Wisconsin's Food And Beverage Industry Is Moving In A Fresh Direction
Wisconsin’s food and beverageindustry is moving in a fresh directionTechnology and innovation will help the state’s food andbeverage manufacturers fuel economic growthMore than 60 people attendedGrant Thornton’s Food & BeverageExecutive Forum recently inWauwatosa. At the forum, severalindustry members shared howfood and beverage manufacturerscould be the engine of Wisconsin’seconomic growth in the decade tocome if they master technology,embrace innovation and find theskilled talent they need.Food and beverage is a growth industrySoutheast Wisconsin is home to 253 food andbeverage manufacturers and corporate headquartersfor 16 international food companies, accordingto Shelley Jurewicz, executive director of FaBMilwaukee, a coalition of food and beveragemanufacturers and related companies.“FaB represents businesses from farm to factory tofork,” she explained. “We spend most of our time inthe factory, working with the people who make ourfood and ingredients, food-related equipment andlabeling. We also dabble a little on the farm, a little onthe fork and in the dashes in between.”Jurewicz noted the Milwaukee region boasts thenation’s highest concentration of food and beverageworkers and the third-highest concentration of foodscientists. And since the 2008 financial turmoil, thestate has experienced the second-fastest employmentgrowth for food and beverage manufacturers in thenation, Jurewicz said.
The Internet of ThingsReal-time information for manufacturersThe primary theme of this year’s Food & BeverageExecutive Forum was innovation strategies that aredriving growth in the food industry. John Nesi,vice president of market development for RockwellAutomation, gave the forum’s keynote addressand shared how Rockwell has been focused onusing technology to gain efficiencies inmanufacturing processes.“The industrial environment is more time-criticalthan the consumer environment,” Nesi said.“Manufacturers increasingly need to know when amachine shuts down, why it shut down, and what hasto be done to fix it or make it more efficient.”“In order to succeed, you want to be as demanddriven as possible,” Nesi said. “You can’t affordto be inefficient in your manufacturing processes.Manufacturers that embrace advancing technologyhave seen significant impact in efficiencies, less waste,improved response times, higher asset utilization andimproved quality.”In his presentation, Nesi described what he termed the“Internet of things,” the growing interconnected andautomated web of information that allows devices tocommunicate with each other in real time.“More things are being connected to more devices.They are talking to each other and talking back toyour information services as well,” he said. “But asmore things become ‘smart’ and start transmittingdata, they can end up crushing you with information.”Nesi said that’s why the two most importantcomponents of the “Internet of things” areinformation management and cybersecurity.Companies need to know what data they want tocollect, what they are going to do with it and howthey are going to keep others from accessing it.To demonstrate how companies may beunderutilizing the information they have at theirdisposal, Nesi described a high-speed packagingline that includes a filler, wrapper, case packer andthe palletizer.“All of these machines are talking to each other andoperating at a tremendous rate of speed, but they maynot be keeping that information in history,” Nesisaid. “We want to capture that information, find outwhy machines shut down, use algorithms to betterunderstand the nature of the shutdown and then dosome prognostics on what we have to fix.”While the progress varies significantly from industryto industry, Nesi said companies are increasinglymoving data to the cloud, integrating their systemsand making information accessible to mobiledevices. While these trends are good for improvingproductivity and responding in real time to customerdemands, they have their challenges. However,Nesi said, only 14% of manufacturers havecompletely integrated their plant floor informationto the enterprise.2 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014
One of the challenges is getting the operations peopleand control engineers to work together with IT. Theother is to find people who can make the transition tothe smarter machines. “The operators that have tribalknowledge often don’t know or understand smartmachines, while the operators who understand smartmachines, don’t have the tribal knowledge,” Nesi said.Nesi believes the benefits of moving to highlyautomated, interconnected systems outweigh therisks. “It can lead to safer, more accessible foodsupply and more effective use of natural resources,”he said. “We just have to be careful how we deployit as an industry.”Nesi detailed Rockwell’s own five-year connectedenterprise initiative, which included a comprehensivefootprint analysis of its global operations, suppliercollaboration initiatives and the standardizationof processes and workflows. The result has been areduction in capital expenditures and lead times andsignificant improvements in quality.Challenges and opportunitiesDuring a panel discussion moderated by JosephToonen, an audit partner who leads Grant ThorntonLLP’s food and beverage industry group, executivesat five Wisconsin-based food and beveragemanufacturers talked about the challenges they faceand the opportunities they see in the coming year.