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Take a Different Approach to Food Manufacturers

By Patrick Cisler

Have you recently considered attracting food manufacturers to your region?  If so, you may want to alter your traditional approach.  The truth of the matter is that growing companies in the food industry aren’t focused on building new production facilities in order to expand their operations.  This isn’t to say that they aren’t expanding, they’re just not expanding through new building projects.  This conclusion is based on recent interviews conducted with executives of high potential expansion companies in the industry.  The way that most food manufacturers are currently looking to expand is through mergers and acquisitions.  From their standpoint, this is a safer and less costly approach that often allows them to diversify their product offering without having to start from scratch.  Consider for a moment the single biggest driver in increased food production, population growth.  Unfortunately, in a developed country such as the USA with a .7% population growth in the last year and an established middle class people, there simply isn’t a need to speed up food production.  Consider also that Americans are becoming more aware of how much and what kind of food they are eating as obesity numbers are frequently published, and nutrition information becomes mainstream.  This leads to less, not greater, food consumption.  So how do we grow the food manufacturing presence in our region?  Let’s consider what we can focus on with those companies in our own backyard.

Trivia question: What expenditure equals out to roughly $445 per American Household per year?  That would be the U.S. pet industry expenditures coming in at a total of $50.84 billion in 2011.  Of this total, the largest single contributor is pet food at $19.53 billion.  When I look at this number, I think about all the families I know that don’t have pets and then start to wonder what the real annual expenditure is per pet-owner household.  It is no surprise that Americans spend a lot of money on their pets, but do they care more about spending on their furry friends than they do themselves?  From 2008-2010, when the American retail economy saw a major decline, spending on pets increased 11.9%.  One could argue based on this fact that the pet industry is recession proof.  Enough of the fun facts, how does this relate to you?  Food manufacturers are making a major push to expand their operations by adding pet foods lines to their overall product selection. When you think of Del Monte Foods, what comes to mind?  I think of the canned vegetables and fruits in my cupboard not of brand names like Kibbles n’ Bits, Milk Bone, and Meow Mix.  Half of Del Monte Foods’ $3.7 billion sales came from pet food in 2011.  The reason why this is becoming an easy transition for food manufacturers is that they often have all the raw material needed from their “people food” production.  All they have to figure out is how to take the leftover material and package it into a product that your pet will enjoy (and if you’ve ever been a pet owner, you know it doesn’t take much to please your dog’s taste buds).  As the industry moves in this direction, pay attention to those food companies close to home that have yet to expand their operations in this direction.  All it may take is a little brainstorming session and some packaged incentives for your local companies to expand into this market.

Another area of interest I was struck by in spending the last 3 weeks studying the food industry was the rise of ethnic food manufacturers or divisions of food manufacturers dedicated to ethnic food.  Some of the fastest-growing companies are focused in these specialty foods, and it makes perfect sense.  In the past decade, the total population in the U.S. grew by 9.7% while the Hispanic population grew by 43%.  As mentioned earlier, food production increases based on population growth, so we should be focused on what demographics are fastest-growing in our society and focus our effort there.  At the local level, this again may mean brainstorming with your local companies on how to expand into these markets, or make an effort to approach ethnic food manufacturers that are up-and-coming and persuade them to open a plant in your region.  If you have the market research to show that your demographics can accommodate their production, you may have a leg up in drawing new business.

So remember, the majority of the food industry is focused on expanding through mergers and acquisitions, so you may have to shift your efforts to a new direction.  Don’t ignore the staggering statistics of pet food expenditures or Hispanic population growth, and determine whether your community is the right environment to take advantage of either of these market trends.

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