As consumers across the country found themselves stuck at home last year, they drank a lot more Woodchuck Hard Cider and craft beer, said Green Mountain Beverage Chief Operating Officer Ben Calvi.
In June, the company announced it was expanding its canning capacity six-fold, from the ability to do 100 cans per minute to 600 cans per minute. The expansion will be added on to the company’s existing facility, which features state-of-the-art equipment, and is expected to be completed by January.
Green Mountain, which has gone through different expansions, divisions and name changes in the three decades since it started, had been eyeing this kind of expansion for years, Calvi said. In May, when parent company Vermont Hard Cider Company was acquired by holding company Northeast Drinks Group, they had the money for it. But, Calvi said, the pandemic-related acceleration in at-home consumption of alcohol — especially premium drinks — quickly showed the need to expand canning lines.
“If there wasn't a strong business case before, it was the rubber stamp seal of approval that this is absolutely the right direction to go in,” Calvi said.
Green Mountain isn’t the only company that has chosen to expand its manufacturing footprint in 2021. According to an analysis by Food Dive, more than 70 manufacturing expansions have been announced or completed this year.
Richard Branch, chief economist at Dodge Data & Analytics, said in the first seven months of 2021, construction activity in the manufacturing sector was up 40% over 2020. Food and beverage is one of the three most active business areas in industrial construction right now, he said.
Data from CBRE shows that as of August, nearly 33.5 million square feet of industrial space had been completed for food and beverage this year — 8.7% of all of the commercial construction this year.
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There is good reason that food and beverage manufacturing construction is so hot right now, said Geoff Freeman, president and CEO of the Consumer Brands Association. The pandemic drastically changed the direction the industry was going. Food and beverage companies went from flat growth, rampant internal cost-cutting and disappointing sales on once-reliable staples before the pandemic to a great business success story. And now, he said, it is time to invest in improving these businesses and what they can deliver to the consumer.
“You're seeing a legacy industry in many respects go through a rebirth,” Freeman said.
From sales to investment
Freeman doesn’t like to use the phrase a “perfect storm” to describe something good, but that’s what happened to the CPG industry during the pandemic.
Sales dramatically increased across the board, with McKinsey & Company reporting 12% year-over-year growth in food and beverage in 2020.
As the pandemic started shutting down offices, leisure venues and restaurant dining rooms, consumers flocked to grocery stores and started buying. The shopping continued through 2020 and into 2021, even as supply chain issues are straining what stores can stock. Despite unprecedented sales gains in 2020, some big food companies are still posting sizeable quarterly increases this year.
“There is month-over-month, year-over-year demand that has proved to be sustainable. That has demonstrated that the changes we saw at the outset of COVID are, at the very least, semi permanent,” Freeman said.
Prior to the pandemic, companies had seen flat growth, leading to job cuts, factory closures and painful restructuring in the name of saving money. Freeman said at that point in time, Wall Street wanted food businesses to make those kinds of cuts to hold its bottom line.
Now he said, Wall Street wants the food business to be investing in the future.
“They’re looking to see we’re prepared for the long haul,” Freeman said.
Being prepared for the long haul is one of PepsiCo’s major business goals. Laura Maxwell, senior vice president of supply chain for PepsiCo Foods North America, said the company’s manufacturing strategy can be distilled in the phrase “always everywhere.” It wants products to perpetually be in every place consumers are looking.
The soda and snack giant’s Frito-Lay division has a long plan for where it wants to expand and when. And as the pandemic drove sales for the company’s snacks, it helped move forward several long-planned expansions across the country, including an extension of manufacturing lines at a facility in Rosenberg, Texas, a new fulfillment center in East Fishkill, New York, and a new fulfillment center in Kissimmee, Florida.
The Texas project is the largest, worth $200 million. It will add another Funyuns line in 2022, and could supply more snacks to the southeastern U.S., Maxwell said. A tortilla chip line is slated to be added in two to three years. It’s the second big expansion announced at this plant since 2019. The first, expanding lines and warehousing for Cheetos, is almost complete.
“You're seeing a legacy industry in many respects go through a rebirth.”
Geoff Freeman
President and CEO, Consumer Brands Association
The expansion comes after a very good year of snack sales for PepsiCo. In the company's fiscal year ending Dec. 26, 2020, its Frito-Lay North America division saw a 7% sales increase. This reflects higher consumer prices, but the company also reported a 3% volume increase. These higher sales have continued for Frito-Lay, with a 6% increase in sales and a 1% uptick in volume in the most recent quarter, compared with a year ago.
While the Texas expansion has been on the calendar for a while, Maxwell said the needs during the pandemic helped move the development up on the calendar. The company asks a series of questions as it prepares to move forward with construction.
"Where's product being sold? Where does it look like we see growth, and we might not have [facilities] aligned in that geography to feed that growth?” she asked. “...I think about Texas and all those [Southern] states. These are products that are growing in those markets, so it makes a lot of sense to put Funyuns in there, to put fried Cheetos in there, to put a [tortilla chip] line."
