Dan Malovany: Driving in Revenue Neutral
Baking & Snack editor Dan Malovany on the intersection of sustainability and capital spending.
BakingBusiness.com, Feb. 1, 2011
by Dan Malovany
Sustainability remains on nearly everyone’s mind, and it has become part of businesses' investment strategy. Years ago, going green came with a price tag, but today, it’s becoming a vital component in GMP initiatives and an integral variable in the long-term formula to be the low-cost producer in the current competitive marketplace.

That sentiment came out loud and clear during interviews with a cross-section of key industry executives who participated in Baking & Snack’s 18th Annual Capital Spending Survey. While a few businesses such as Frito-Lay have taken a longer-term view and have put the pedal to the metal on this issue, most bakers and snack manufacturers are riding the movement in revenue neutral. When it comes to any type of capital spending in these uncertain times, most baking and snack companies are searching to achieve a swifter return on investments than they did in the past.

“If you went back five years ago, we were more likely to spend money to grow in this area without looking for the return on investment (ROI),” said Todd Wallin, president of Ellison Bakery, Fort Wayne, IN. “Now, we’re less likely to look at projects that don’t have a return on investment. Probably beyond 2011, we’ll want to accomplish both goals of investing [in sustainability] with no assumption of return, but also investing with an assumption of some ROI attached to it.”

Inventure Foods, Phoenix, AZ, had a record year for profits in 2010, thanks in part to the popularity of its Boulder Canyon brand. For these products, the company invested in a more costly sustainable bag made from woodchips, which it believes is a more eco-friendly alternative than using compostable bags made from corn starch. Located in the desert, the snack producer also is exploring the use of solar panels on the roof of its plant, but the facility’s steam stack tends to block the sun from such panels, making such alternative energy less effective. However, more practical solutions — reducing the amount of packaging, corrugated boxes and other waste — have resulted in bottom-line savings. The corporate office is LEED-certified, and the company strives to work in alignment with its consumers, who care about sustainability, said Terry McDaniel, Inventure Foods’ president.

What else would you expect from a company that sells brands named after Boulder, CO, one of the centers of the universe for the green movement in this country? “Our goal is to continue to focus on green efforts that are investments tied into brands, and some will be cost-neutral,” Mr. McDaniel said. “We’re looking at wastewater issues and ways to do more with less. This issue is something your company has to talk about and build a strategy, and not just put it on a website.”

Sustainable programs at Oak State Products, Wenona, IL, have focused on cost-saving measures so far, noted Dave Van Laar, its president. “It’s part of our culture today; therefore, we don’t think of it as new or groundbreaking,” he said. The cookie manufacturer is working with the Biscuit & Cracker Manufacturers’ Association (BCMA) and the US Environmental Protection Agency (EPA) on achieving Energy Star certification. Oak State spent about two years working with EPA to achieve this goal, and BCMA will announce at its May conference which cookie and cracker member facilities attained certification.

On the issue of sustainability, Oak State had been driving in revenue neutral, but Mr. Van Laar indicated the company might consider shifting gears. “Going forward, we will do projects that cost us without a full return on our investments,” Mr. Van Laar said. “We initially started these projects because there were cost savings associated with them. We’ve realized we need to continue to do it because it’s the right thing to do.”

In better economic times, many companies might consider revving it up as well.

Read More on the Subject:

Capital Spending on the Rebound
Capital Spending: Seizing the Moment