Thursday, November 28 2019
By Frank Spano, Managing Director and, Kyle Johnson, Location Consultant, the Austin Company
In recent years, Austin Consulting (Austin) has seen a change in offshore investment for the food and beverage industry. Although there is still strong investment into the U.S. by European and Asian food and beverage companies, there has been growing investment by firms from Central and South America as well. There are countless reasons why companies in Central and South America would choose the U.S. for a new plant location, but recent client feedback states that growing consumer demand for diverse food products, changes to trade agreements, and a large consumer base rank highly as driving factors for a U.S. location.
Among the offshore food and beverage companies Austin works with, many are entering the U.S. for the first time and require assistance to become more familiar with the level of effort and analysis required for finding a new location in the U.S. Typically, offshore food and beverage companies establish their presence in the U.S. market by first importing their products and when product demand reaches a high enough level, then interest in a permanent U.S. location naturally follows. At this point, the search for a suitable location begins and Austin works with clients, so they become familiar with rules, regulations, costs, processes, and other necessary components to locate a property and successfully operate a facility in the U.S.
Another way that offshore food and beverage companies enter the U.S. market is by purchasing an already existing U.S. company with an established facility and customer base. Recent trends show, there is quite a bit of merger and acquisition activity happening in the food and beverage industry. At this time, many of Austin’s food and beverage clients have been large companies that have strategically acquired a small to midsized company that will strengthen the overall product portfolio of its business. These large food and beverage companies are investing funds into the newly acquired brands to grow their share of the marketplace. This strategy is becoming more common in the food and beverage industry since many smaller companies have been entering the market with innovative products that are taking away shelf space and market share from the larger names in the industry. The success of these small and innovative, firms has largely been due to the changing preferences of consumers whose tastes have been shifting towards convenient, healthy, natural, authentic, sustainable, and high-quality products that provide a special experience or purpose. Some examples include plant-based meat alternatives, fermented products, cannabidiol infused foods and drinks, wild foods and memory enhancing foods. So rather than compete with these new innovative firms, large food and beverage companies have simply been purchasing and investing in these operations.
There are a variety of factors that influence an offshore food and beverage company’s decision-making process when searching for a new facility location in the U.S. Some of these factors directly affect cost while others are more indirect, yet still significant to the long-term success of a new operation. Part of Austin’s task from clients is to access initial criteria and assumptions to ensure that key operational requirements are met so the right location is selected, regardless of predisposed internal biases. Proper property and community vetting are essential to offshore food and beverage companies and the most critical factors for these operations are outlined here.
Labor - Given the current constrained labor market situation in the U.S., offshore companies entering the country for the first-time place critical importance on acquiring qualified workers with desirable skillsets that are necessary to staff a new facility. A detailed level of analysis is necessary for all candidate community “labor sheds” to prove that the required workforce for a new facility is available for company recruiting efforts. In addition to the number of available workers in the communities that are being compared, the costs associated with these workers (e.g. wages and supplemental benefits) are also measured to determine the company’s level of competitiveness in the local labor marketplace. Other more indirect factors that may affect an offshore food and beverage company’s labor market competitiveness include local worker expectations for fringe benefits, corporate culture and work environment. Occasionally, there are offshore firms that are unfamiliar with the labor laws and practices in the U.S. and these companies need to be informed on issues like fringe benefit offerings, typical work hours and overtime pay among others.
Logistics - Accessing suppliers and customers is another critically important factor. Depending on the sourcing of raw materials, offshore food and beverage companies may need access to airports, deep water ports, or rail lines to receive and ship the required products for an operation. If companies are shipping materials into and out of the U.S., the logistics become even more complex and a strategic location becomes even more critical to the success of the facility. At the very least, proximity to quality four-lane highways or interstates is essential to an operation for inbound and outbound freight. Given the large operating costs associated with logistics, it is vital to select the right location for the ongoing prosperity of the new facility and the offshore food and beverage company as a whole.
