Episode 29 – Food Industry Trends in the Time of COVID-19
Rick Weddle: Welcome to “Site Selection Matters,” where we take a close look at the art and science of site selection decision-making. I am your host, Rick Weddle, President of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners, and corporate decision-makers to provide you with deep insight into the best and next practices in our profession.
In this episode, we have as our guest, Jerry Szatan with Szatan & Associates, a Chicago-based location strategy, site selection, and economic development consulting firm. Today Jerry will talk with us about current and future food industry trends. More specifically, we’ll talk with Jerry about factors shaping food processing site selection and the overall impact of COVID-19 on site selection in the food industry. Join me as we welcome Jerry Szatan to “Site Selection Matters.”
Jerry, we’ve been on a long period of economic expansion. Now with the onset of the COVID-19 pandemic, and given that our economy is going into a contracting phase, what do you see the outlook for food projects now?
Jerry Szatan: There’s a two-part answer. In terms of output, I think that food processors will continue to hum along. In some cases, there’ll probably be increased demand for the products for things like canned goods and other shelf-stable or product. If you take a look at the Great Recession, the Federal Reserve puts out data on capacity utilization and food production essentially stayed stable throughout the recession. Maybe it was down a percentage point or two, whereas other industries like computer peripherals, for example, just plunged. So, I think production will stay stable and perhaps increase in certain products. However, site selection becomes a different sort of thing. I think that new facility decisions for the time being as everybody tries to scramble to maintain current production, I think new facility decisions are likely to be on the back-burner.
Rick: That’s interesting. The point is obviously food is food and we have to eat. I mean, right now a lot of us are having to get food delivered to our house, whether it’s a takeout from restaurants or just ordering food deliveries. Do you see that kind of just-in-time delivery requirement to changing anything specific to the food distribution business?
Jerry: Yeah, I think it will. That’s an interesting development. I was reading just the other day that one of the meal kit companies was hiring significantly just as our grocery stores. There was a company in Chicago called Peapod who was pioneer in food delivery. I think it was in February, so it wasn’t due so much to the COVID-19, but it was due to changes in the industry, they announced that they were closing up their Chicago operations. And their model had been that you would place your order one day and you would get your delivery the next. That model became uncompetitive, I suppose, when people started getting used to placing your orders with Amazon through Whole Foods and getting your deliveries in two hours. So, I think that desire for convenience on the part of consumers will continue. One longer-term impact of COVID-19 may be that there just be maybe more interest in meal preparation kits, cooking at home and so on. But convenience and speed of delivery will count, I think, in at-home food delivery, just as it does in…increasingly in other aspects of e-commerce.
Rick: And I think it’s too early to tell which of these new habits or new behaviors that come from this stay at home shut down COVID-19 response that will continue after it’s over. So we’ll maybe have to wait and see on that. From a trend perspective though, Jerry, what are some of the overarching, if you will, trends within the food industry that you see as being constant or prevalent in the business overall?
Jerry: These have been going on for several years and I think they’ll continue. So there’s the emphasis on organic food, the emphasis on clean labels, and healthy eating in general. You see that in things like functional snacks, like kale chips, gluten-free foods, dairy substitutes. Plant-based meat alternatives are obviously very hot right now. I was talking to someone a few weeks ago who thought that those were just going to be a flash in the pan. Well, we’ll see, but I don’t think so. I worked last year in Canada a little bit, Manitoba, and pea protein is one of the major economic development efforts there, one of the major agribusiness efforts. Food safety, I think, will be important, sustainability and packaging. All those sorts of things have been going on for some time and I think will continue.
Rick: Do you think there’ll be any more or any greater push on food safety? Obviously right now everybody’s scrubbing everything down that comes into the house to make sure that we’re not kind of sweeping in a virus that we don’t want to have in our household, but do you think food safety might be elevated even as we out of this virus issue?