Maxwell said pandemic-related consumption is influencing the type of equipment that will be going into the expanded plant. Consumers wanting to avoid sharing a package with others have purchased more individual-sized bags of snacks in the last year and a half, so Frito-Lay will be adding more equipment to produce that type of packaging, she said.
Other companies have translated sales — and the demand they saw in the pandemic — into expansions. In May, sous vide product manufacturer Cuisine Solutions opened a $200 million plant in San Antonio, Texas. Sous vide is a style of cooking where food is placed in vacuum-sealed pouches and precisely cooked in boiling water. Because Cuisine Solutions pre-cooks the food, it’s convenient and easy to prepare at home or a restaurant, especially in these times of short-staffing.
CFO Mark O'Donnell said the 315,000-square-foot plant will make products for both retail and foodservice.
“We see increasing demand for sous vide products throughout national restaurant chains to consumer products,” he said. “What we see in the market is a growing trend for food convenience and food safety.”
Cuisine Solutions broke ground on its new factory in February 2019. While the company calculated its capacity needs and finances before the pandemic, O’Donnell said the demand and consumer trends during the health crisis reaffirmed its decision to expand.
The business case for expanding
Many food and beverage companies showed their worth during the pandemic by keeping production lines running and accommodating new health and safety protocols. Freeman with the Consumer Brands Association said the pandemic showed how stretched manufacturing facilities were. It also demonstrated how much modernization the industry needed.
The pandemic has also disrupted supply chains, making it difficult for companies to get their raw materials in and finished products out, said Jay Biggins, executive managing director of site selection firm BLS & Co. He said risk diversification has always been something he supports for manufacturing businesses, but COVID brought the reasons it is vital into sharp focus.
“In addition to expanding production capacity, they are realigning, so they may be actually relocating a portion of their production capacity from what may have been a centralized location to one that's somewhat more decentralized so that it gives them [a] more diverse and better risk-managed productions platform,” Biggins said.
Planning for new facilities screeched to a halt during the first six to eight months of COVID, Biggins said. The site selection process generally takes three to six months, depending on how much work a company has done in scouting out a location's proximity to raw materials, packaging manufacturers, transportation and distribution networks — as well as other needs and incentives, he said.
As things are rolling again now, Biggins said that may partly be why it seems like so many expansions are being announced: Companies are catching up on 18 months of delayed planning.
Problems with expanding during a pandemic
Although announcements of new projects are increasing, rising costs and shortages in construction materials — including lumber, metals and plastics — have contributed to slowdowns in those projects actually getting built, Branch said. The shortages are due to labor and transit issues and materials orders being backed up.
While there have been no high-profile examples of food plant construction being stopped, Green Mountain’s Calvi, Cuisine Solutions’ O’Donnell and PepsiCo’s Maxwell all said they have experienced delays and other challenges by building during the pandemic.
Calvi has encountered shortages of equipment and parts needed to create the new canning lines. In this environment, transparency is critical.
“We try to work together hand in hand as much as possible, and communicate as much as possible,” he said. “If something's gonna be late, you got to let your customer know it's gonna be late and why it's gonna be late, And when's the new ready date and when's the new ship date. More than ever, we have to be very transparent, very communicative and very patient with our suppliers.”
There also isn’t much price negotiation happening now, as opposed to previous Green Mountain expansions, Calvi said. The company is paying list price for everything. Freight charges, especially for products coming from overseas, are also way up.
However, Calvi doesn’t think that suppliers are taking advantage of the situation and gouging. Even though there are some materials shortages, he said, there is still a fair amount of competition.
“They're passing along cost increases for raw materials that have gone up, and so far I think most of that has been freight related,” Calvi said.
Future outlook
O’Donnell said COVID-related delays put Cuisine Solutions’ facility construction project roughly six months behind schedule. Because of international shipping and manufacturing challenges, it was difficult to get all of the needed equipment on time. There were also labor shortages and escalating costs on the construction side.
However, O’Donnell said that the timing worked out perfectly. Demand for sous vide products is climbing.
“We're super happy that we went through that process to be able to have the capacity today to meet some of that market demand, versus fully pausing the project and then starting today,” he said.
At PepsiCo, Maxwell said that the company designs its expansion process for challenges. It builds in time to deal with supply chain issues, and puts together alternative plans to ensure it has the needed materials, equipment and labor. The current construction work, she said, remains on schedule.
A survey of food and beverage leaders done by Mattson in spring 2020, soon after the pandemic shut down much of what was once ordinary life, found that half felt their businesses would emerge from the pandemic stronger. New facilities, increased capacities and a good outlook for return on investment all contribute to that outlook.
Consumer Brands Association’s Freeman said the CPG industry will not continue to grow at the same clip that it did in 2020, but Freeman said he believes in the industry’s ability to adapt.
“If you were trying to shift the American public in one way or another to help the CPG industry become stronger, you couldn't have written a better roadmap than the environment that we're in and the environment we expect to continue to be in for the foreseeable future,” Freeman said. “Again, more home consumption and other aspects that have come with COVID are in the are in the wheelhouse of this industry and that's why I think there's great confidence in the investments that you see being made."
