Food Industry Shifts Gears Towards Retail During Pandemic. Used Food Machinery Values Stable.

Throughout early stages of the pandemic, panic buying, and hoarding led to a sharp spike in the sale of packaged food products. Although the country is slowly beginning to open back up, a resurgence of cases in some states is causing major economic setbacks. There is also worry from many that the looming cold weather months will further spike the number of cases, therefore causing another spike in grocery store demand. 

During a recent inspection, we had the opportunity to discuss with the client how COVID-19 has affected their production. The answer is most likely one that is common all across the country, and possibly the world. Throughout the full-fledged quarantine, their orders in their foodservice supply sector practically ground to a halt, however, their demands in the retail sector made it hard to keep up. Their answer was to re-allocate employees to their retail production lines and to add extra shifts in an effort to complete their growing orders. They are also considering adding more efficient machinery.

This is something, we think, that has been true for food processing plants all over the country. The lack of demand in the foodservice department was more than made up for by the serious demands in the retail department. In fact, according to a recent Yahoo! Finance article, the Global Packaged Food Market is expected to reach a worth of $4.89 trillion by 2027, helped tremendously by COVID-led stockpiling. 

Here are a few brands that, according to Yahoo! Finance, have seen growth amid the COVID-19 pandemic (along with their expected earnings growth rate for 2020):

-B&G Foods, Inc. – 31.1%
-United Natural Foods, Inc. – 15.4%
-General Mills, Inc. – 10.1%
-McCormick & Company, Inc. – 7.7%
-Conagra Brands, Inc. – 5.3%
-Flower Foods, Inc. – 2.8%

 Additionally, according to a FoodProcessing.com article, companies like Quaker Foods, Frito-Lay, Smuckers, Kraft Heinz Co., and Kellogg’s, have seen significant increases in sales.

As a result, there has been an uptick in sales of used food machinery relating to retail food products and packages at used machinery dealers as well as food industry auctions. As always, a premium is paid for excellent condition, brand name, late model used machinery. 

·       https://www.foodprocessing.com/articles/2020/power-lunch-john-yoler/

·       https://www.foodprocessing.com/articles/2020/how-the-coronavirus-is-affecting-food-processing/

·       https://www.foodprocessing.com/industrynews/2020/coronavirus-pandemics-silver-lining/

·       https://finance.yahoo.com/news/6-packaged-food-stocks-snap-120812823.html

Millennial Trends

Millennials now constitute the majority of adults and, unlike previous generations where women did all of the shopping, men now make up nearly half of primary shoppers. Additionally, Millennials are the most diverse generation in U.S. history, with a particular rise in the Hispanic population. 

Current or up-and-coming trends:

• Simple/sugar free

  • We’ve shifted dramatically toward preferring food that contains real, wholesome ingredients and is low in sugar

• Convenience

  • Convenience has become one of the defining features in how we evaluate food products. We want food that is portable, snackable, and not going to leave sticky residue on our fingers or powder on our clothes. This means more bite-size snacks in smaller bags that slip easily into our purses or gym bags.

• Plant Based Meat

  •  Some consumers are cutting back on meat and animal products and looking for replacement, plant-based foods as they better understand environmental impact or are looking for healthier alternatives to meat.

  • As the new year dawned, there were few options for consumers looking for other alternatives, like products imitating chicken or fish.

  • In early 2020, Impossible Foods announced its newest product, Impossible Pork.

  • Nuggs, a plant-based chicken nugget company, started last year with a $7 million investment led by McCain Foods.

  • Beyond Meat says it is working on plant-based chicken. A trial last summer of the reformulated Beyond Fried Chicken at KFC sold out in five hours. 

  • "Plant-based protein, plant-based meats are going to be the future of meat, more and more," says Ryan Riddle, R&D specialist of vegetarian meal solutions at Nestlé USA. "I fully expect that this is just the beginning of incorporating plant-based meats into our prepared meals."

•  Plant based milk

  • Innova Market Insights report that the plant-based dairy category is expected to diversify as consumer interest grows. 

  • A survey conducted by the group finds that about 32% of consumers said they bought dairy alternatives simply “because they’re healthier” and 27% said they bring variety to their diet

The State of the Food Industry and Its Machinery and Equipment

It’s been another unusual week -- one that you would only guess came from a bizarre, futuristic screenplay from Tim Burton. Last week, Vice President Mike Pence, head of the federal COVID-19 Task Force, announced that his team is weighing a plan to provide coronavirus tests and other solutions to U.S. food-processing plants, as a way to soothe workers’ fears and keep the country’s food system functioning through the pandemic, according to the Wall Street Journal. 