Jerry: My guess is that the general concern about food safety will be elevated. Now that’s been an issue that’s been going on for some time. There was a food safety act passed I think in 2011 or so, that really put greater focus on that issue. It’s a little hard to see how packaging might change and if you could somehow get some sort of antiviral or anti-microbial packaging. Sounds like science fiction to me. But whether that actually can happen in a practical way, I think people’s attitude toward food safety probably will be heightened.
Rick: And I guess one thing would be whether or not this coronavirus is seasonal and comes back and is with us for a few years before we actually get a vaccine to put it to rest. I guess that could change because most of those larger packaging changes would come not immediately, but over time.
Jerry: Yeah, exactly. I was thinking a little bit about the supply chain in the food industry. And obviously, you know, it’s a little bit different than somebody making say ventilators. There aren’t sub-assemblies in a can of diced tomatoes, for example. But clearly, there is a supply chain on the packaging side. If someone is making functional foods or vitamin supplements, for example, then you have a series of ingredients that may be coming from different places. I think one of the big questions on the food side supply chain is about raw materials. Obviously, we’re not in the harvest season in the U.S. right now, but we will be a few months from now and if lockdowns, movement and so on continue, you know, there may be some concerns by getting the workforce to pick apples and harvest wheat down the road.
Rick: Yeah, that’s something. Let’s come back to that because I want to go take a little deeper dive on that issue before we wrap up. But for a moment, if you could kind of take the question of the major factors that generally have shaped food processing site selection, and maybe dive into those for just a second with me.
Jerry: So, let’s start with logistics. People oftentimes ask me what’s the most important factor in site selection. And as you know, every site consultant that’s been around for a little bit says it depends, but when you’re making something, logistics usually start the search area. So, I’ve worked for example, for a number of companies in recent years that have been located on one coast or another and decided that they needed to set up a second operation or in some instances a third, either on the opposite coast or somewhere closer to the center of the country. So, for example, I worked several years ago for a organically-based grain company. So, they made granola and cereals and products like that. Their operations were on the West Coast, a lot of their raw material, the grains, were being grown in the middle of the U.S. or in Canada, they were being shipped to the West Coast and then the final product was being shipped back to the middle of the U.S. and to the East Coast. So, they decided that they needed to have a second plan somewhere closer to their raw materials. So, logistics always counts.
Water and wastewater are always critical for food processing operations. Sometimes that water goes in the product itself, but even if it doesn’t go into the product, then water is used to clean the machinery each night. So the wastewater capacity becomes important, and the ability of the local wastewater system to treat whatever is in the company’s effluent. So, there may be organic matter, suspended solids, and those sorts of things. If it’s a meat processor, electricity [inaudible 00:09:59]. Essentially a meat processing facility is a big refrigerator. Some years ago, I worked for a company that made meat products that you see in your deli counter, and ideally they wanted a site that not only had dual electrical feeds, but they were still going to have a backup generator.
Another factor that all of my clients on the manufacturing side with one or two exceptions and certainly all of the food processing clients have considered is that they started out their search looking for an available building. Now, most of the time, they don’t find an available building especially when it’s food-related, but they do look for those.
Rick: That’s interesting. I’ve been in this business a long time on the economic development side before starting my work with Guild, Jerry, you know, you’re exactly right. So many times, companies start out looking for an available building. More times than not, they end up not finding one that fits exactly, but finding a location that works perfectly for them or works well for them and they build or build a [inaudible 00:11:06] retrofit. Wonder what the biases for the existing building is. Do you think it’s a bargain or think it will be a better price or maybe quicker or simpler? What do you think is the bias for existing buildings?
Jerry: I think it’s all of those, but I think the one that is most important in my clients’ mind is speed to market. Is that they’re able to get up and running faster. If you can save a few bucks on the building, that’s always great, but retrofitting costs aren’t necessarily cheap. So, I think speed to market is a key factor there.
Rick: And that’s the one thing that’s not fungible. I mean, you can borrow more money, or you can save this or save that, but you can’t save time. Time is time and that is everyone has the same amount, so speed to market really makes a competitive advantage.
