By Jay Garner, CEcD, President, Garner Economics LLC
Will the Food and Beverage Manufacturing Sector Ever Cool Off? In a word, no. At least not in the foreseeable future. Why is this? The Covid-19 pandemic reshuffled the deck on almost all of what we do, how we do it, shaping trends and consumer preferences. The global demand for food has never been higher. This of course affects costs. Inflation is real, (but you know that unless you haven’t been to either a grocery store or a restaurant since March of 2020). Food costs are up 5.4 percent in 2022 over 2021, which also saw a hefty jump in 2021. The labor force is shrinking with the “Great Resignation” putting even greater operational pressures on F&B companies. Building materials such as steel are in short supply, with a 34-week backlog for roof joists. This too is inflationary. What to do? Should communities still try to compete for F&B facilities? Yes! If you have the product and infrastructure.
Let’s look at the impact this sector has on the U.S. alone. Food manufacturing and beverage manufacturing make up two different NAICS codes (North American Industry Classification System). Food manufacturing has a 311 NAICS. Beverage manufacturing has a 3121 NAICS. Combined, these two sectors have 50,597 establishments in the U.S., employing 1,894,880 people. The top ten states for food and beverage manufacturing by establishments are:
The Food and Beverage (F&B) industry grew 17 percent over the past decade, nationally. Continued growth is expected with several sectors growing faster than others. Breweries, Wineries and Distilleries showed the strongest gains with Breweries increasing a whopping 259 percent over the past ten years. These three sectors will continue to be strong moving forward, followed by Seasoning & Dressing Manufacturing (35 percent), Snack Food Manufacturing (29 percent), and Animal Food Manufacturing (24 percent). Beverage Manufacturing extends past the alcoholic drinks with additive water and energy drinks leading growth.
What About Cold Storage Facilities?
Cold storage units are not technically part of the food and beverage family and have a different NAICS code (49312). But cold storage facilities are an integral and necessary part of the F&B supply chain. As of the second quarter of 2021, cold storage facilities employed 65,400 people with nearly 1,600 establishments in the U.S.
Wages for this industry are over $2.6B and annual revenue is in excess of $5.9B. Is there any wonder why economic developers, communities and electric utility providers don’t have these companies on their radar as a targeted industry sector? A “typical” new cold storage facility investment may have a capital outlay of over $60M and 50-75 jobs. Now dominated by about ten major players, the cold storage industry continues to show strong economic growth.
Site Selection Requirements: What does all of this mean for your community and economic development professionals working to attract F&B and cold storage facilities to a locality? New trends, processes and products typically mean new opportunities. Often a new product line could mean a new facility, based on an existing facility’s footprint. Also, F&B companies don’t want to be hampered by having few locations without geographic diversity. They want to hedge their bets. In May of 2020, two months into the pandemic, nearly forty percent of all meat processing facilities went offline because of labor shortages related to the pandemic. This affected the supply, which spiked protein costs and left many grocery shelves bare for an extended time.
So, What are the Key Factors Needed in Attracting F&B Companies?
- Water and wastewater treatment capacity. Simply put, no water, no project. Water is the most important ingredient in the site selection process for F&B companies. If it’s not used as an ingredient, it is always used for sanitation. Having an excess water capacity of 500,000 MGD is a start. The site/location can’t charge exorbitant rates for water and wastewater treatment. We have all seen terrific locations and sites be eliminated because the municipal costs associated with either water supply or wastewater treatment were expensive, compared to other locations the project was evaluating. Having a public utility that is cost-competitive and customer-friendly can be a real game changer.
- Low or competitive energy rates. F&B companies and cold storage facilities are big users of energy. Having competitive electric and gas rates is important.
- Access to four-lane roads. An interstate location will trump a non-interstate location. Four-lane access roads will always trump two-lane roads. Gas and diesel are big components of energy costs, and accessibility has a direct impact on operating costs.
- No product, No project.® Shovel-ready sites are needed for speed to market. An existing USDA/FDA grade building is a benefit, depending on the size, but hard to find. Eighty-five percent of all new F&B site searches start with a desire to find an existing facility. It’s rare that one is found, so those searches turn into a greenfield project.