 This week, we conducted a number of phone interviews with food industry plant and operations managers in the US. The number one current concern of operating an essential food plant was, as one manager stated it, “LOL” (or Lack of Labor). As plant workers contract the illness, they lose those workers, but also other workers may become reluctant to be in that environment. “So instead of operating all five of our processing lines, we can only run three.”

The announcement by President Trump -- that he is looking at policies to limit or eliminate immigration and cut payment to seasonal workers -- will serve to exacerbate both the difficulty of migrant workers as well as limit the number of workers to plant, maintain, harvest and process food products.

Food safety standards in this country are already very strict. Generally, all food plants are taking temperatures of workers and essential visitors as they enter the plant and turn back anyone with observed symptoms. Through an article in RollCall, the Food and Drug Administration (FDA) states that there is no evidence that COVID-19 can be transmitted by food or packaging on food. They also state that “there is no food shortage”. 

A significant number of meat and poultry plants, however, have closed in the last two weeks out of concern for their workers. Most meat and poultry operations are set up with line workers in very close proximity. Last week, Smithfield Foods, the world's largest pork producer, shut down a pork processing plant that accounts for up to 5 percent of production after more than 500 of its workers were infected. One worker died from COVID-19. There is talk on The Hill around directing personal protective equipment (PPE) and testing resources to the food processing industry to keep it safe and productive.

According to The Hill, there are numerous supply chain disconnects as the world adjusts to buying almost exclusively through grocery supply lines vs. restaurant and food service supply lines. Even as some grocery store aisles are empty and food banks clamor for donations, some agricultural businesses are resorting to spilling or throwing away huge quantities of food.

Some $5 billion of fresh fruits and vegetables have already gone to waste, according to the Produce Marketing Association, an industry trade group. Some dairies have been pouring thousands of gallons of milk down the drain. The reason is that the country's supply chains are set for normal times, when people get a significant amount of food from restaurants and many kids eat lunch and drink a carton of milk at school. Those supply chains are struggling to adapt to the lockdown reality in which most Americans are confined to their homes. 

As to the value of used machinery and equipment, we have interviewed a number of principals in the used food machinery sales and food related auction industries. Generally, there is some surprise in the fact that those auctions that have gone forward in the last 6 weeks have produced “better than expected” results in terms of attendance and hammer prices compared to pre-COVID auction sales. We can call it a cautious optimism. This is a very fluid situation. We will report further going forward.

Regarding the valuation business around the food industry, there seems to be a slight pause as lenders, appraisers and food processing facilities figure out how to work from home and navigate the new protocols for dealing with this unprecedented scenario. It is our feeling that all of these folks will work through this in the next few weeks and that appraisal inspections will get back on track with greater use of technology (Facetime, Zoom, etc.) to gather on-site information.  This will provide the “best you can do” services under the circumstances”.

As my Dad always told me, when persuading this reluctant teenager to join his food machinery dealership some 50 years ago, “Everyone has to eat.”  The industry, historically, has always found a way.

Otto Cuyler is the President and CEO of Cuyler FoodPro Appraisal, a 80-year-old appraisal and consulting firm based in Rochester, New York. Cuyler FoodPro serves asset-based lenders, leasing companies and end-user food processors providing expert valuation services based on decades of buying, selling and liquidating food processing and packaging machinery worldwide.

Four generations of working though extreme hardships

At this time, we want to express our empathy to those that are out of work, home from work and that are struggling during this time. We are grateful to our friends, family, colleagues, and clients that are supportive and with us as we experience this worldwide pandemic and its effects.

During World War I, my great grandmother, Lillie Cuyler, worked at the Red Creek Canning Company as forewoman of 75 woman producing apple products serving the war effort. In the Great Depression of 1929 to 1933, the food industry never stopped and in fact expanding. My grandfather  Otto Cuyler, Sr., was plant manager of two fruit and vegetable factories in Western New York. In both cases, these plants worked three shifts to keep up with the demand for food products. During World War II, my grandfather owned those two factories and continued 3 shift production to support the war effort.

Having pioneered the used food machinery industry in the 1950’s, we worked diligently to provide quality used, rebuilt food machinery to both the growing American food industry as well as the developing third world nations. During the recessions of 1958, 1973, 1982 as well as 2007 to 2009, we continued to serve both the financial and food industries by providing certified appraisals and plant liquidations.

We intend to continue our history of working through the circumstances by providing both on-site inspections, where and when appropriate as well as desktop appraisal reports. Our unique experience with food processing machinery makes us unusually qualified to opine on value, sometimes having to visualize asset from a vague description on an asset list.

Thank you to all of you for your continued support and best wishes as we ply these new waters. Please feel free to contact Otto Cuyler to discuss your inspection and valuation needs going forward. 

