For the second year running, construction activity in the North American baking and snack industries slowed down. The 83 projects listed as part of this year’s report signify a 14% drop from the previous year. However, the pace of slowdown also decelerated, as a 17% decline between 2010 and 2011 was noted in Baking & Snack’s 2011 construction report.

On the other hand, 83 projects represent a nearly 9% increase compared to what was reported just three years ago, when only 75 plants were listed in the 2009 report. In fact, activity within the baking and snack industries is brisk enough that Greg Carr, project planner with Cleveland, OH-based The Austin Co.’s Baking and Snack Group, said he would characterize the state of construction as “busy.”

Yet not everyone was as bullish when describing building activity in the baking and snack industries.

“Many companies are currently discussing projects, but there seems to be a cautious approach when it comes to committing capital to larger growth initiatives,” said Mike Cowgill, project manager, Hendon and Redmond, Inc., an architectural, engineering and construction management (AEC) firm based at Cincinnati, OH. “The unstable economy and political uncertainty seem to be a hindrance in the decision-making process.”

As we’ve seen in recent years, the majority (56%) of the projects listed are expansions. “Greenfield construction in the US is few and far between right now,” said Darryl Wernimont, food, beverage and consumer market specialist, POWER Engineers, Hailey, ID. Overall, he added, little has changed during the past year in regard to construction activity in these industries.

Projects listed as part of this report include those with investments of at least $1 million that have been announced or completed within the past 18 months or are currently under way.

Food safety focus

Although large greenfield construction projects — such as the 300,000-sq-ft plant in Rockwall, TX, that Bimbo Bakeries USA, Horsham, PA, plans to build — do not represent the norm, replacing legacy plants has spurred some new construction projects within the baking and snack industries. Mr. Carr suggested new and expected food safety requirements prompted companies to invest in new facilities.

“We have recognized for a long time that it’s not economical to keep upgrading older plants,” he added. “Naturally, a lot of companies have tried to keep their plants running by doing small improvements, but ultimately they will need to do a replacement.”

Although 100-year-old bakeries are still manufacturing products, Mr. Carr advised that recent laws and regulations may make those plants more difficult to clean and maintain. “Once a facility gets around 40 years old, it will be tough economically to get up to today’s food safety standards,” he said.

Also, because companies foresee more food safety requirements, facility design has become more sophisticated. “People know food safety rules will become even more stringent in the future,” Mr. Carr said. “Thus, they are looking at the design — maybe not to incorporate future capabilities now but to ensure the plant can be modified easily to incorporate those future safety requirements. For example, people are anticipating that you may no longer be able to move anything from the shipping end of a bakery back into the production area or vice versa.

“We are working with a bakery in Canada that is looking to take its packaging area to almost-pharmaceutical standards,” he continued. “I think the trend now is to look long-term at whatever they may have to do and design the facilities to accommodate that.”

The Global Food Safety Initiative (GFSI)-recognized food safety schemes such as the British Retail Consortium (BRC) and Safe Quality Food (SQF), as well as new regulations under the Food Safety Modernization Act (FSMA), have influenced baking and snack construction projects. These initiatives, in conjunction with established Good Manufacturing Practices and Hazard Analysis and Critical Control Points programs, elevate food manufacturers’ awareness throughout the supply chain, Mr. Wernimont said.

“Manufacturers are expanding their knowledge base by drawing upon the exposure and experience the engineering firms, process and packaging experts, and food safety specialists can provide,” he added. “They are looking at new technologies and alternative methods of operation to improve and expand their existing procedures.

“The manufacturers recognize the importance of commingling the new initiatives with existing laws and standards,” Mr. Wernimont continued. “Working with specialists, manufacturers are challenging existing safety protocols and putting in place programs that support existing and developing requirements and regulations.”

Improving a plant’s design can bring unexpected benefits as well. “With food safety and quality initiatives such as BRC and SQF,” Mr. Cowgill added, “companies are more in tune with how the facility, production area finishes and good production flow can reduce their exposure to food safety risks, while being an asset for daily sanitation and third-party and customer audits.”

Leveraging logistics

Plant and existing-asset optimization programs are driving most expansion projects in the US, according to Mr. Wernimont. “Plant optimization requires manufacturers to leverage experienced engineers and food specialists in conjunction with their manufacturing teams to expeditiously evaluate options and employ the best practices to drive peak performance and enhance profitability,” he explained.

Naturally, growth remains a key force behind many of the bakery and snack manufacturing facility expansions. “We’ve also seen product innovation play a big role in expansion,” Mr. Cowgill said. “Adding new lines or changing processes and packaging configurations help companies broaden their reach within current and new market segments.”