“Agriculture and food products are very viable forthe state of Wisconsin,” said Dallas Wuethrich, CEOof Greenwood-based Grassland Dairy Products,an industry leader providing a wide range of butterproducts, packages and brands to retailers, foodservice operations and the industrial dairy market.“They are not very fancy or pretty, but they are wherethe hope for the future of the state lies.”Wuethrich said things are looking better for the state’sfood companies.“People are getting excited about butter again,” henoted. “We’re seeing the highest butter usage in 60years, especially for unsalted butter, which nowrepresents 50% of production at our flagship plant.”Other panelists said they were benefiting fromchanges in the public’s dietary preferences.“The attention to gluten-free, whole-grain fibersplays well for us,” said Riley Didion, sales manager ofDidion Milling Inc., a family-owned business basednear Madison that has been storing, processing andtransporting grain products for more than 40 years.Its current portfolio of value-added corn productsincludes flours, meals, grits, brans andwhole-grain flours.They, like Jurewicz, see the food and beverageindustry playing an important role in Wisconsin’seconomic future.3 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014
The importance of technologyIntegrating technology into the corporate strategyWhile panelists said their primary focus is food,they must keep a keen eye on technology toremain competitive.The panelists noted that while technology isimportant, it isn’t necessary to pioneer the newestsystems and devices. And what a company does withtechnology depends in large part on its current focusas an organization.“You have to become much more efficient in youroperations because it is difficult to control the costsof raw materials or your finished price,” said DougDieterich, president of the Galloway Company, inNeenah, the largest manufacturer of frozen dairydessert mixes in Wisconsin and the largest sweetenedcondensed milk producer in the nation.That requires efficient processes, technologicallyadvanced equipment and real-time informationthat tracks how the machines are operating and whatis happening to the product as it moves throughthe plant.“When a load of raw material hits our plant, apurchase order is affixed to it and that numberfollows the material from receiving to quality tocomposition to laboratory to churning to lot tracking,packaging and inventory,” Wuethrich said. “All of theinformation is downloaded and compiled, includingthe run times of the machines processing the product.”“Our strategy is to adopt technology at the latter endof its beginning phase,” said Jim Ostrom, Co-Founderand Partner of Milk Source LLC, in Kaukauna,which operates large-scale dairies in Wisconsin andMichigan. “We are focused on growth, which is whywe are a little late in adopting technology.”Ted Balistreri, co-owner of Sendik’s Food Markets, athird-generation grocery store chain with 11 locationsin southeast Wisconsin, agrees. “You are either ingrowth mode or you are working on your cost side,”he said. “It is difficult to do both.”But that doesn’t mean Sendik’s isn’t being innovative.“We are constantly working on processes, because,as everyone knows, the grocery industry is a penniesbusiness,” Balistreri said. “In addition, because weare a third-generation family-owned business, a lot ofthe things we do are done that way because we havealways done them that way. To counter that, we havedevelopmental centers that bring together a team ofexperts to challenge everything we are doing in orderto explore new ways of doing things.”At Galloway, growth and innovation is one of sixfocus areas in the annual planning process. “We selectthree to five projects to work on and develop a plan,”Dieterich said. “This approach has led to a new sorbetproduct, which we introduced a few years back andhas been very successful; extended shelf-life productsfor two of our customers; and new opportunities forbeverage customers.”4 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014
Maximizing tax credits for innovationThe talent challengeToonen noted that while most companies innovate,many miss the opportunity to fully leverage thefinancial benefits of their innovations because theydon’t fully understand the federal government’s R&Dtax credit.Finding and retaining talent remains one of thekey hurdles for growth.“Many companies think of R&D as new productsand people in white coats, but the tax credit can applyto any process improvement on the shop floor,” hesaid. “If your company is not taking the credit, wehighly recommend you take another look at it. Theother thing we often see is that the tax credit has notbeen maximized, especially among food and beveragecompanies who claim the credit. This is a financialopportunity that should not be overlooked.”Panelists also noted that developing long-termrelationships with both their clients and suppliers hasbeen important to their success.“We try to integrate suppliers into our business asmuch as we can because the work they do with otherbusinesses gives them insights and innovative ideasthat they can share with us,” Didion said. He saidthe ideas he received from suppliers during severalexpansion projects over the past few years wereextremely beneficial. “They are closer to the groundin many areas because they work with a cross-sectionof industries.”“Attracting and retaining people, for bothmanagement and production, is a significant issue,”said Dieterich. “Over the next five to eight years,we are going to see a lot of turnover in knowledgeand experience.”Balistreri agreed, explaining that talent development isone of management’s top initiatives.“We spend a lot of our resources to develop ourtalent — both internally and externally,” he said. “Weare reaching into the company to find the next batchof up-and-comers and get them more involved, andwe are going outside the company to recruit topnotch people.”Working with area schools is important to achievingthis goal. Sendik’s, for example, is working withstudents at Concordia University Wisconsin inMequon to show them the opportunities that areavailable in the retail food businesses.5 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014
