Overseas projects hit overdrive

Prepared Foods, April, 1997 by Steve Berne

With the world's population growing, borders opening, economies developing and trade becoming an easier task, U.S. food companies are spending more and more of their capital dollars overseas.

The emerging economies of Latin and South America, the former Soviet Union, the Far East and Pacific Rim are prime targets for many companies' expansion plans. Notable manufacturers are finding green fields and promising opportunities in these foreign lands.

Wm. Wrigley Co., for example, plans to spend $120 million this year, a 17% increase over 1996. All three of its major projects are located on foreign soil. It will build a new facility in St. Petersburg, Russia, and replace a current one in the Philippines. Wrigley is also expanding a current facility in Guangzhou, China.

In our exclusive survey (see Expenditures Table) of food and beverage manufacturers, 29 companies are planning an uptick in capital outlays, while 27 firms are projecting budget decreases. As a group, capital expenditures are expected to reach $16.7 billion - a 5.0% increase over '96 spending.

Several food companies (e.g., Coca Cola, General Mills, PepsiCo and Wrigley) that are forecasting the largest capital spending increases are also the most active on the international front.

The Coca Cola Co. will spend about $1.5 billion dollars this year on company-owned and combined investments, according to a Coca Cola spokesperson. Major company-owned investments overseas include operations in Russia, Turkey and Northern Italy. More than $360 million of combined investments will be made in Africa. South Africa, Zimbabwe and Tanzania are the focal points of investment.

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One way companies are easing the strain of foreign entry is through partnering with local companies who know the "ins and outs" of the country. Hormel Foods, for instance, held two ground breaking ceremonies last October in the People's Republic of China. Projects include a new facility in Beijing, set to start production this fall, and a renovation/expansion of an existing facility in Shanghai, both of which will produce a variety of pork products. The Shanghai plant, a joint venture between Hormel and Da Chang Meat Processing Co., includes a 37,600-sq.-ft. renovation and 26,000-sq.-ft. expansion.

Through strategic alliances with complementary partners, General Mills made the commitment to expand internationally in the early '90s. In order to collectively build its international business, GM partnered with Nestle to form Cereal Partners Worldwide (CPW). It merged its three European snack food companies with three PepsiCo businesses, creating continental Europe's largest snack company, Snack Ventures Europe (SVE). Lastly, GM joined forces in Latin America with CPC International to form International Dessert Partners (IDP).

Invested capital more than tripled for GM over the past six years, according to a company report. All in all, GM expects to outlay $45 million in development spending this year on its international joint ventures.

Quaker Oats, CPC and Heinz are also concentrating their efforts on overseas projects. Quaker is building several new Gatorade plants in Latin and South America including a 140-000-sq.-ft. facility in Brazil. "We are in a tremendous growth period internationally," says Olmedo Rincon, engineering manager supply chain for the Quaker Oats Company's Worldwide Beverages. "I see several more years of new growth in Latin America. After that, Asia and the Far East look very promising."

CPC International, whose capital budget is down 20 % from last year, has several major international projects planned for this year. Two new processing plants in Brazil headline its agenda, one for soy beverages and one for soup production. Overall, its budget calls for 60% spending internationally and 40% domestically.

Its Lerma, Mexico plant improved production efficiency by almost 25% in the past few years by adding automation and process control measures. Last year, the plant installed PLC-controlled pneumatic material handling and metering systems on both its powdered beverage line (featured on our Cover) and Knorr bouillon processing operations as well as PLC controls on its five bouillon former/wrappers. These last controllers interface with the checkweigher to adjust the wrappers' depositors and maintain constant weight.

Although H.J. Heinz expects to take a 6.3% dip in capital spending this year, it will spend nearly 45% of its capital dollars on foreign facilities, with the majority in Europe. Heinz also continues to pump greenfield money into its baby food plant in Russia. Started up in October 1995, Heinz expects the $20-million plant to be fully operational by 1999.

More With Less

Both home and abroad, the need for flexibility, fast changeovers and reliability will continue well into the new century, according to both analysts and industry experts. "Convenience foods and pre-prepared meals are the growing wave, and food plants have to be just as prepared as the meals they produce," says Ron Vallort, vice president of the Haskell Co., a Jacksonville, Fla., A&E firm. "Flexibility of processing and packaging systems are always the first concerns of our clients. Food companies need to react quickly to charging consumer demands and so does their machinery."