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Consumer Demographics and Preferences Drive Food Industry Location Decisions

Changing consumer demographics and preferences require food-processing companies to quickly innovate, and they are locating in regions that have the assets to accommodate this need.

2015 Food Processing
“Have you been busy recently?” is a question many of my friends and colleagues in the site selection/economic development profession frequently ask me. I usually explain to them that yes, I have been, due in large part to all the activity in the food industry, my particular industry of focus. “Makes sense” is a frequent response; “I guess everyone has to eat!!”

While we all do need to eat, the growth and activity in the food industry has been driven by major shifts in consumer demographics, health-related concerns, and buying patterns. This activity has kept many of those assisting food companies with location decisions engaged, and economic developers interested in how they can effectively voice their regions’ value proposition to attract companies involved in food processing and the ancillary businesses that make up the industry.

The presence of existing food clusters is also a critical factor being sought. What’s Happening in the Food Industry?
In order to put together a compelling package that is attractive to a food processing company, a fairly deep understanding of industry trends is paramount. Here are a few of the key drivers that have affected the industry most dramatically over the past few years and should continue to be of significant influence:

1. The rise of millennial spending — As the baby-boomer segment of the population falls to less than 20 percent by the year 2020, their spending on at-home food continues to drop as well, with some estimates as high as a $15 billion annual reduction. Filling that void are millennials, whose demographic segment will increase from 5 percent to almost 20 percent of the overall population between 2010 and 2020. More importantly, millennial spending on at-home food products increases at rates as high as $50 billion annually. The millennial segment has a distinctly different set of spending patterns, product interests, and shopping habits that are driving a great deal of change in the food processing industry. Millennials are:

  • Significantly more price-sensitive than baby-boomers
  • Interested in a wide variety of highly specific health and wellness products as well as convenience, and will use technology/social media to learn where and how a product is produced, and the level of environmental responsibility demonstrated by the manufacturer
  • Are highly brand “disloyal” and very willing to purchase products outside traditional grocery stores
  • More often than not, making decisions as to what they will eat within one hour of doing so
2. Food loss and waste become “top-of-mind” to food manufacturers — A third of all food produced worldwide is lost or wasted during harvest/processing/distribution or at retail and food service. That’s enough to feed an estimated 870 million hungry people!

The desire to prevent loss by manufacturers is driving changes in production processes and packaging to meet changing consumption habits. This includes radical changes and technology advances in packaging, shelf stabilization methods, and container-sizing options, all of which can reduce waste and spoilage, while still offering the traditional product benefits.

3. Consumers want higher quality “food experiences.”
  • The desire for “fresh, whole, and real” drives decisions made at grocery, retail, and food service.
  • Food is becoming social content to be shared and traded, which drives entrepreneurism and influences future trends.
  • The food industry no longer is just for big companies; “craft-inspired” new product launches continue to grow.
  • Nutrition is becoming recognized as one answer to the global healthcare budget crisis. The gluten-free food segment increased 63 percent from 2012 to 2104. There’s also increasing concern over preservatives, pesticides, growth hormones, and GMOs.
4. “Simple pleasures” at home…
  • The downturn drove an increase in home cooking. Price sensitivity continues to drive choices; quick and convenient are still preferred.
  • Sales of budget ingredients (cheaper cuts of meats, frozen fruits and vegetables) will continue to grow.
  • Private-label brands are growing in sophistication relative to packaging, flavors, and variety, all in an effort to appeal to price-sensitive customers.
How Is This Changing the Focus of the Food Industry?
The examples of key trends listed above (along with countless others) drive a tremendous need for constant innovation among food companies. In order to survive and grow, these companies must be able to put new ideas into production quickly. Facilities that churn out a narrow mix of product “sku’s” are no longer viable for most food companies. Being able to quickly change or modify processing lines, ingredients used, waste streams, packaging materials and sizes, and brand messages and marketing tactics will continue to be viewed by food companies as critical to their success.

Location solutions that foster and support this need for innovation in as many ways as possible are becoming sought after, and economic developers who have identified various forms of food processing companies as target industries need to notice and articulate the way their own regions measure up to this overall set of requirements.

Hard Assets
Property solutions, as one would expect, play a critical role in driving the ability to innovate. Most food processing is done through a production process that takes the form of a processing line, where raw ingredients are ultimately turned into finished form and packaged in various sizes and quantities. The ability to quickly modify these lines inside a facility where there is ample column spacing, clear height, utility distribution, water and sewer supply and discharge locations, structural capacity (floor and ceiling) dock locations, and exterior space for large process utility equipment and vehicular movement should all be considered competitive advantages that support innovative manufacturing.

A third of all food produced worldwide is lost or wasted during harvest/processing/distribution or at retail and food service. That’s enough to feed an estimated 870 million hungry people! Surrounding uses are also critical points to evaluate for food facilities. Existing buildings and candidate development sites will all be carefully scrutinized to determine what activities are currently ongoing in both adjacent space under roof and on properties in close proximity. Future uses that are governed by zoning and/or private restrictions and covenants will also be analyzed to both confirm whether a broad range of desired processing is allowed by the manufacturer and to assess whether there could be future threats in the form of incompatible uses that would be harmful to ingredients or to end-product being produced.

Local Support
The presence of existing food clusters — reflected in the form of legacy and recently located food-processing activities that have thrived — is also a critical factor being sought. An existing food industry presence will typically be an indicator of:

  • A labor pool with relevant skill sets and experience in an increasingly complex and capital-intensive manufacturing environment
  • Workforce training resources that can support the industry-specific needs of food manufacturers, which now include elevated needs for skills associated with high-speed automation, robotics, increasingly stringent and complex sanitation and cleanliness requirements, and energy-efficient production processes
  • A regulatory environment (at both the state and local level) that has experience in approvals required both to construct and operate food-processing facilities and the various utility requirements, emissions, and waste streams that are often associated with their operations
  • A local presence of suppliers, contractors, and technicians who can install, maintain, and maximize energy efficiency required for critical process utility systems and specialized production equipment, which is increasing in sophistication
  • Incentives geared to assist manufacturing by offering programs that mitigate infrastructure upgrade costs, reduction of taxes on real property and machinery and tools, and support for training
In addition, economic developers should be aware of local and regionally grown ingredients and other food product components (such as packaging supplies) that support a supply-chain model that draws from a more concentrated geography.

Tying It All Together
Continual product innovation, while delivering more products for less money, will remain a necessity for food processing companies over the foreseeable future. Economic developers who have identified food processing as a target industry stand a better chance for success by understanding the trends and resulting influences that are driving competitive success in the industry and shaping a value proposition centered on supporting innovation.
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