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Food & Beverage Expenditures Expected to Hold Steady in 2009

Dec 1, 2008 12:00 PM

Despite tight financial markets worldwide and the sharpest decline in consumer confidence recorded since the 1950s, the food & beverage industry is anticipated to remain stable in 2009, according to Sugar Land, Texas-based Industrial Info Resources. Companies have not trimmed plans for capital outlays yet, but they have indicated that large expansion projects will be carefully examined. Indications are that if the financial markets continue to weaken and consumer confidence plummets further, then investments in equipment and new facilities may be lowered from current projections. Lately, capital spending at the manufacturing level has been strong and is expected to remain reasonably robust, so long as the economy doesn't sink deeper into a recession.

Productivity improvements and energy-efficiency projects comprise the majority of planned projects in terms of the types of capital expenditures for next year. Typically, these are low-investment, high-return projects involving energy conservation, incremental capacity gains, and reductions in manpower. Total project costs usually don't exceed $1 million and generally involve the replacement of electric drives, pumps, and automation. A new cheese-processing facility in Colorado, a poultry-processing plant in Alabama, and the expansion of an Indiana beverage facility are among several projects ranging in value from $50 million to more than $200 million that are anticipated to move forward.

One of the largest roadblocks to capital expenditures — especially those larger than $20 million — may be the difficulty obtaining favorable financial terms if credit markets don't begin to loosen up. Conversely, the credit crunch has left a number of companies with undervalued assets, which may make them prime targets for acquisitions as a low-cost alternative for growth compared to growth through building new capacity.

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