Food Industry Investment Patterns

To say "the food industry is receson proof" may be a stretch but as an idiom it's not far from the truth.

Yes, people must eat regardless the state of economy and this provides part of the cushion that sustains the industry. But food's economic durability is buoyed more by an array of drivers that push companies to invest in new and existing facilities.

The end result is a highly competitive ever-changing landscape consisting of a multiplicity of products, production facili- ties and producers chasing, or in many cases creating, consumer markets. This article looks at current drivers behind the changing food industry and investment patterns across the country.

What Drives Investment in the Food Industry?

In many ways the story behind an ever changing food industry is an old tale. Food products are notoriously known for low profit margins. Engrained in industry culture is a perpetual concern over cost. Up and down the value chain companies are fixated on managing raw material costs, operating expenses, and logistics.
It is common, therefore, for companies to relocate in order to lower labor and utility costs and thus maintain margins. In contrast, companies locked to a particular location may be forced to reduce costs by adopting new technologies that eliminates workers or reduces energy use. In recent years there have been a series of producers in the San Joaquin Valley of California, Rio South Texas Region and central Florida, for example, which have invested in new production lines in order to increase output and reduce per unit costs.
Similarly, production facilities tied to a local market must stay within the targeted region to remain competitive. Always Bagels was recently driven to counter rising operating costs, caused in part by high transportation costs at their Long Island, New York facility by relocating to Lebanon, Pennsylvania. The Lebanon location still allows the fresh bagel baker to continue serving northeast markets but at lower cost for labor and transportation.
Changing patterns of product demand drive many companies to modify production and distribution strategies. There is always a steady stream of companies located near one coast or another who address transportation cost and service issues by locating manufacturing and/ or distribution facilities on the opposite coast. In recent years Lindt Chocolates coordinated with subsidiary Ghirardelli to optimize cross country shipments of product from west coast and east coast chocolate plants.
Craft brewing leader and innovator Sierra Nevada of Chico, California is now completing a new 600,000 barrel per year brewery outside of Asheville, North Carolina, an investment driven by the need to reduce transportation costs for serving growing eastern markets. Organic frozen food manufacturer Amy's' Kitchen, another California industry innovator, is in the process of setting up manufacturing in Greenville, South Carolina, precisely for the same reason; reduce transportation costs for serving growing eastern U.S. markets.
### For a complete version of this article published in Expansion Management Magazine click here ###
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