Profiling the Food and Beverage Industry: Trends In Baking And Snack Foods

By Frank Spano, Managing Director and Kyle Johnson, Location Consultant, The Austin Company

The food and beverage industry in the United States has shown positive signs of expansion over the past ten years. Forecasts and growth models indicate this expansion will continue into the future, though possibly at a slower rate. The following factors may assist in explaining this upward trend:

1. Major plant upgrades at existing operations or replacement of older, outdated facilities. Continued plant upgrades and existing plant expansions may result in more automation and less job growth.
2. New product innovation based on changing consumer demands.
3. Continued market entry into the U.S. from smaller and medium-sized European and Asian operations, along with continued growth from established foreign-owned operations located in the U.S.

One notable portion of the food and beverage industry, the baking and snack food industry, shines as an important segment of the U.S. economy with nine percent growth from 2007 to 2017. The following discussion examines this industry over the past ten years and makes general conclusions on its projected growth.

Defining the Baking and Snack Food Industry
The baking and snack food industry has exhibited growth through new plant location, investment, re-investment, and employment. This industry is comprised of multiple subsectors, and in 2017, employed nearly 275,000 workers across 6,300 companies.

These numbers reflect an increase over the previous ten-year period (2007), and additional growth is projected during the foreseeable future. This growth may be due to a significant, increasing demand for more unique and healthy foods in the U.S. Health claims having a high impact on the industry include gluten free, non-GMO, organic, natural (free of artificial colors or flavors), and no or reduced sugar and sugar alternatives. In addition to this variety of new health alternatives, industry growth may be attributed to other new products, including specialty and foreign-inspired foods that have entered the U.S. market.

To better define what is meant by the baking and snack food industry, specific industry subsectors include:

1. Commercial Bakeries (NAICS – 311812)
2. Frozen Cakes, Pies, and Other Pastries Manufacturing (NAICS – 311813)
3. Cookie and Cracker Manufacturing (NAICS – 311821)
4. Dry Pasta, Dough, and Flour Mixes Manufacturing from Purchased Flour (NAICS – 311824)
5. Tortilla Manufacturing (NAICS – 311830)
6. Other Snack Food Manufacturing (NAICS – 311919) – This category includes, cheese curls and puffs, corn chips, popped popcorn, pork rinds, potato chips and sticks, pretzels, and tortilla chips

Benchmarking and Projecting Baking and Snack Food Industry Growth by Geography
Traditionally, population size and density are key indicators that influence the plant location for many products in baking and snack foods. Access to markets is typically the most important consideration for many food products within this industry, where perishability may be a factor. This consideration is especially important to commercial bakers. Other products, including certain snack foods, have lower profit margins and speed to major markets is important for reaching the final customer or distribution center. Lastly, traditions also play an important role, since many baking and snack food manufacturers were founded in major cities and have grown their operations close to their home base.

Ranking the Baking and Snack Food Industry by Metropolitan Statistical Area
With the assistance of EMSI Developer, Austin Consulting collected and analyzed data on the six U.S. industry subsectors that make up baking and snack foods. Austin then compiled the following data to illustrate product concentrations and project growth within the baking and snack food industry. The comparison data used showed changes from 2007 to 2017, with forecasts for 2027, where available and appropriate. The primary data used for our comparisons is illustrated below:

1. Top 25 Metropolitan Statistical Area (MSA’s) by population based on 2007, 2017 estimates and 2027 projections.
2. Top 25 MSA’s within the baking and snack food industry based on the:

•  Number of business locations with a payroll (2007 to 2017),
•  Total employment (2007 to 2017, projected to 2027),
•  Average wages, salaries and proprietor earnings (2007 to 2017), and
•  Location quotients (2017 measure of employment concentration).

The purpose of the analysis was to identify concentrations of baking and snack food plant locations and employment to determine if there is a direct correlation between population size and number of establishments and employment.

Based on this information, the following top 25 MSAs by population did not rank among the top 25 in baking and snack food production based on employment:

• Miami-Fort Lauderdale-West Palm Beach, FL (7)
• Detroit-Warren-Dearborn, MI (14)
• Tampa-St. Petersburg-Clearwater, FL (18)
• St. Louis, MO-IL (21)
• Orlando-Kissimmee-Sanford, FL (23)

The number in the parentheses above shows MSA ranking by total population for 2017. It is interesting to note that three out of five locations are located within the state of Florida.