Let’s dig in if we can, Jerry, and take a larger view at this whole food industry situation, especially in view of the impact of the COVID-19 pandemic. If you had a crystal ball and you could peer into it and see what the short-term and even the longer-term impacts of that might be, what would you tell our listeners today?
Jerry: Well, I think the immediate concern, today’s concern for the food industry just like every other manufacturer, every other industry is just how to keep things up and running as best they can. How can they protect the health of their workers? How can they get the necessary ingredients or components? How do we keep things going right now? What will happen down the road I think very much will depend on what we see about the nature of COVID-19 and whether there may be recurring outbreaks. I think you end up with one scenario if we’re able to “stop the outbreak” and we have this period of disruption that may last a few months, and then we get things back on the path to normal. But as you know, some of the scenarios that people are laying out is that there may be some seasonality to these outbreaks, there may be recurring outbreaks, and something like the pattern that’s followed by the flu. And that that’s what we may need to live with in the next 12 to 18 months, or hopefully until a vaccine is developed. So, what does that mean for the food processors? Well, part of it I think then ends up depending on how consumers end up reacting. So, will we all have a greater demand for the next 12 months, the next 18 months for shelf-stable products, canned foods, pastas, beans, all that sort of thing? Those industries have a lot of demand now, will that continue?
One of the issues of course for food facility decisions is that it takes a longer time to build and commission a food production facility than it does to build and commission a facility that makes widgets or something else that doesn’t need FDA approvals. My clients typically are talking about 12 to 18 months, 24 months in some instances to build and commission a facility. So, they have to make those decisions on the facilities today looking out 18 months, 24 months or more for potential demand. As I said, I think a lot of what we’ll see will depend on what we see with the COVID-19 over the next few months, and then how consumers may change their behaviors.
Rick: It’s fascinating discussion, Jerry. Going back to an earlier question we had about workforce and the harvest season coming up and then following the harvest, you got to put a new crop in the field on the food raw material side. Obviously being able to get a stable workforce to do that is critical to the food chain or the food supply. Any thoughts or comments on how this virus challenge might affect just the ability to grow food?
Jerry: That’s getting really beyond what I deal with on a day-to-day basis. But when I think of seasonal harvests, I think of different items that mature, that become ripe at different times of the year. And that there’s sort of this large seasonal movement of people who may be picking apples in Washington State one week, and they may be picking grapes in another month in California or somewhere else. Obviously one of the challenges in controlling a virus epidemic is if you have large groups of people that are housed in close quarters, and I’m guessing that’s what may be the case for a lot of the seasonal labor force in agriculture. So that’s going to be an issue that will have to be addressed somehow. If you read about what’s going on in Europe, one of the issues they have there as countries closed borders is that much of their seasonal agricultural workforce crosses those borders and now will be slowed if not prevented from doing so unless some other arrangements are made.
Rick: I would guess that that, you know, we have obviously some amount of food in storage or in warehouses and things so we can continue to have something to eat for some period of time. But over time if we don’t get a handle on this, this is obviously going to affect everything as we look at it.
Wow, Jerry, what a really interesting conversation we’ve had today on the impact of COVID-19 on food distribution, food supply, food site location facilities. I think we could keep this conversation going all day, but that’s really about all the time we have for this session. So let me say thanks to Jerry Szatan for talking with us today on this episode of “Site Selection Matters.”
Jerry: Thanks, Rick. It’s been my pleasure. And obviously, these are important questions, and we’ll see what the future brings.
Rick: Thanks for listening to this episode of “Site Selection Matters.” And a special thanks to Jerry Szatan of Szatan & Associates for helping us get inside and better understand the food industry trends and the overall impact of COVID-19 on food industry site selection. What an informative discussion. Again, I’m Rick Weddle, President of Site Selectors Guild. This podcast episode represents my views and the views of my guests, and they do not necessarily represent the views or opinions of the Site Selector Guild or its membership. We hope you’ll subscribe to “Site Selection Matters” podcast on Apple Podcasts, Stitcher, Spotify, or wherever you listen to your podcasts. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.