Expanded Bonus Web Edition
From Site Selection magazine, May 2007
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Food for Thought

How does a state diversify its economy when
its signature product is red hot?

Aga Foodservice Group's forthcoming plant in Cedar Rapids will allow the appliance maker to retain key talent.
f Iowa's top 35 projects by capital investment from January 2006 through February 2007, 80 percent were ethanol or biodiesel plants. Half the projects reported by the state in the first quarter of 2007 were too.
   But even with corn plantings for 2007 forecast to reach levels unseen in 60 years, the need to diversify the industrial base is ever apparent in Iowa, made more so by concerns about corn supply and allocation, the still- pending nature of biomass as an ethanol feedstock and calls for removal of ethanol import tariffs.

Cedar Rapids Rises to the Top
   The Linn County metro area of Cedar Rapids in 2006 led all comers in the state in total number of new plant or expansion projects tallied by the Conway Data New Plant Database, with 15. Led by ethanol projects from
Archer Daniels Midland and Penford and a $50- million warehouse and office expansion from retailer Nordstrom Direct, the city's portfolio continues to swell. That doesn't even count the associated momentum in the neighboring metro area of Iowa City, which in 2006 saw manufacturing expansions from Procter & Gamble and Cole's Quality Foods and R&D growth from the National Genecular Institute.
   Helping the cause has been the metro's enterprise zone – the city is one of four in the state with 10 or more enterprise zone projects, the others being Des Moines, Dubuque and Council Bluffs. Also helping have been the city's own urban revitalization tax credits and wise use of tax increment financing.
   Before the end of the calendar year, the city's economic development arm noted that its fiscal year 2006, ending August 31, included an increase in capital investment of nearly $779 million, "surpassing the goal by 458 percent." The city's job creation goal was surpassed by 188 percent, reaching 2,184 jobs. What's more, at that time, the city's immediate project list included 19 projects with cumulative investment of more than $348 million on the line.
   That's exactly the dollar amount ADM alone is investing in a new ethanol plant adjacent to its existing corn processing facility. The new facility will have a capacity of 275 million gallons annually. Combined with the capacities of ethanol plants operated by Penford and Cargill in the city, ADM's complex will take Cedar Rapids to the No. 1 city for corn processing nationwide, at more than 1 million bushels a day.

New Outpost from the Colonies
   With that kind of project momentum, household growth of more than 7 percent between 2000 and 2006, a median age just over 35 and projected population growth of 3.3 percent by 2011, Cedar Rapids seems to be
handling all the economic whitewater that globalization can muster.
   A cycle of M&A that began in early 2006 took an optimistic turn in December, when Aga Foodservice Group, the Solihull, England- based appliance maker with a U.S. commercial division based in Cherry Hill, N.J., announced it would construct an $11.5- million, 112- job commercial microwave oven plant in Cedar Rapids' Bowling Street Industrial Park. What's more, average wages at the new operation will be $23.31, among the highest in Cedar Rapids' Enterprise Zone project portfolio.
   The project continues a long- simmering tradition in middle Iowa, home to the Amana Colonies and the eponymous Amana appliance brand. As Whirlpool Corp. reorganized and moved to invest in production in Ohio and Mexico in 2006, Aga had acquired Amana Commercial Microwaves from Whirlpool Corp. in September 2006, following Whirlpool's own acquisition of the unit as part of its purchase of Maytag Corp. in March 2006.
According to the 2006 Oregon Workers' Compensation Premium Rate Ranking summary prepared by that state's Dept. of Consumer & Business Services in October 2006, Iowa's premium rate was the seventh lowest in the U.S., at $1.75 per $100 of payroll.

   Tim K. Garbett, vice president and general manager, Amana Commercial Products, has been with the company for many years in a variety of sales and executive roles. In an interview, he says the site selection process for the greenfield plant overlapped with Aga's purchase of the business, as the British company tried to get a sense of what it would cost to relocate the unit from the nearby but huge Amana complex as it assumed stand- alone status as a business.
   "The first place we looked was in Johnson Co., outside of Iowa City, at an existing facility," says Garbett. That facility was reasonably suitable, he says, but land and plant costs in Iowa City are substantially higher, in part because of the "premium on dirt" that accompanies proximity to I- 80. At the same time, scatter charts examining driving distances for salaried and lab staff as well as production workers steered the team toward the Cedar Rapids area. "We determined there was a corridor that would allow us to retain virtually all of our people with driving times that were comparable or shorter," says Garbett. "That as much as anything else narrowed the site selection process for us."
   Iain Whyte, president of Aga Foodservice Group's U.S. business, led due diligence on sites in Michigan and Indiana. But when Cedar Rapids' Enterprise Zone and the incentives offered by the Iowa Department of Economic Development and Cedar Rapids' Priority One agency hit the table, "it was a pretty easy decision," says Garbett. He calls the package "reasonably competitive," but what may have put Cedar Rapids over the top was the ability to retain management talent.

Time to Shine
   Given the project momentum in the area and relatively low unemployment, getting that talent might have been a concern, but Garbett says Priority One did a good job of convincing the company that a large number of people working second and third shifts in the area were hungry for first- shift work.
   "The people at Priority One did a very professional and enthusiastic job of supporting us in the decision and providing us the information, and a lovely job of putting us in touch with local utility and government leaders to help us negotiate the best possible deal we could get, and feel comfortable we would get good support." Aga will also seek job training assistance through the Iowa Industrial New Jobs Training Program, administered locally by Kirkwood Community College.
   Garbett also notes the invaluable assistance of NAI Iowa Realty, headed by Scott Byars, as its partner in the site selection. "It's important to be partnered with a real estate firm on top of the market and highly regarded," he says. "They saved us a lot of time, did a nice job of screening out inappropriate sites and finding properties that would meet our needs."
   While the unit has been a union shop for decades, the union will now have to go through a "clean- sheet startup effort" if it wants to organize with Aga, says Garbett, who anticipates having no trouble attracting good labor as a preferred employer. "Frankly, in the Cedar Rapids market, there have been few facilities that have been decertified," he says. "A lot of local business leaders have been shrewd enough to offer packages that obviate the need for associates to feel like they need the protection of a union."
   Protection of a different kind is on the minds of a relieved work force in a business niche that has seen its share of tumult in the U.S. Midwest over the past several years. But the commercial equipment unit, while a small part of a giant like Whirlpool, has a 60- percent market share in high- speed cooking equipment in the U.S. and close to 50 percent worldwide. Pairing it with a parent company deeply committed to the same niche and equally committed to growth is a matchmaker's dream come true.
   "When we were up for sale, there was a great deal of fear that some consolidator would buy us, harvest the intellectual property and brand and relocate everything to some other site in the U.S.," says Garbett. "When Aga bought us and announced they intended to leave us in Iowa and grow us as a stand- alone business, everybody was incredibly happy. We have a lot of work to do, but as a team we are highly motivated because this is something we've wanted to do for a long time."

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