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Editor's Note

November 21, 2008
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The food industry is recession-proof because people need to eat, right? Editor Dan Malovany uncovers the results to a recent survey that may deliver a different shock and awe. 





Fool Me Once

It’s an age-old adage that ”the food industry is recession-proof because people have to eat.”

    Being a sucker for simple ideas, I believed it until I saw a recent survey by Clear Seas Research, Troy, Mich., that said only 18% of people who work for food and beverage companies share that common belief. The overwhelming majority (82%) simply think folks like me are compete morons. In fact, most of them believe the situation might get worse. That’s because the economy is – as they say in the military – FUBAR, which roughly translates to “messed up beyond all recognition.”

    More than three-fourths (77%) of those surveyed anticipate the prolonged credit crisis will have “moderate” to “great impact” on their company’s businesses. More than half (56%) of respondents agree that their company’s daily working capital, or cash on hand, will decline as a result of the credit crunch in the U.S. market. Nearly half (48%) note that their business’ ability to make purchases will be adversely impacted by the current state of the economy. However, only one-third (34%) indicated that new product development and introductions might decline as a result of the weakening economy.

    With the tight credit and an economy in the doldrums, even some food companies may be taking a second look at major expenditures until they get a clearer forecast on how the New Year will turn out. In fact, industry observers like Rich Hoskins, president and CEO of Lake Forest, Ill.-based Colborne Corp. and Foodbotics, Inc., would like to hear from chief executives to describe the outlook for the New Year.

    “There’s a lot of talk about what to expect in 2009,” he said. “We’re doing well, but there is much concern by among peers in the capital equipment business about what to expect for 2009 especially when it comes to baking industry expenditures on big-ticket items and large projects.”

    Earlier this year, many food companies, especially in the salted snack and baking industries, got hammered by skyrocketing commodity costs and historically high fuel prices that forced some top executives to take a prudent look at their operations, said Hoskins during Pack Expo and Process Expo in Chicago last month.

    The unexpected jump in overhead does not appear to have affected small and mid-sized purchases of equipment or of those systems that just needed to be replaced, Hoskins stressed. In fact, he noted, food executives are searching for innovative ways to streamline their operations through strategic purchases that improve efficiency in the face of rising overhead.

    “Overall, the push has shifted from adding capacity at this time,” he said. “The push now is to increase operating efficiencies and reduce waste.”

    Additionally, some food companies are looking to compromise and retrofit aging systems to increase efficiency, improve throughput, add versatility and minimize changeovers time. For some suppliers, that’s not a bad way to generate income until the economy makes a turn, but it’s hardly an ideal situation for most capital equipment manufacturers.

    Not surprisingly, Hoskins said, food companies that are in a growth mode continue to make purchases as they did in the past. Fortunately, there are still a number of these companies that continue to improve operations, expand and even build new plants. These businesses are well poised to pounce on market opportunities if others stumble. Yes, these are great times to invest to take advantage of the economy as it rebounds. However, even these operations are 100% focused on controlling costs and suppliers will be challenged to respond with strong return on investment.

    What makes the current economic environment different from previous tough times is the current credit crunch. Simply put, the inability to get affordable financing may be putting a temporary damper on some big decision-making, added Hal Miller, vice president of sales at Kwik Lok Corp.

    Until October, Miller ranked the demand for equipment and the overall business environment as a “four” out of five, with five being best. He says the market for Kwik Lok remains a “four,” mainly because the Yakima, Wash.-based company deals with bread bag closers for large and small bakers and automatic equipment for the produce industry. However, Miller has heard reports of some noticeable softness in some other areas of the food industry over the last month or so. He now ranks the general business environment as a more neutral “three” until there’s more clarity in the market.

    Sure, the age-old adage about the food industry may turn out to be right, but a little cautious optimism will go a long way in the year to come. Besides, after all that the industry experienced this year with commodity and fuel prices, who wants BOHICA-ed in 2009?

    Oh, that’s military-speak for “bend over, here it comes again.”

 

Dan Malovany, editor

malovanyd@bnpmedia.com

 

Editor’s Note: On a note of transparency, Clear Seas Research, which is owned by this magazine’s company, BNP Media, conducted the CLEAR PULSE survey in October.

 

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