Larry Marcucci, chief executive officer of Chicago-based Alpha Baking Co., is well aware of the advantages and disadvantages of running a bakery in urban and rural areas. This bread, buns and sweet goods producer operates three plants in the Windy City; one in Grand Rapids, Mich.; and the others in more rural Manitowoc, Wis.; and LaPorte, Ind.
“In Chicago, labor is available,” Mr. Marcucci said. “It’s much easier than the rural areas. The infrastructure is better. We have a bit of trouble getting a high-speed internet connection in some of our outlying areas, whereas in Chicago you have great internet, which is important because everything has to be run through a computer these days.”
And if Alpha Baking were to add another bakery, several factors would become top of mind.
“Good, clean, fresh water is going to become more and more of an issue,” he added. “After we looked at transportation connections and where the plant is located relative to our customer base, we’d then get into the nuts and bolts of whether the area is pro-business and whether the community is hoping we bring our type of operation to their area. Or does it have a lot of regulations or walls built up that make it tough to do business?”
Those are some of the many details that bakers should determine before they choose a site location.
“You have to consider all of the factors that drive smart site selection decisions — supply chain, labor, infrastructure, taxes, regulatory and community fit,” explained Brandon Talbert, managing director, Austin Consulting. “Every project is different, so we start by working with the company to define the project requirements and location criteria, both initial and future.”
Perhaps the greatest dilemma involves weighing the primary investment along with potential tax incentives or other financial assistance against ongoing expenses and other extended mitigating factors.
“When it comes to the initial costs versus the long term, the latter always wins in the long run,” noted Courtney Dunbar, who leads site selection and economic development for the Global Facilities Group with Burns & McDonnell.
Ms. Dunbar said that’s especially true with labor, including workforce capability, ability for training and average cost per hour for skills desired.
“If we cannot find the workforce, cannot particularly employ the workforce and cannot afford the workforce, that is a long-term scenario for which there is a very limited solution,” she said.
Don’t forget infrastructure, all-important water quality, adequate wastewater treatment and essential utilities — including natural gas, electric and water rates and their reliability to provide service without interruption.
“All of those end up being important because they are long-term operating costs that can weigh down the profits of a company in the long run if they’re not in line,” Ms. Dunbar said.
If a long-term forecast couples with the best location and land setup, she added, many companies may not balk at the initial per-square-foot or per-acre costs.
“If it’s completely out-of-line with the market, then there can be an issue there,” Ms. Dunbar said. “We take it off the list. If it’s within the market price, it’s a one-time cost, so it ends up being a little less problematic.”
But there are myriad advantages and disadvantages that determine if a company settles on a rural or urban location.
Ms. Dunbar suggested the latter tends to have more “shovel ready” sites for greenfield projects or redevelopment of brownfield facilities that have the infrastructure and utilities in place for immediate construction and the ability to connect to the grid when completed.
In urban areas, however, real estate prices are more rigid because of the competition for good locations.
“In the semi-rural markets, you can get a lot of incentives from state and local communities,” observed Mike Pierce, president of The Austin Co. “A lot of times the land is free, and permit fees are waived. They’ll provide training credits or training through a local college and develop your workforce.”
Although the land may be less expensive or more available, Ms. Dunbar said, rural areas often lack prebuilt infrastructure and industrial parks. That can add several months to a project, which is a red flag for a baking company looking to add capacity in a hurry.
Moreover, a lot of rural sites may offer “obsolete inventory,” or older areas with infrastructure and utilities not suited for today’s modern food plants.
In addition, make sure to ask a couple questions that may not show up on a spreadsheet.
“Is the community the right fit?” Mr. Talbert asked. “Are they supportive of the project and the food industry in general? Does the location align with your company’s culture and your brand?”
Site selection is often a two-way street that requires a local government and community that welcomes a new business.
“Many food companies have made the mistake of underestimating this and can find themselves in a situation even down the road where they’re either viewed as a nuisance by their residential neighbors or on the other side of a coin where they’re negatively impacted by heavy emitters, traffic or other issues,” he added.
With the skilled labor shortage, which exists in the baking industry even with today’s high unemployment, workforce availability tops the list for site selection.
“Companies that locate in the wrong area — urban, suburban or rural — can find themselves having to go to very difficult and costly measures to attract workers, such as providing transportation service, above-market wages and benefits, or even investing in initiatives to bring refugees or other groups outside the market to fill open jobs,” Mr. Talbert said.
That’s why the sweet spot for some new bakeries might be near those communities that share the best of the rural and urban worlds.
“If I had my druthers, I wouldn’t want to be in a rural area but in a suburban area that’s close to a city and good transportation connections and a large available labor base,” Mr. Marcucci observed. “What we find in our plants that are not near big cities is that it’s hard to attract people. We have a large labor force. We have automation but not a tremendous amount. It takes a lot of people to do what we do, so you can’t park a plant where there are 500 people, and you’re expecting to hire 200. It’s not going to happen.”
While overall labor availability may be less, Ms. Dunbar said, bakers may find the opportunity to hire underemployed people at a lower per-hour rate, resulting in lower overall labor costs. However, labor not only involves a bakery’s workforce; a project can be affected by a lack of construction workers as well.
“Although in both rural and urban settings, there can be a significant lack of available construction labor, and quite honestly, it’s not cheap anywhere,” Ms. Dunbar added.
Keep in mind that every market has its own distinct labor characteristics. Moreover, shipping and distribution also must be factored into site selection.
“Supply chain is particularly important for most food plants as freight costs can be highly variable based on location,” Mr. Talbert said.
Alpha Baking specializes in distribution with a Midwest DSD system and an industry-recognized, best-in-class transport operation that even piggybacks other bakeries’ frozen products to regional and national accounts.
“We literally go across the country,” Mr. Marcucci said. “We ship every possible way that there is. We’re centrally located in the Midwest. Luckily, fuel today is relatively under control, so that allows us to stretch our wings and get further out successfully.”
This article is an excerpt from the April 2020 issue of Baking & Snack. To read the entire feature on site selection, click here.