Financial and reputational riskFood safetyManaging financial risk is integral to operating anybusiness today, but for food manufacturers, thegreatest risk they face is public perception.Toonen noted that 57% of food and beveragemanufacturers say food safety is their No. 1 issue andseveral panelists agreed.“I built our company off of hedging, which is riskmanagement in its purest form, but the risk I worryabout is what I call reputational terrorism,” Ostromsaid. “There are organizations out there that aredesigned to destroy agricultural operations. They gointo a farm undercover to get some unflattering videoand then try to destroy everyone in that channel —from the processor to the marketer to the retailer.”“The threat of a food-borne illness keeps me up atnight,” Balistreri said. “I stay very close to the foodsafety people in our operation. They report directlyto me. And I go to safety meetings and seminars withstaff so they can see that it is important to me.”Earlier this year, Milk Source was named theInnovative Dairy Farmer of the Year by theInternational Dairy Foods Association and DairyToday magazine. The company is working withthe University of Wisconsin-Oshkosh and anothercompany on biodigester projects that turn cowmanure into green energy and fertilizer.Nonetheless, Ostrom said that his company,which operates large dairy operations, is constantlybattling perceptions that it is not environmentallyfriendly. “Large farms are designed not to pollute,but that’s not the perception many people have andthe regulatory community responds to this publicpressure,” he said.Balistreri said the concern is not just that a customeror family member might get sick, but that the Sendik’sreputation could be damaged even if no one falls ill.Balistreri said that concern forces retailers to takedefensive measures that can have drastic effects onsuppliers. He cited one instance in which his companyhad to sever ties with a family company due to badpublicity about that operation — even though no onewas injured or became sick.“We had to pull the product due to the publicoutcry,” he said. “It was very sad. It was a goodcompany, but something went awry.”Panelists said technology, including cameras andtracking information, can be used to help mitigatefood-safety risks.“You have to make sure that all of yourresponsibilities are fulfilled when the product is inyour facility and that there is the discipline to ensurethat processes are properly followed,” Wuethrich said.6 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014
Dealing with food wasteThe flip side of food security is the issue of foodwaste. In order to comply with regulations and reducetheir risk, manufacturers are conservative in theirselection of pull dates — the dates on which theirproduct should be taken off the shelves.“From a manufacturing perspective, we don’t wantthe risk of recall, so we don’t want long pull dates,”Didion said.Despite the challenges and risks they face, thepanelists said they are optimistic about theircompanies and the future of food and beveragemanufacturing in Wisconsin.“As John (Nesi) noted, there are going to be 1 billionnew consumers spending 8 trillion by 2016,” saidOstrom. “The first thing they spend money on ishigh-quality protein and that is a boon for Americanagriculture and a boon for the dairy industry. We willparticipate in some of that.”Once the product is in the store, retailers are alsoquick to pull it off.“You can’t have products with expired pull dateson your shelf and customers won’t buy products ifthey are close to the pull date even though it is OK,”Balistreri said. “With yogurt, we are pulling five daysbefore the expiration date because people don’t wantto see pull dates in their fridge.”The result of these pull-date policies is that a lot ofgood food is being thrown away. However, there’salways the silver lining of opportunity.“Some of our biggest growth opportunities aredeveloping extended shelf-life opportunities for ourcustomers,” Dieterich said.7 Technology and innovation will help the state’s food and beverage manufacturers fuel economic growth 2014ContactsJeff RobinsonManaging PartnerWisconsin PracticeT 414.277.1530E jeff.robinson@us.gt.comJoe ToonenPartnerT 920.968.6720E joe.toonen@us.gt.com
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LLP's food and beverage industry group, executives at five Wisconsin-based food and beverage manufacturers talked about the challenges they face and the opportunities they see in the coming year. They, like Jurewicz, see the food and beverage industry playing an important role in Wisconsin's economic future.
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