Construction Report: On the Road to Expansion

by Shane Whitaker
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Construction activity slipped slightly this past year in the baking and snack industry, yet many new and exciting projects have either been recently completed or are currently under way. Overall, this year’s report identifies 95 construction projects with investments of $1 million or more in North America that have either been announced, completed or are currently under way in the past 18 months. This figure is down approximately 17% from the 111 projects listed in Baking & Snack’s 2010 report; however, it’s up more than 20% compared with the 75 projects listed in 2009.

More than two-thirds of this year’s projects — approximately 68% — are either expansions or renovations. Last year’s report noted that a majority of construction projects that year (nearly 59%) were expansions. Often, processors can add new lines and capacity to an existing plant to keep up with demand or introduce new products through an expansion project. Bob West, business development director, A M King Construction, Charlotte, NC, pointed out that most plants built during the past few decades were constructed so future expansions could be made without disrupting production.

In May, Gonnella Baking Co., Chicago IL, broke ground on a 29,000-sq-ft expansion at its Gonnella Frozen Products operation in Schaumburg, IL. As part of the project, Gonnella will restructure its business units to streamline its sales, according to Tom Marcucci, the privately held company’s vice-president, sales and marketing. As part of the restructuring, its customers will now be able to place orders for fresh and frozen products together. Currently, its frozen and fresh businesses operate as virtually two separate businesses.

The project has presented several challenges such as realigning its traffic patterns and building new docks to ensure that its products continue to be delivered, Mr. Marcucci said, but the company worked around these issues and plans to complete the project on schedule. The $7 million expansion will increase the facility’s overall freezer capacity by 50% from 3 million lbs to 4.5 million lbs.

EXPECTATIONS EXPANDING.

Bakeries and snack manufacturers now expect architectural/engineering and construction (AE&C) firms to offer the same qualties used a decade ago to differentiate their services, according to Darryl Wernimont, market specialist, food, beverage and consumer goods, POWER Engineers, Hailey, ID. Trends such as sustainability, safety, plant security and bundling services into the design-build approach are no longer differentiators, he said, but expected. “Ten years ago, ‘faster, safer, cheaper’ was a differentiator for many AE&C firms. Today, while still factors to a client, schedule, safety and price are expected,” Mr. Wernimont said. “Today, if a firm is not abreast of sustainability, safety and plant security issues and does not have the ability to bundle and manage a variety of services and disciplines, it will have difficulty meeting a client’s expectations.”

Ten years ago, he pointed out, one out of 100 clients asked about sustainability initiatives, but now every client discusses it at some level. “The growth has been unprecedented and correlates directly with the growing awareness of the impact buildings have on the environment, operation costs, market image, employees and the communities they are located in,” Mr. Wernimont said. (For more on site selection, see “Insight on Sites” on Page 119.)

Also, he predicated that Leadership in Energy and Environmental Design (LEED), an internationally recognized green building certification system developed by the US Green Building Council (USGBC), will continue to be applied for new construction and renovation projects in the industry, but it currently represents only a portion of the sustainable opportunities that exist. “The next generation of sustainability will involve a more focused challenge of existing facilities and operations and, in many cases, will take advantage of the lessons learned from the LEED-certified facilities and the products and technologies that have evolved,” Mr. Wernimont said.

Companies will use a detailed understanding of their operations and energy performances to establish baselines on which to employ sustainable technologies and improve operational costs, Mr. Wernimont suggested. “At the heart of this will be an increased focus on energy audits, the identification and understanding of what is actually occurring,” he added. “With this knowledge in hand, a facility can take actions to achieve measurable sustainability. The actions taken will drive the implementation of PLCs, PCs, software and instrumentation to achieve the sustainable objectives.”

SUSTAINABLE SAVINGS.

LEED certification is not as important to companies as actual sustainability programs that produce real returns on investment (ROIs), according to Mr. West. When A M King begins working with a client, it establishes the payback that the company is willing to accept on sustainability projects, and that, he pointed out, helps to determine which initiatives the construction firm recommends.

Because processors want to reduce energy consumption, equipment suppliers have turned their attention to building more efficient systems to assist manufacturers in realizing energy cost savings. Mr. West said that energy-efficient systems have a larger initial price tag, but ROIs for sustainability initiatives can be relatively short.

Many sustainability initiatives have a payback of less than five years, and some even feature ROIs of less than two years, according to Mr. West. Therefore, it only makes sense that more baking and snack manufacturers now give the go-ahead to install variable-frequency drives, energy-efficient motors and lighting, and more daytime lighting.

To best take advantage of these energy-savings programs, Mr. West suggested working with a local utility from the onset of the project. For example, he observed, A M King recently worked with Progress Energy, Raleigh, NC, when constructing a new plant. At the onset, the utility company benchmarked what it expected the plant’s energy usage to be, and then it offered incentives, in the form of lower energy prices, for getting below that target level.

