For many protein processors, the framework for capital expenditures has shifted. In 2010, spending will focus more heavily on maintaining current operations and will hone in on processing equipment specifically. As budgets fluctuate, fewer processors in the segment will be building new plants or focusing dollars on packaging machinery/systems or process control/automation. Yes, 2010 promises to be an interesting year!
Capital expenditures create future benefits; they are generally long-term (or capitalized) investments. This article summarizes findings from the 2010 Capital Expenditures Study, an in-depth assessment designed to provide up-to-date information on capital investment plans across the food/beverage processing industry for the coming year.
2010 forecasting
At the threshold of 2010, things are looking up in the protein segment (see Figure 1). Compared to year-ago levels, more processors have new capital expenditure projects planned (39 percent vs. 36 percent) and the proportion without planned investments has dropped significantly (8 percent vs. 15 percent in the 2009 report).
At the start of 2009, the meat/poultry/seafood industry bowed — investing a far lower proportion of their total revenues (vs. the market average) on capital projects and slashing budgets vs. 2008. Positive news, however, is on the horizon for 2010; this same group of processors reports revenue reinvestment plans on par with the market average and substantial curbing of spending cuts (see Figure 2). At the start of 2009, 61 percent of protein processors expected to spend less on capital expenditures than they had in 2008. Comparatively, at the onset of 2010, only 39 percent expect to spend less than in the year prior. This 22-point shift, coupled with the increase in spending expectations (39 percent will spend more in 2010 vs. 24 percent one year ago) signals that capital spending may have reached, or at least neared, its bottom in 2009. Such speculation is strengthened when examining processors’ anticipated spending for 2011-72 percent expect to spend the same or more than they will in 2010. Added to the 81 percent of those involved in capital budget planning (at protein-processing companies) who reported to us a “positive” outlook on the future of the overall food/beverage industry — and the protein segment gives the impression of stabilization in the coming year.
Key drivers of capital investment
While many factors drive capital decision-making, meat/poultry/seafood processors are after specific benefits with 2010 spending. Specifically, expenditures will reportedly be made for the following key reasons: improve efficiency, increase capacity, maintain existing operations, increase food safety and reduce labor expenses (see Figure 3). While these reasons closely parallel those of 2009, there is one notable difference. At the onset of 2009, “restore/rebuild” was a key driver of capital expenditures among protein processors; as we enter 2010, this is no longer a top priority and has been replaced by “maintaining existing operations.”
Successful suppliers will demonstrate their ability to understand and execute on these specific performance attributes and will also take note of processor decision-making processes. Meat/poultry/seafood processors report that sourcing decisions in 2010 will be driven by the following vital criteria: overall quality, performance, safety, prior experience with supplier and ease of maintenance. Falling out of the top 5 from 2009 are “sanitation” and “contributions to operational efficiency.” Further, the least important considerations when it comes to upcoming capital projects/spending in the protein segment include: total cost of ownership, purchase price and service plans.
Other changes
Additional shifts can be expected among protein processors. In 2010, it is expected that greater focus will be concentrated on repairing, rebuilding or maintaining current assets than on creating new assets. The cash flow issues that plagued processors in 2009 appear to be lessening as well, with more processors expecting to cover 2010 capital expenses with cash or by selling existing assets (vs. one year ago, when a larger percentage planned to borrow or make purchases on credit). Of note: a large share of protein processors report having re-engineered old equipment, taken on co-packing operations and/or outsourced production in the past 12 months.
As the complexities of the overall marketplace continue to shift, many processors are clearly positioning/shifting with it. Only time will determine if the “worst” of it is over — though the latest research does indicate that things may be making a turn for the better.
More about the 2010 Capital Expenditures Survey
This article is a snapshot of an annual study examining capital-investment plans across the food/beverage processing industry. The conclusions are based on the opinions and behaviors of decision-makers who agreed to participate in the survey. This survey was conducted and findings compiled by Clear Seas Research. It was commissioned byThe National Provisionerand several other BNP Media titles.A total of 166 individuals actively involved in capital expenditure planning and decision-making participated in the study, which was conducted in November of 2009. This in-depth research study provides up-to-date information on the key drivers in capital expenditure planning, the factors of importance in sourcing decisions and a comparison between current and future capital expenditure plans.
The comprehensive report is available from Clear Seas Research. For information about ordering or to find out more about Clear Seas Research services, contact Jen Loomis at loomisj@clearseasresearch.com.