- A workforce within a 30-45 minute drive time of those key occupations that F&B companies consider necessary is a benefit. Talent is always important. Talent is the new currency.®1
- Having a visible site, cleared of vegetation and preferably pad-ready is a plus. This gives the prospective company a better opportunity for visualization of what the site could look like with its facility constructed. Also, having a virtual spec building allows you to take the visualization and marketing of the site to the next level.
- Site certification/site readiness (whatever nomenclature you want to use), shows the prospective company that the site is shovel-ready and helps with speed to market. A certified site (which Garner Economics and our engineering partner, CDG, offers) takes the guesswork out of the site readiness. Evaluation of the site, including a Phase 1 environmental audit, geotechnical reports, boundary survey, a review of zoning laws and covenants, water and wastewater review and potential restrictions, air emission standards, and more, all make up the review of a site for an F&B client. Being on the front end with this information, packaged effectively as a certified site or site ready, is a necessity for both the company and the economic development organization or property owner of the site.
Workforce, Workforce and Workforce
Before the pandemic, the availability and quality of a community’s workforce were the most important factors businesses considered when making an investment decision. Now, depending on which survey or publication you want to reference, the ranking did fluctuate between one and two from 2010 to 2019. Occasionally, highway access would displace labor as the number one ranking. This occurred when we were usually in a recession and had higher unemployment rates. Not today. Not only do we have a quantity shortage, but we also continue to have a skilled labor shortage.
The labor force participation rate pre-pandemic (2019) was 63.3 percent. As of the most recent data, the labor force participation rate is 62.2 percent. This equates to approximately 1.8 million fewer people in the workforce.
The Great Resignation became a topic of conversation as four million Americans quit their jobs by September 2021. Many people think this labor shortage primarily affects office workers. Bloomberg noted that the manufacturing industry was second from the top (below leisure and hospitality) for the largest quit rate.2 What’s more, the quit rate was more significant in lower-paying nondurable goods – in particular in food manufacturing – compared to higher-paying durable goods.
With record workforce shortages and existing pressure of an aging workforce and talent gaps, future-of-work strategies are close to the top of the list for food and beverage manufacturers that want to excel in the face of disruption. As workers look for purpose in their roles, Food & Beverage manufacturers have the opportunity to recruit and retain a generation of workers that want high-value work in a cutting-edge, digitized environment to engage and connect with.
Working with your regional community colleges and technical schools and your high schools that offer curriculum in manufacturing skills development, a community can be on the front end of building the talent pipeline. This has a positive impact on an area’s efforts to attract all facets of manufacturing, including food and beverage manufacturers. Oftentimes, the wages offered by these manufacturing companies for production position jobs are significantly more than a four-year college graduate with a liberal arts degree, perhaps serving as a barista at Starbucks.
F&B Trends for 2022
Automated farming: Labor shortages are significant in the farming and food processing sectors. During the pandemic, more than forty percent of the U.S. meat processing went offline as a result of the virus with a number of processing facilities closing because of COVID hot spots. This caused a significant supply shortage and high prices of various types of meat and poultry products. Immigration issues related to migrant workers are causing farmers to face crop harvesting challenges. There are simply not enough people that will do the difficult work related to farming. So, here comes automation. More farmers are using technology and the Internet of Things (IoT) to gather data related to their operations. GPS systems, sensors, drones and robots are tools now actively engaged in farm management. Self-driving tractors, automated crop harvesting and crop fertilization are becoming the norm in farm operations. In a labor market where adaptation and innovation mean survival, farmers are showing the way.
Health and wellness foods: Though this trend began in the first part of the 2000s, it continues to transform and evolve—ssignificantly. Though all age demographics are causing this, including an aging baby boomer population that is health-conscious, the millennial and Generation Z age groups are driving the push. Companies are expanding their portfolios to appeal to younger consumers who want healthier snacks. Probiotics are attractive to food companies and are making their way into a variety of foods, not just yogurt. Again, not new since the trend has been around for at least ten years, but clearly adapting and evolving. According to the Nutritional Business Journal, sales of functional snacks will reach $8.5 billion in 2020, an increase of 11 percent over the previous year. If you are targeting specific types of F&B for your community, this is a must for your portfolio.
