Construction Report: Bouncing Back
As the economy slowly recovers, more baking and snack companies invest in construction projects to add capacity, increase efficiencies and address sustainability initiatives.
BakingBusiness.com, September 1, 2010
by Shane Whitaker

Construction activity in the bakery and snack industry has accelerated during the past year and should continue that trend for the next several years. As the slow economic recovery continues, companies are investing to expand their current facilities, renovate existing warehouse and other vacant buildings into bakeries and snack manufacturing plants and even construct new plants. This year’s report identifies 111 significant construction projects that have either been announced, completed or are under construction within the past 18 months. This compares to a mere 75 listed last year and 89 in 2008.

Of the 111 projects listed, 65 are expansions, renovations or expansion/renovations. The baking and snack industry is doing more expansion as opposed to building new facilities because generally companies are trying to make room for new process lines or looking to increase capacity to introduce a new product, according to Allen Baiamonte, associate, Food & Consumer Products group, Burns & McDonnell, Kansas City, MO.

“I would say that in the past couple years there has been a minor shift from capital expansions that support growth to capital projects that drive productivity initiatives,” he observed. “For instance, a lot of it is introducing automation that reduces labor or increases labor efficiencies.”

“We are starting to see more innovation in terms of automation in the industry, trying to do more with less people,” said Mark Redmond, president, Hendon Redmond, a Cincinnati, OH-based architecture, engineering and construction management firm.

He noted that many baking and snack companies also are doing the planning work and exploring the viability of construction projects; however, they are not pulling the trigger on all of them at this time. “There is a lot of pent up need out there, but the purse strings are not being let loose just yet,” Mr. Redmond observed. “Whereas four or five years ago, people would take off and run with a new project, now they are reviewing project proposals two, three, even four times, trying to tweak and improve them and to look at options versus just going with the first pass of an idea on a design or layout.”

Ken Hagedorn, vice-president of sales and marketing and partner, Naegele, Inc., Orland Park, IL, said that since mid-May activity has drastically improved. “I don’t know why, but I expect that it’s because people haven’t done any projects for a while and now they need to play catch up,” he observed. “Or maybe when the economy shows signs of turning around, people start to spend.”

EXPANDING EXPANSIONS

Haskell, a Jacksonville, FL-based design-build firm, has seen significantly more renovation and expansion projects than new plants being built during the past 12 to 18 months, according to Phil Ackley, director, Process Services, Haskell, Jacksonville, FL. “The overall capital expenditure climate in the baking and snack industry has been lower than normal for infrastructure projects,” he added.

“But for the larger US firms, the process, packaging and material handling projects have increased or are at normal capital expenditure levels,” Mr. Ackley continued. “This is primarily because of these large firms’ willingness to spend capital where they definitely find opportunities to increase their market share, rollout new product offerings or improve manufacturing efficiencies. It has been Haskell’s experience that only when these types of capital projects mentioned above require building expansions or infrastructure additions to support equipment will they be approved.”

Whereas, four or five years ago, baking and snack companies looked for greenfield sites to build on, Mr. Redmond noted the majority of the projects it has worked on the past few years are expansions or adaptive reuse of existing buildings. In fact, he pointed out that there is a glut of empty warehouse buildings that are available, which bakeries often renovate to meet their needs. The collapse of the commercial and industrial real estate market contributed heavily to this surplus of warehouses.

On one project Hendon Redmond is working, the roof height of the warehouse was too low, so the entire roof was raised by about 10 ft. Mr. Redmond said the firm ran the numbers both ways and it made sense economically to raise the roof as opposed to building new. Warehouses make sense because bakeries generally need a lot of wide-open spaces to run conveyors and for ovens, he said. “You can purchase the shell for a discount of what it would cost to build a new facility,” Mr. Redmond added. “Plus you still have the parking lot, infrastructure and things like that.”

In some instances, he observed, floors may need to be replaced in wet processing areas for sanitation. Although some of these empty warehouses may have been used before, Mr. Redmond noted that others are brand new spec buildings. “If they were smart, they may not have even poured the floor because then you can put drains where you need them,” he said. Mission Foods recently renovated a spec warehouse in Panorama City, CA. For complete details of this project, see “In Full View” on Page 34.

Haskell has had limited involvement in new construction projects for the baking and snack industry, Mr. Ackley said. “There has been expansion and addition to some plants that have big savings as a result of implementing a technology or new process or logistics strategy,” he stated. On the other hand, the design-build firm is seeing a greater number of projects in other food and beverage segments such as spirits and dairy. “Recession-proof-type products continue to expand and grow, but companies producing less recession-proof products are not expanding and growing the past 12 to 18 months,” Mr. Ackley pointed out. “Baked foods and snacks are more exposed or susceptible to economic downturns as they are deemed less essentials to individuals’ food budgets when times are difficult.”