Cate Cuyler

Vice President – Appraisal Services

Coronavirus and the Food Industry

The Coronavirus has become a worldwide hot topic and is sending many people into a panic. Coronaviruses themselves are a large family of viruses that cause the cold and the flu, and actually are quite common. However, COVID-19, a new strain first identified in Wuhan, Hubei Province, China, seems to be a more aggressive and harder to treat strain. According to BBC News, most cases are never counted, due to the patient experiencing mild symptoms and never going to the doctor. BBC News also reported on the death rate as it pertains to age, gender, and health condition.

What does this mean for the food industry?

Luckily, food industry food safety standards already have food processing facilities practicing proper sanitation, such as hand washing before entering the plant floor and use of gloves, hair nets, face masks, lab coats, etc. These implementations may now be increased due to the outbreak.

As food industry machinery appraisers, we are in food processing facilities every week. Although we see an uptick in food safety management and diligence by plant personnel, we find our activities and the production schedules business as usual. We applaud the already prepared food industry for having the high standards they already have in place.

We also applaud the travel industry for the extra steps they are taking for provide safer travel conditions for travelers. Delta airlines, for example, has increased the diligence and proceedures by plane cleaning staff for both domestic and international flights.

Personally, we take the very same procausions as recommended by the WHO and CDC as with the common flu season. Precautions like wiping down your seat area on the plane, avoid touching door handles, escalator railings, etc. when in public places. We are fully aware of the risks, but our inspection teams are ready to go to food plants worldwide.

Interestingly, sources indicate that food processing companies are seeing a stock bump as a result of consumers stocking their pantries. According to an article on foodprocessing.com, Campbell Soup’s share price rose 6.3% on March 2nd. Other food processing companies with canned/non perishable items can likely see a similar spike in purchases.

Conversely, Food Industry Executive has reported on a few ways the virus will negatively impact the industry. First, companies are expecting interruptions in supply chains, as well as disruptions with imports and exports. Also, many companies have instituted national travel bans. Finally, Natural Products Expo West, a major trade show, was cancelled.

The Coronavirus is generally passed on either directly, through contact with another person’s body fluids, or indirectly, through contact with a contaminated surface. In reference to the virus being transmitted via food, Harvard Medical School states:

”We are still learning about transmission of COVID-19. It’s not clear if this is possible, but if so it would be more likely to be the exception than the rule. That said, COVID-19 and other coronaviruses have been detected in the stool of certain patients, so we currently cannot rule out the possibility of occasional transmission from infected food handlers. The virus would likely be killed by cooking the food.”

However, according to an Australian article, any foods that are not cooked to a significant degree are threatened; “this is even the case for foods processed with a ‘Listeria-cook’ of 72°C for 2 minutes.” Also, chilling and freezing most likely is not going to kill this virus, so more precautions would need be taken in these instances.

Cuyler FoodPro Chases Value

At Cuyler FoodPro, we do frequent physical inspections of equipment. These inspections can be physically demanding and require up to 12 hours of movement in a single day. Our typical itinerary can be multi-plant and multi-city. Food processing environments can be slippery, hot and typically requires climbing and reaching to properly identify and document machinery model and serial numbers. It’s not easy to do it safely and expeditiously.

In 2016, Otto’s daughter, Cate, came on to work full time at Cuyler FoodPro as an Appraisal Services Manager. At this point, Otto was ready to take on increased physical activity in order to stay in the shape required from the physically demanding inspections. Cate was already training for her second Tough Mudder race, so she was very familiar with creating training plans. They began running together in the morning before work, and in September 2016, Otto ran his first 5K at the ROCovery Fitness 5K, which is a non-profit organization that advocates for people suffering from addiction. They have completed this race every year since. Shortly after, they decided to run the Turkey Trot in Webster, NY on Thanksgiving Day, another race they have since done annually.

Cate, completed the Rochester Marathon in September 2019, as part of the Four Seasons Challenge. This challenge also included three half marathons, one each season. Cate is set to complete this challenge again in 2020, as well as the Buffalo Marathon in May. Seeing these accomplishments, Otto decided to push himself and try more races. They finished the Cupid’s Cup 5K on February 9, 2020, in record time and subsequently signed up for two more races, one in June 2020 and one in August 2020.

They find that training for these races not only allows them to bond over a common goal, but allows them to be in better shape and more easily able to complete the longer and more physically taxing North American travel and food plant appraisal inspections.

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2019 Turkey Trot

Cupid’s Cup 5K

February 2020

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Otto’s first 5K

ROCovery 5K 2016

Turkey Trot 2016

First Turkey Trot

Cate’s Four Seasons Challenge 2019 medals.