Utilities - Utilities are of the utmost importance for any food and beverage operation searching for a new location, regardless of origin country. However, the utility availability, capacity, and quality vary from one provider to the next. For example, some operations will have ovens for baking that use large amounts of natural gas, while others will require substantial amounts of water and wastewater for cleaning and sanitizing products, machinery, and equipment. Offshore companies who are unfamiliar with how utilities operate in the U.S. will need information on everything from effluent surcharges for sanitary sewer to the differences between regulated and deregulated electric power and natural gas providers. Usually, food and beverage facilities require each utility at some level, making access to infrastructure a necessity. Additionally, reliability and redundancy of utilities (e.g. electric power and telecommunications) at a specific property are factors that can elevate one candidate community above the rest for a new offshore food and beverage project.
Permitting - Being unfamiliar with the rules and regulations in the U.S., offshore food and beverage companies typically need guidance on any special permitting that may be necessary to operate a new facility. Air emissions and waste disposal are two major permitting issues that food and beverage companies face in the U.S. For example, communities may require a facility to secure air emission permits depending on the particles released into the air during processing or install specialized equipment to mitigate emissions or smells which add time and cost to a project. Local communities may also require a facility to have onsite pretreatment or special permits to dispose of waste that is created at the location. Pretreatment is often an expensive endeavor for any company and must be accounted for when analyzing overall project costs. These important permitting and approval processes must all be evaluated before a final location is selected for a new facility because of how they can impact project costs and schedule.
Incentives - Given the tax burden of a new facility in the U.S., offshore food and beverage companies will consider incentive offers by state and local governments when evaluating the best location option. These incentives usually focus on lowering the cost of federal, state, and local taxes over a predetermined duration of time to help get a facility up and running after a final location is selected. Other incentives focus on workforce recruiting and training assistance or making the local development process easier for the company. Overall, the assistance provided by communities is welcomed by offshore food and beverage companies, making them feel more comfortable at a new location. It is important to note that, significant one-time and operational costs come first. Incentives can be useful in mitigating weaknesses of potential locations but are ultimately not the most important factor in an optimal location decision that will benefit a company in the long run.
Quality of Life - Because of the cultural differences in other countries, an offshore food and beverage company searches for a community that is welcoming and accepting of international diversity. This factor can often elevate one community over another in consideration because of its critical importance for offshore companies entering the U.S. for the first time. Communities that already have other international companies located nearby will likely appear more comfortable to a new offshore presence in the area from a practical and cultural perspective. Additionally, the presence of other food and beverage companies can also make a community appear more favorable if no other international firms are nearby. Ultimately, offshore food and beverage companies look for locations that are willing to assist with integration into the local community and culture while accepting the differences the firm brings with it. When communities are attempting to attract offshore food and beverage companies for local economic development, it is beneficial to assist with the following:
Since offshore investment is such an important element of the U.S. economy, it is essential to continue to monitor the trends of where offshore food and beverage companies are choosing to invest. Offshore companies go through a rigorous process to select a location that meets unique criteria which yields the most benefits, and these efforts are critical to the future success of firms. Whether the investment is through an acquisition or in a new facility, communities should welcome these companies and the unique diversity they bring to the region. This will help to facilitate further investments in the future and strengthen the local economy by providing jobs and incomes for residents and taxable sources of revenue for the community.
Frank Spano, Managing Director
As Managing Director of Austin Consulting, Frank develops and leads new strategies to increase The Austin Company’s leadership in food and beverage, logistics, and other manufacturing sectors. Frank also serves as a senior project manager, directs site location studies, and conducts detailed field investigation analyses for clients.
Frank’s areas of expertise include the food and beverage, aerospace and aviation, automotive, general manufacturing, and consumer products industries, in addition to pharmaceuticals, publishing and alternative energy.
Kyle Johnson, Location Consultant
Kyle brings over nine years of valuable experience in location, community, economic development, and real estate consulting to the Austin Consulting team. Kyle maintains a strong background in research and developing strategies for complex economic issues, including trade, supply chains, industry competitiveness, and business intelligence. Kyle has performed work in the food and beverage processing, agriculture, general manufacturing, consumer products, business services, healthcare, and public safety industries.