd is a
senior vice president at
McGuireWoods
Consulting in Richmond,
Va., where he focuses on
infrastructure and economic development issues for numerous manufacturing clients. He can be reached at
clloyd@mwcllc.com.
food & drink * spring 2014 * www.fooddrink-magazine.com

39


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