On the other hand, the following five locations are included among the top 25 MSAs by employment in baking and snack foods, but are not among the top 25 MSAs by population. Information is based on 2017 data.

Except for Indianapolis, all locations in the chart above are under two million in population. Grand Rapids is slightly over one million and Chattanooga, Fayetteville and York have populations around 500,000. Some general conclusions for the large concentration of baking and snack food industry attributable to these locations include:

• Proximity to raw material sources, including flour milling and processing and fresh fruits, such as Chattanooga and Grand Rapids. Both Chattanooga and Grand Rapids are well positioned in the snack cake product industry.
• Central location, as in Indianapolis, with good transportation access for shipping.
• Locations close to, but not directly in the densely populated Boston to Washington, D.C. corridor, as in the York-Hanover area of southeastern Pennsylvania.
• Location of a major retail headquarter operation, such as Walmart, has benefitted the Fayetteville region as an important location for various snack food operations.
• Tradition also plays an important role in these locations, especially in the York-Hanover area as a traditional location in the potato chip, pretzel and related salty snack product sector.

Total Establishments in the Baking and Snack Food Industry
In addition to population, Austin reviewed EMSI information related to the number of baking and snack food plants (defined as having a payroll function). In 2007, there were approximately 4,800 business locations in the U.S. This number increased to nearly 6,300 by 2017. These numbers represent a 30 percent increase over a ten-year period.

Extracting the same information for the top 25 MSA locations in the baking and snack food industry, the 2007 and 2017 numbers are 2,069 and 2,771 respectively. In other words, 43 to 44 percent of all baking and snack food producer locations on record are located within the top 25 baking and snack food production locations.

Some interesting conclusions from this information include:

• Areas exhibiting major population increases, such as Dallas, Phoenix, Portland, Houston, San Antonio, Charlotte and Riverside-San Bernardino, exhibited baking and snack food production plant increases of at least 50 percent between 2007 and 2017.
• Centrally-located metropolitan areas, such as Chicago and Indianapolis, while not growing as rapidly in population, showed sizable (over 50 percent) increases in the number of baking and snack food plants between 2007 and 2017.
• Only one location, Chattanooga showed a decrease in the actual number of baking and snack food operations over the ten-year period. A possible reason for this decrease may be attributable to industry mergers or consolidations that directly affected this location.

Baking and Snack Food Industry Employment
In 2007, there were approximately 250,000 workers employed in the baking and snack food industry. This number increased to over 272,000 workers in 2017, representing an approximate nine percent increase over the ten-year period.

For employment information, EMSI calculated projections through 2027. These projections estimate the number of workers will increase to over 276,000 by 2027, an approximate two percent increase over 2017 employment.

Taking this information for the top 25 MSAs in baking and snack foods, the 2007 and 2017 estimated numbers are 114,900 and 127,500 respectively and show an 11 percent increase during the ten-year period – two percent higher than the entire U.S. increase.

Projections for 2027 for the top baking and snack food MSAs are expected to remain flat versus the two percent increase for all the U.S. during the same period.

General conclusions based on employment changes for baking and snack food locations include the following:

• The top 25 MSAs in baking and snack food are responsible for 46 percent of all the industry’s employment. This number is constant over the 20-year period.
• Major gains in employment from 2007 to 2017 of over 25 percent occurred in Grand Rapids, Phoenix, Fayetteville, Baltimore, Denver, San Antonio and Portland. Based on the information provided, Grand Rapids almost doubled its employment in the baking and snack food industry during this time.
• Projected gains of over ten-percent in employment levels from 2017 to 2027 are projected to occur in Phoenix, Fayetteville, Indianapolis, Northern Virginia, Grand Rapids and Denver. As discussed earlier, projected growth during this period is expected to be much slower than the previous ten years (2007 to 2017).
• From 2007 to 2017, MSAs such as Philadelphia and Los Angeles reportedly lost about ten percent of their baking and snack food employment. Chattanooga follows closely behind with a nine percent job loss.
• Employment losses from 2017 to 2027 are projected to occur at higher rates in York-Hanover, Los Angeles, Boston and Seattle.
• Potential reasons for the slower growth rate and job losses may be attributable to more automation due to perceived labor shortages in the U.S. Additionally, labor shortage is one factor leading companies to automate when they cannot find or retain workers.

