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What Factors Go Into Investment Decisions?

Major food and beverage companies are reluctant to spell out their "formulas" for locating new plants. However, industry consultants say there are several key factors involved, including:

• Access to farms, dairies, ranches and other sources of raw food materials. Some products are picked and packaged right in the field, while many others are processed at plants next to the fields. It's logical that peanut processing plants are in Southern states, while breakfast cereal makers Kellogg's and Post located their original plants in southern Michigan.

• Demand for products. Many companies prefer facilities near major population centers, which will have a steady demand for their products. Smaller manufacturers may be attracted to smaller communities, especially if they have a niche product line with a limited, but wide market appeal. "Today, most outgoing products move by trucks, so access to interstate highways is a must for almost all plants," says Ward.

  Top 15 States for New or Expanded Food Processing Plants Ohio -- 25 California -- 24 North Carolina -- 20 New York -- 19 Michigan -- 15 Iowa -- 10 Arkansas -- 9 Louisiana -- 8 Pennsylvania -- 8 Virginia -- 8 Minnesota -- 7 Alabama -- 6 Illinois -- 6 Georgia -- 5 Tennessee -- 5 Other States -- 25 Total -- 194 Note: August 1999 to August 2000. Site Selection Research Department.

• Nearby expressways, railroads or waterways to obtain raw materials or distribute finished products. Perrier, like other water bottlers, locates its plants close to supplies of spring water. "If you're hauling water to a plant, you can't go very far and have it pay off," says Ward. "These types of location decisions are based almost entirely on logistics."

• Labor costs. Ward believes that smaller food and beverage companies are more sensitive to factors like labor costs and investment incentives. "They really have to compete on price, so every dollar is important," he says. "The larger players are also sensitive to price, but they typically have established brands that carry certain margins. Things like a two-year tax break for a new plant are relatively less important."

• Environmental issues. These are a major concern for food and beverage companies of all sizes. Beverage plants, for instance, look closely at the quality and predictability of the water supply. "You'll find more bottlers near Lake Superior than in Tucson, Arizona," Ward says. Another issue is the ability of the local community to handle wastewater discharges, which often contain dissolved food or chemical substances.

• Available industrial property. Many food and beverage manufacturers find it far less expensive to refurbish an existing property than to undertake the time-consuming task of finding a suitably zoned site, obtaining government approvals and constructing a new plant.

• Competitive electrical rates. Because these manufacturing plants are large consumers of electricity, a slight decrease in rates can make a big difference in long-term operating costs.

• Research and academic institutions. The importance of this support depends on the nature of the foods being processed. For example, the University of California at Davis has projects under way to improve the quality and shelf life of processed foods, such as sliced melon and fresh-cut peppers.