Considerations for site selection
Industry experts agree that the growing popularity of online grocers and evolving shifts in consumer food preferences are creating opportunities and challenges for food growers, processors, shippers, distributors and sellers.
While online sales represent a fraction of the total retail grocery market today, IBIS World, Los Angeles, forecasts a growth of 9.5% annually. Business Insider research provides an even more expansive view. It predicts between 2013-2018, online grocery sales will grow at a compounded rate of 21.1% annually, giving food processors the opportunity to sell their products through another robust distribution channel.
At the same time, consumer food preferences are evolving. Demand for snacks and on-the-go food is on the uptick. Pronounced generational and multicultural food preferences will become the norm. Demand for healthier, fresher food is skyrocketing, creating new opportunities for new products and line extensions.
But, how will these industry changes affect location decisions? In an era where consumers have the expectation of same-day delivery and food innovation becomes part of regular business operations, site selection criteria may shift based on the evolving needs of companies.
Location will become increasingly important
As anyone in the food industry can attest, one of the biggest obstacles to profitable growth can be the cost of distribution. Even the most successful food companies sometimes struggle with meeting their customers’ need for speedy delivery, without impacting their margins or bottom line. As consumer expectations of same-day delivery grow in the years ahead, demands on the supply chain will only intensify.
For many companies, the only answer to keeping distribution costs in check is selecting a location that offers convenient and broad access to the customers and markets they need to reach. That’s one reason why a growing number of food companies are choosing locations in highly concentrated, densely populated markets, where customers and suppliers can be accessed in hours, not days.
For example, industrial leasing activity grew by 24% year-over-year in some Northeast U.S. markets. Not coincidently, markets that have experienced above-average growth are located in areas that give companies access to a significant percent of the U.S. population, as well as a high concentration of suppliers and customers.
While location is a critical factor, access to reliable transportation networks is equally important. Access to interstates, highways and cargo rail networks may become deciding site selection factors for food companies that do the bulk of their business in North America.
In an increasingly global economy, some food companies may already do business overseas or make the decision to explore opportunities to expand their customer base in international markets. Or, they may rely on importing ingredients from other parts of the world to process food that appeals to an increasingly multicultural North American consumer market. For these companies, easy access to seaports and airports may be high on the list of site selection criteria.
Fortunately, for companies that rely on cold storage, the promise of increased trade from Asia as a result of the widening of the Panama Canal has prompted many entrepreneurial companies to expand cold storage warehousing capacities at East Coast seaports. In fact, there has been significant growth of cold storage facilities around the Port of New York and New Jersey.
According to the most recent Global Cold Storage Capacity Report produced by International Association of Refrigerated Warehouses (IARW), an arm of the Global Cold Chain Alliance, Alexandria, Va., cold storage capacity in the area surrounding Port Newark and Port Elizabeth has increased by more than 20% since 2012, providing food companies that have the desire to tap into Europe or emerging markets in Asia and the Middle East increased capacity.
How talent drives site selection decisions
While workforce availability has always been a part of site selection criteria for food companies, the availability of highly educated, specialized talent may become increasingly important in years ahead.
Many food companies are already selecting locations where scientific talent is readily available to drive innovation. Solving the complexities of processing tastier food with less sugar, less salt and more natural ingredients will become standard operating procedure for companies that want to remain competitive. Understanding and developing products that meet the nutritional needs of older consumers and an “on-the-go” population may provide opportunities for innovation-driven companies as well.
Employing a multicultural workforce that understands the nuances of food flavor and texture for diverse markets in North America and/or food and packaging requirements for international markets will be important for companies that want to expand their offerings to new or emerging markets.
While the growing need for scientific and multicultural talent doesn’t diminish the need for expertise in fields like production, quality assurance and distribution, even these fields will require a more sophisticated workforce in years to come. With technology and automation driving the efficiency of the food industry, food processors may favor locations where tech-savvy workers are readily available.
As the food industry evolves, so too will the criteria for selecting a site for relocation or expansion. Food companies that recognize their needs and the needs of their customers will remain competitive in a rapidly changing industry.