Mr. West also noted that North Carolina is a hotbed of activity in the baking and snack industry. In addition to tax incentives, companies are attracted to the region by the lower construction and energy costs, as well as lower labor costs than generally found in the Northeast, he said.

A M King provided design-build services for Northeast Foods’ 103,000-sq-ft fully automated bun bakery in Clayton, NC. The Baltimore, MD-based privately held baking company is a national supplier for McDonald’s restaurants, and this new plant is part of an overall supply chain strategy to better serve these restaurants in the region.

The greenfield project features 70,000 sq ft for production and a 13,500-sq-ft, 56-ft-tall freezer with a fully automated distribution system. The plant, built with cast tilt-up concrete wall panels, insulated metal panels and a structure steel frame, began production earlier this year.

EDGING EASTWARD.

To expand distribution without added trucking costs, several West Coast-based companies are building new plants in the eastern US. For example, one West Coast-based cookie and cracker manufacturer recently leased 88,000 sq ft in an industrial building in Charlotte, NC, to produce and distribute its products on the East Coast. Madrona Specialty Foods, which sells products under its La Panzanella and Hanna’s Delight brands, indicated it planned to hire 30 employees in early June and add 50 more employees during the next three to five years.

“We chose Charlotte because of its business-friendly climate, reputation and easy airport access to our other locations in Seattle and Jamaica,” noted Paul Pigott, president and owner of the Tukwila, WA-based company.

King’s Hawaiian Bakery West, Inc., Torrance, CA, also is in the process of preparing to open a new $45 million manufacturing and distribution facility in the Southeast. The producer of Hawaiian sweet breads, dinner rolls, sandwich and snack rolls, and round breads is building an 111,000-sq-ft plant in Oakwood, GA, that it projects will be operational later this fall.

The company predicted that the new bakery will create 126 jobs during the first two years, as well as an additional 100 positions by 2015. To help train the workforce, King’s Hawaiian partnered with Lanier Technical College and the state’s Quick Start program, which provides customized training using the manufacturer’s own process and technology.

ENTICING INCENTIVES.

In April 2010, Country Oven Bakery, a subsidiary of Kroger Co., Cincinnati, OH, stated it planned to invest $10.6 million in a 50,000-sq-ft addition to its Bowling Green, KY, cake bakery. Kroger reportedly received tax incentives of as much as $825,000 through the Kentucky Business Investment Program. These incentives will be earned over 10 years through corporate income tax credits and wage assessments.

In August, Joy Cone Co. announced its plans for a $12 million expansion and modernization of its production facility in Hermitage, PA. This project would create 100 jobs within three years. State economic development professionals worked with the company on its project, and Joy Cone was offered a $2.29 million funding package, including $1.25 million through the Pennsylvania Industrial Development Authority, $500,000 through the Machinery and Equipment Loan Fund, $200,000 Opportunity Grant, $300,000 in job creation tax credits, and $45,000 in job training assistance.

As part of the expansion, Joy Cone will renovate its current facility, construct an addition and convert portions of its warehouse into production, and it also plans to purchase, manufacture and install new electronic automation equipment in its warehouse.

This past fall, Panera Bread Co. opened a new headquarters in Sunset Hills, MO, a suburb of St. Louis. The company spent $1.8 million on improvements to the 90,000 sq ft of leased office space, according to the St. Louis Business Journal. Also, the journal reported that the company received a 10-year 50% tax abatement that will total approximately $130,000.

As part of the move, Panera vacated two other office locations in suburban St. Louis, which had approximately 49,000 sq ft combined. The bakery-café chain noted that the new office space will allow it to grow, and it expected to add at least 100 employees over the next couple of years.

New Horizon Baking Co., Norwalk, OH, received a $1 million grant last year under the American Recovery and Reinvestment Act’s State Energy Program for energy-efficient upgrades. Also, the company received a $25,000 Rapid Outreach Grant from the Ohio Department of Development, which was to help offset costs associated with acquiring new equipment to support an expansion project.

Allen Foods, a part of the Bimbo Bakeries USA family of companies, reportedly began production on one shift at its new $30 million, 135,000-sq-ft bakery in Topeka, KS, earlier this year. GO Topeka, an economic development arm of the Greater Topeka Chamber of Commerce, announced that it worked with the bakery to develop plans for the facility when the project was announced in May 2010, and it offered it an incentive package that included land to build the plant, valued at $600,000, as well as performance-based cash incentives.

Although the number of construction projects dipped slightly this past year, according to our annual report, expansions/renovations of baking and snack plants appears to be the driver for new projects to meet customer demands. Many bakeries have been built with a plan for future expansion, and now many of these companies find that it is time to build their businesses through these projects.    

For the full report with accompanying charts, please see the digital edition.
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