Liquor is back as a result of the pandemic: The Covid-19 pandemic has seen a 16 percent increase in adults stating they increased their alcohol consumption, according to an article in Time Magazine. This is a complete shift in consumer activity and combined with an increased desire for ‘better-for-you products’, hard seltzers have skyrocketed in popularity. Nearly forty brands have launched since 2019 and hard seltzer sales from June 2019 to June 2020 grew by 127 percent. With a better-for-you mindset and an increasing array of product selections, consumer support for this segment will continue to grow.
Plant-based meat alternatives: Alternative meat is a hot trend. The days of the veggie burger are gone. This new process and science combine aminos, minerals, lipids and water and give it a meat texture and taste. Hamburger chains have latched on to it. Fish is next. New product lines could equal new locations.
Milk Alternatives: Alternative milk products continue to gain traction as they improve their texture and nutritional properties. These include oat, almond, soy, hemp, chickpea and quinoa. Yogurt producers are also doing entire lines of milk alternative products.
Cannabis: The Farm Bill of 2018 legalizes the cultivation of hemp, a plant in the cannabis family. Derivatives of hemp such as CBD (cannabinoid), is known as an aid for relaxation, anxiety and pain. It is no longer illegal, but the FDA still prohibits food and beverage products with CBD ingredients from crossing state lines. As soon as that prohibition ends, and it will eventually, there will be a rush for companies to incorporate ingredients of CBD into food products. The medical use of cannabis is legalized (with a doctor’s recommendation) in 33 states, four out of five permanently inhabited U.S. territories, and the District of Columbia. Fourteen other states have laws that limit THC content, for the purpose of allowing access to products that are rich in CBD, a non-psychoactive component of cannabis.
The recreational use of cannabis is legalized in 18 states (as of February 2022), the District of Columbia, the Northern Mariana Islands, and Guam. Another 13 states and the U.S. Virgin Islands have decriminalized its use. Industry watchers and government lobbyists believe it will receive full federal legalization this decade. That also depends on elections. I’d bet on it since a number of F&B companies have invested in cannabis companies knowing that it will eventually be used for both food and beverage additives.3
These are the essential ingredients that will allow communities to compete effectively in this constantly growing sector. Contact us to see how we may be of help to your company or community.
About the Author
About Jay Garner: Jay A. Garner, CEcD is the president and founder of Garner Economics LLC, an economic development and site location consulting firm headquartered in Atlanta, Georgia. Jay often lectures and provides counsel on creating and implementing proactive global business development strategies and tactics. His firm is also a leader in providing assistance to corporate clients in their site selection process, such as Anchor Glass, Academy Sports, Hatfield Quality Meats, Hill’s Pet Foods, Marel, Future Pipe Industries, EGR Automotive, L.S. Starrett and others. He is a founding member and past chair of the board for the Site Selectors Guild Inc., a prestigious group of the top site location consultants, globally. He is a co-author of the book, Economic Development Is [STILL] Not For Amateurs!, (2nd edition) a must-read for community leaders on how to achieve economic development success, which can be purchased on Amazon.
CDG Engineers and Garner Economics have partnered to create one of the most extensive certification initiatives in the economic development arena for the food and beverage (F&B) industry. Their goal is to help communities effectively prepare for attracting F&B projects. Conversely, this expertise and locational knowledge serves corporate clients in the F&B industry as they have direct access and information on communities that have met the CDG/Garner rigorous F&B review requirements. To learn more about the CDG/Garner Food Site Certification designation, see the link at https://garnereconomics.com/services/food-processing-site-certification.
About Garner Economics LLC: We are data-driven strategists helping companies, communities and organizations, large and small, urban and rural, achieve success.
The firm offers location advisory analysis, analytical research, industry targeting, strategic planning and organizational assessments with a wealth of expertise to companies, communities, and organizations, globally. Learn more at https://garnereconomics.com/.
1 No product, No project® and Talent is the new currency® are registered trademarks of Garner Economics LLC and may not be used without written permission or with the proper attribution.
3 https://www.fool.com/investing/2019/05/18/3-brand-name-food-and-beverage-companies-that-want.aspx; https://www.nasdaq.com/articles/3-cannabis-beverage-stocks-to-buy-to-ride-the-weed-wave-2021-09-28