Wages, Salaries and Proprietor Earnings in the Baking and Snack Food Industry
For the U.S., the average wages, salaries and proprietor earnings for the baking and snack food industry was estimated at approximately $37,400 (2007) and grew to $46,300 in 2017, representing a 24 percent increase. Wages, salaries and proprietor earnings for the top 25 MSAs were approximately six percent higher than the U.S. averages for both 2007 and 2017. Other findings include:

• MSAs with the highest recorded wage, salaries and proprietor earnings include Charlotte, Chattanooga, Dallas, Chicago, Boston, San Francisco, New York and Seattle.
• MSAs below the average wages, salaries and proprietor earnings for the U.S. include San Diego, Northern Virginia, Phoenix, Fayetteville and Houston. Even the greater New York-Newark area’s annual wages reported at $42,100 was lower than the U.S. and other average MSA numbers.

Baking and Snack Food Industry Location Quotients
The discussion concludes by reviewing another measure of employment. Location quotients measure the concentration of employment of a given location to determine if the location either employs a higher or lower proportion of workers than the U.S. in an industry.

For this analysis, Austin compared the top 25 MSAs (by 2017 employment) to determine employment concentrations of the baking and snack food industry. The location quotient for the U.S. is 1.00, with locations higher than 1.00 containing a larger concentration of employment in the industry and locations under 1.00 containing a smaller concentration of employment in the industry. Findings include:

• The highest location quotients were found in these four MSAs:

1.  York-Hanover, +10.98
2.  Fayetteville, +6.64
3.  Chattanooga, +6.04
4.  Grand Rapids, +2.83

• The lowest location quotients were in:

1.  Northern Virginia-Washington, DC, -0.41
2.  Houston, -0.71
3.  Seattle, -0.71
4.  Dallas, -0.89
5.  New York, -0.92

The MSAs with the highest location quotients rank as smaller to mid-sized MSAs, as shown earlier in this analysis and further confirmed here. These locations have also been more dependent in the baking and snack food industry due to raw materials and historical reasons stated earlier. These disproportionate employment concentrations may also indicate a specialization force in effect and may explain why these locations continue to exhibit strength in the industry. Lastly, these findings could indicate that there are regional advantages and longevity in baking and snack food plant location concentrations within these areas. As for the MSAs with the lowest location quotients, these results should be expected, since they are major metropolitan areas and are well diversified with respect to their economies.

Conclusion
Since the baking and snack food industry has shown significant growth and strength in multiple data measurements, it will be important to monitor any trends in the future. As operations within this industry continue to expand and adapt to consumer preferences, continual changes can be expected as companies compete for market share and shelf space. Differentiation from competitors through quality and uniqueness may be one of the major factors driving changes in the food and beverage industry overall, and the baking and snack food industry is no different.

Data Source: Data used in this article were obtained from: EMSI 2017.3; QCEW, non-QCEW, Self-Employed.

Bios:
Frank Spano, Managing Director
As Managing Director of Austin Consulting, Frank develops and leads new strategies to increase The Austin Company’s leadership in aerospace, food and beverage and other manufacturing sectors. Frank also serves as a senior project manager, directs site location studies, and conducts detailed field investigation analyses for clients.
Frank’s areas of expertise include the aerospace and aviation, automotive, food and beverage, general manufacturing and consumer products industries, in addition to pharmaceuticals, publishing and alternative energy. Frank.Spano@theaustin.com

Kyle Johnson, Location Consultant
Kyle brings over eight years of valuable experience in location, community, economic development and real estate consulting to the Austin Consulting team. Kyle maintains a strong background in research and developing strategies for complex economic issues, including trade, supply chains, industry competitiveness and business intelligence. Kyle has performed work in the general manufacturing, consumer products, agriculture, food and beverage processing, business services, healthcare, and public safety industries.