Consolidation is another impetus for the increasing number of expansion projects, Mr. Baiamonte said. As bakeries and snack manufacturers look to improve efficiencies, some are shuttering older facilities and consolidating into a single location. “This will generally require some kind of construction, whether it is expanding of an existing building or acquiring adjacent properties and being able to expand that way,” Mr. Baiamonte explained.

FOLLOW THE LEED-ER

More baking and snack companies are interested in addressing sustainability issues through construction, according to Mr. Baiamonte. “Some capital projects are directed toward sustainability initiatives that they want to achieve at a corporate level,” he added.

The Leadership in Energy and Environmental Design (LEED) Green Building Rating System is a certification program that “promotes a whole-building approach to sustainability by recognizing performance in key areas,” according to the US Green Building Council, which over sees the program.

Burns & McDonnell has more clients interested in LEED certification of their facilities than ever before, according to Mr. Baiamonte. As it developed the preliminary engineering on a project recently, the client had direction from its executives that the company wanted to address sustainability initiatives, and thus, it wanted to have the expansion be LEED certified. “Clients understand it more, and they understand the implications,” he added. “A lot of times it’s the Wal-Marts of the world who are going to their suppliers and introducing initiatives and, in turn, then expect its suppliers to have a more sustainable product that it is being supplied with.”

From a construction standpoint, LEED certification dictates materials and sourcing of materials that can be used for a project. From a design perspective, according to Mr. Baiamonte, it starts opening up alternatives that typically were waved aside because they were perceived to add no value. When Mr. Baiamonte worked in bakeries in the past, he said, the companies were just interested in a box that they could use to make products. “Nowadays, it’s not just a box to stick your process in, but it’s a kind of living organism and you have to find ways to make the box more eco-friendly and make sure that box doesn’t use the same amount of energy that it once consumed and uses resources such as water more wisely.”

Building to LEED standards will cost more than if a company just went with traditional designs and materials. LEED-certified projects generally have a 10 to 15% premium, according to Mr. Baiamonte. “But, also, as it becomes more commonplace, that cost is going to be lower because the availability to find vendors and material suppliers that help meet those requirements are going to be greater in number and you will have more competition, and that helps drive cost out,” he explained.

Mr. Redmond is a LEED accredited professional, and he said the firm talks about LEED certification with every customer. However, while most of its clients want to employ sustainable techniques, they don’t necessarily want to go for the certification. “But everyone talks about energy conservation,” he said. “They all want to conserve energy and let natural light into the work environment, so we are putting windows in where ever we can. Bakeries are using heat recovery systems to recycle heat generated in one area and use it someplace else and trying to reduce wastewater that goes down the drains.”

Mr. Hagedorn doesn’t think companies are doing construction projects just because of sustainability; however, they are looking at ways to address energy conservation. He pointed out that sustainability is like sanitation, and that there is generally a lot of rah-rah-rah for these initiatives. “They will talk a good game until they have to spend that money on it,” Mr. Hagedorn opined.

Nevertheless, some baking and snack companies are going that extra step, and the two plants featured in this month’s Baking & Snack were both LEED-certified. Mission Foods achieved LEED Gold certification for its newest facility in Panorama City, CA, (see Page 34), and Shearer’s Foods’ new Massillon, OH, snack food plant qualified for LEED Platinum certification (See “Shearer Determination” on Page 46).

STILL SOFT

Because the overall construction market remains relatively soft, now would be a good time to move forward with construction projects. “The people that are doing it now are saving money because of the fact that the construction costs are down right now,” Mr. Redmond said.

Most of these savings will be achieved through less expensive labor. “Material costs have held relatively steady, but labor is definitely much more competitive than in the past few years,” he pointed out.

Mr. Baiamonte said Burns & McDonnell has been telling clients for the past several years that now is the time to make that capital investment because they are going to get the best value. “If you go back four or five years ago, it was really expensive to do construction,” he said. “People don’t always realize the events that can drive that. Hurricane Katrina had a tremendous impact on construction costs throughout certain regions of the US, because of the material and labor heading down to New Orleans for rebuilding. It made it difficult to get good pricing.”

However, as more projects get under way, it may begin to put a burden on equipment manufacturers and delivery times will get longer, according to Mr. Hagedorn, who said Naegele has been approached with six or seven new projects since mid-May. “It seems like everyone felt they were falling behind and now can’t go fast enough to get things done,” he said. “It happens in spurts with groups of companies that all at once start taking on new projects.”

As the old adage goes, “When it rains it pours.” Whether or not it’s truly going to turn into a downpour at this time is up for debate, but there are signs that construction activity in the baking and snack industry is most definitely on the rebound.