Highland Baking Co., Northbrook, IL, intends to start up production at a renovated bakery in Spartanburg County, SC, within the first couple weeks of October, according to Stu Rosen, general manager and vice-president. The 250,000-sq-ft brownfield site most recently served as a pie and cake facility.

Highland added this bakery, its second, to address growth issues. Clients often suggested that the company build another bakery to offer redundancy of service. If something were to happen at its Illinois facility, Highland would still be able to fill their orders. The new location also will reduce freight costs when shipping to various accounts nationally, Mr. Rosen added.

In fact, Mr. Carr mentioned lowering distribution costs is advancing construction activity.

For example, The Austin Co. is working with Damascus Bakeries, Brooklyn, NY, on a new bakery in Newark, NJ. While Mr. Carr noted that the company needed a new facility to keep up with the growth for its flatbread products, he also suggested that its new location would reduce its logistics costs.

With six projects on this year’s report, New Jersey is a hotbed of activity. The only states that outrank New Jersey in number of facilities are Pennsylvania and Ohio, each with seven.

In August, Shearer’s Foods, Inc. relocated its headquarters from its Brewster, OH, manufacturing facility to downtown Massillon, OH. The company acquired and renovated the 40,000-sq-ft, four-story building and moved its executive, finance, sales and marketing, customer service, purchasing, information technology, human resources, transportation, scheduling, supply chain, sourcing and product management teams to the location.

“As the company has greatly expanded over the past five years, it became necessary to relocate half of our departments to our distribution facility,” said Melissa Shearer, vice-president of communications. “Now, we will all be reunited under one big roof.”

In 2010 and 2011, Shearer’s completed construction of its Millennium manufacturing facility at Massillon in two phases. The plant represents the first snack facility to earn Leadership in Energy and Environmental Design (LEED) Platinum certification under the program’s new stricter guidelines administered by the US Green Building Council.

Green growth

Sustainability remains one of the leading topics within the food industry, Mr. Wernimont said. “Although much of the focus came initially with AEC building projects, the lessons learned in these initiatives have driven companies to challenge their operations and seek out more energy-efficient solutions for their existing operations.

“When sustainability was new, in 2001, one out of a 100 clients asked about green and sustainable initiatives,” he continued. “Today, 11 years later, every client is discussing 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 communities in which they are located.”

While companies will continue to seek LEED certification for new construction and renovation projects, Mr. Wernimont said this represents only a portion of the sustainable opportunities within the food industry. “The next wave or generation of sustainability will involve a more focused challenge of existing facilities and operations — in many cases taking advantage of the lessons learned from the LEED-certified facilities and the products and technologies that have evolved from those efforts.”

Many bakeries or snack manufacturers use LEED as a guideline and determine the benefits they would be able to achieve with minimal investment, Mr. Carr said. “There are a lot of points that can be gotten at no cost,” he added. “Then, they look hard at points that cost money and look at the return on investment [ROI] for those projects. We are still seeing that a 3- or 4-year ROI is about as far as companies are willing to go with a sustainability investment.”

Even if companies don’t actually pursue LEED certification because it can be costly, they are looking to see what level they can get to without certification, according to Mr. Carr. He pointed out that even without certification, these companies can say they have a sustainable design, having followed LEED guidelines.

Time to build

Although construction activity increased from where it was three years ago, the market remains soft from both a labor and materials perspective, according to Mr. Carr, adding that it is absolutely a good time for a bakery or snack manufacturer to look at building or expanding.

“It’s a good time to buy a piece of property to build a new plant, but you need to be careful,” he warned. “Whether buying land or an existing building, you probably need to get a professional involved who can help you evaluate all the pros and cons.”

On the other hand, Mr. Wernimont pointed out a variety of construction-related projects that he believes “would garner much more attention than a greenfield facility in the US market, as it currently stands.”

Mr. Wernimont said it would be a good time to pursue a project if it is driven by line optimization or asset improvement; is a result of an opportunity to purchase an existing building for cents on the dollar to drive a brownfield conversion; or is directly related to safety, security and specific impact of GFSI and FSMA. “And if construction is in line with a company’s international strategies and specific markets, I would once again say [it’s a good time to move forward],” he said.

Regarding construction costs, Mr. Cowgill said the current market is extremely owner-friendly. “Low interest rates, government incentive programs and motivated contractors all play a role in keeping project costs lower than we’ve seen in many years,” he observed.