CONSIDER A LOUISIANA PURCHASE
THE BAYOU STATE’S GLOBAL REACH IS BIG, EASY
The aroma of fresh coffee, a beignet and a little jazz may entice some to New Orleans, but when Folgers executives caught the scent of Louisiana’s aggressive package of incentives, the nation’s largest coffee company was assured it was making the right decision to invest $70 million to be near the Big Easy.
After all, making the Crescent City the company’s exclusive entrepôt increases New Orleans’ cachet as a distribution hub and coffee town.
Folgers had already been part of the New Orleans community for 50 years. But parent company J.M. Smucker was instigating a $220 million restructuring effort to cut costs and improve company-wide efficiency. This meant expanding production and capacity at three New Orleans facilities at the cost of closing plants in Sherman, Texas, and Kansas City, Missouri. The effort would shave $60 million from Folgers’ expenses.
A statement from Folgers called the Louisiana expansion “a major factor in the continued growth and success of our Folgers coffee business.” The plan was to invest $70 million in Folgers’ New Orleans manufacturing plants and a distribution center (DC), of which around $62 million was earmarked for new equipment and approximately $7 million for a remake of the DC’s interior to accommodate more products.
To sweeten the deal, Louisiana Economic Development (LED) offered Folgers incentives of nearly $6 million. The package included a $3 million performance-based grant for relocation costs, a $2.1 million refundable state tax credit for capital investment through the state’s Retention and Modernization Program, and a $500,000 public infrastructure grant to pay for drainage and surface improvements. LED also supported Folgers’ application for $65 million in Gulf Opportunity Zone bonds.
Seen as a boon Port of New Orleans business, port officials worked diligently to support Folgers’ investment. This meant ensuring ample space for additional coffee shipments coming to the port—even those arriving by rail since much of the coffee imported from Asia is discharged, for now, in California and railed to New Orleans.
New Orleans operates as one of the country’s leading coffee ports, equal to New York.
“We worked with ocean carriers to make sure they knew Folgers was going to need additional capacity,” recalls Robert M. Landry, the seaport’s chief commercial officer.
An added plus, the expanded Panama Canal, scheduled to open in 2015, will ensure that the larger post-Panamax ships from Asia finally will be able to transit the canal for Gulf and East Coast ports. “This brings opportunities for Folgers to bring coffee to New Orleans direct, rather than mini landbridge from the West Coast,” Landry says. Much of that coffee currently comes from Vietnam, now the world’s second-largest coffee producer. “The expansion will increase the frequency of container ships coming through the Panama Canal and also expand the number of services.”
A big plus, Folgers green coffee beans are stored and blended by Silocaf, which operates the world’s largest storage and blending facility, controlled by Folgers and situated next to the port’s Napoleon Avenue Container Terminal in New Orleans. It represents more than $1 billion in coffee sales per year.
“New Orleans is the nation’s premier coffee handling port, and we have a robust ecosystem of companies that participate in every aspect of the coffee supply chain—from processing, storage and distribution, to trading,” says Rodrick Miller, president and CEO, New Orleans Business Alliance.
The supply-chain savings that Folgers’ New Orleans location offers is a reason for other locally based coffee brands to locate there as well. These include CDM and Luzianne (owned by parent company Reily Foods) and PJ’s Coffee, a franchise coffee chain with locations across the United States. Zephyr Green Coffee also operates as a coffee trader and importer there. The company opened its doors in New Orleans in 2006, less than a year after Hurricane Katrina left its mark on the city.
“Considering New Orleans’ history of coffee trading, strong logistics infrastructure at the port and advantageous location on the Gulf Coast, coffee manufacturing and import/export activity are well positioned for continued growth,” Miller says.
Louisiana’s strategic Gulf location supports other industries as well. One is the processing of peppers into hot sauce for such brands as well-known and globally sold Tabasco.
Manufactured by McIlhenny Co. on Avery Island, the pepper sauce has been around some 140 years. “The family that created the pepper sauce married into the family that owned Avery Island,” explains Betts Theriot, McIlhenny senior manager for International Market. “It started here and will stay here.”
According to Theriot, McIlhenny’s growing operations have expanded to 10 countries in Central and South America. “That’s to protect us from crops damaged by weather, insect infestation or plant disease,” she explains. “But all seeds that are used to grow those plants overseas originate from plants on Avery Island.”
Despite the fact McIlhenny’s Tabasco product is shipped globally, its Louisiana operation employs less than 200 people. “And our brand is as large as Hershey or Coke,” Theriot exclaims.
Key to its success: all sales people in the United States work around the world, plus the firm employs direct sales personnel and regional managers in specific markets.
“Regional managers do the ground work,” Theriot explains. “They investigate the market in their established territory, look to see what other company brands are exporting into those countries and figure out who wants to import Tabasco.”
Much of the work, she says, is word of mouth. “But since we have a huge network of import partners, we are able to ask who sells what in a particular country and who the importer is. We can get a quick list of the different companies.”
As a result, McIlhenny now sells Tabasco in 160 countries and territories worldwide. It’s been selling in Japan since the 1950s, and now is expanding into emerging markets. “We just hired an importer in Jordan and another in Kazakhstan,” Theriot says. “We’re also researching importers in Georgia, Romania, Azerbaijani and Bolivia.”
To help, McIlhenny utilizes funding from the Southern United States Trade Association (SUSTA), headquartered in New Orleans. SUSTA provides branded marketing programs, generic industry promotions and chef training programs.
“They help us with brand awareness and trade shows,” Theriot says.
While McIlhenny has managed well without use of state assistance, LED has been active in providing help to other well known companies throughout the state.
Lockheed Martin announced in March that it will make a $3 million capital investment at NASA’s Michoud Assembly Facility to manufacture cryogenic tanks for liquefied natural gas (LNG). The tanks are part of the company’s increased emphasis on converting defense technology to commercial applications.
At 832 acres, the facility is one of the nation’s largest indoor manufacturing complexes. Lockheed previously used the site to manufacture external fuel tanks for NASA’s shuttle program. It also plans to use the facility for a slate of new technologies such as Ocean Thermal Energy Conversion (OTEC) heat exchangers.
LED is offering a variety of incentives and programs to help Lockheed with the projects. These include Louisiana’s Competitive Projects Payroll Incentive, which entails a payroll rebate of up to 12 percent for eligible jobs in advanced manufacturing, the Industrial Ad Valorem Tax Exemption Program (ITEP), as well as LED’s FastStart program.
FastStart, a popular program administered free of charge by LED, provides customized employee recruitment, screening, training development and training delivery for eligible, new or expanding companies. Based on a company’s immediate and long-term workforce needs, the FastStart team crafts unique training programs to ensure high-quality, flexible workers are prepared from day one.
ITEP is an original state program which offers an attractive tax incentive for manufacturers within the state. The program abates, up to 10 years, local property taxes (Ad Valorem) on a manufacturer’s new investment and annual capitalized additions related to the manufacturing site.
Louisiana’s prize new project, however, is South African-based Sasol, which is proposing to build a gas-to-liquids and ethane cracker complex in Westlake. With a $21 billion price tag, this project is regarded as the largest investment by a foreign-based company in U.S. history.
Not only are thousands of new jobs anticipated as a result of the deal, the project could make Louisiana the No. 1 exporting state for years to come.
“Probably not since the Ship Channel was dug in the late 1920s or we began the petrochemical industry here in World War II has there been a bigger announcement in Southwest Louisiana,” says George Swift of the Southwest Louisiana Economic Development Alliance.
Underlying the historic announcement is another key ingredient that many say is catalyzing an industrial renaissance in the United States: the advent of low, stable natural gas prices.
Louisiana’s extensive pipeline infrastructure and favorable natural gas climate should give fuel to at least $50 billion in new manufacturing projects in the state within the next three to four years, meaning that more news is on the way for Louisiana purchases.
State of Emergence