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For state, cold sites hot ticket; investors adding to frosty storage

by Andrew Moreau | July 4, 2021 at 2:08 a.m.

The cold-storage industry has become sizzling hot in Arkansas, with expansion of facilities across the state predicted to continue over the next several years.

An Arkansas-based cold-storage company and a national storage provider recently announced nearly $100 million in investments in the state to keep up with increasing demand from customers. The expansions are part of a trend sweeping the globe, with industry analysts predicting a compound annual growth rate of 13.4% through 2027 for the industry.

Global cold-storage construction was estimated to reach $7.9 billion in 2020 and grow to $19 billion by 2027, according to an analysis by Research and Markets, an international marketing research firm that covers the industry.

Cypress Cold Storage of Maumelle and Americold Realty Trust of Atlanta are contributing to the growth with expansions in Arkansas. And Cypress already is plotting its next move in the state. The company has purchased land in Springdale and is designing another cold-storage facility that likely will be close to 200,000 square feet.

"There is no question about continued growth in the industry," said Michael McAfee, president of Cypress. "We don't see any change in that. Northwest Arkansas is probably not our last new facility."

The expansions line up with the state's focus on the food-service industry as a prime target for business recruiting and economic development efforts in Arkansas, according to Commerce Secretary Mike Preston.

"Food processing is an industry that we target in Arkansas, from the ag production side to manufacturing to distribution to storage," Preston said. "These companies are making significant investments and that means job opportunities for Arkansans. These are good economic wins for our state."

There is an Arkansas thread that connects the cold-storage providers with their customers. Americold has 10 storage facilities in the state and one of its largest customers is Conagra Brands, which has two manufacturing plants in Arkansas. Cypress' largest customer is Tyson Foods, and it serves Turkey Hill Dairy, which took over production of Yarnell's Ice Cream in Searcy.

Cypress plans to break ground on the Springdale facility in coming months and begin operations next year. That follows the company's announcement in May that it is investing $13 million and adding 88,400 square feet to double the size of the Maumelle warehouse.

The coronavirus pandemic's stranglehold on the economy, forcing restaurants and other businesses to shutter operations as workers camped out at home, led to increased online grocery orders and deliveries, trends that have fueled demand for cold storage as packaged food producers like Conagra ramped up production at factories, including its two Arkansas plants.

Conagra, an $11 billion international packaged-food provider, has plants in Fayetteville and Russellville that produce frozen meals, including brands such as Healthy Choice, Marie Callender's, Banquet, Hungry Man, EVOL, PF Chang's and Bertolli. The Chicago-based company offers products to restaurants, retailers, commercial customers and food-service suppliers.

"Our products have been in high demand going back before the pandemic and became even more popular as more meals were consumed at home," company spokesman Daniel Hare said. "We are running our facilities at full capacity to produce enough food and with that comes an increased need for cold storage."

Conagra has about 1,450 employees in Russellville and another 550 workers in Fayetteville.

Increased demand for Conagra products led Americold to announce two weeks ago that it would invest $84 million and add 30 jobs at its Russellville cold-storage facility. With the expansion, Americold will add 13 million cubic feet to the facility, creating space for about 42,000 pallets for product storage.

Expansion is driven by the storage needs of Conagra, one of Americold's top-tier clients, the company said. "The Russellville facility will be highly automated to provide mission critical, long term infrastructure for one of our top tier strategic customers and one of North America's leading branded food companies," Fred Boehler, president and chief executive officer of Americold, said in a statement announcing the expansion.

The company declined to provide comment or further details for this article.

While covid-driven lifestyle changes have fueled the Americold expansion, Cypress' growth is not necessarily linked to the pandemic, according to McAfee, who says the company is "Arkansas-centric" with a focus on working directly with about five major customers.

Cypress receives processed food items such as chicken nuggets and patties from customers like Tyson that are then shipped to fast-food restaurants. "We store it, warehouse it for them and deliver it for consumer consumption" McAfee said.

Refrigerated and frozen goods are shipped to chains such as McDonald's, Wendy's and Taco Bell. "We have a diversified customer base, and we have a variety of products in our building," McAfee said, noting that Cypress stores products that include chicken, vegetables, ice cream, waffles and tortillas.

The company prides itself on staying nimble and flexible so it can respond quickly to changing customer needs. "We are very focused on a handful of clients and provide premium service to them," McAfee said.

Cypress also operates a smaller warehouse, with the capacity to store about 6,000 pallets, in the Dark Hollow area of North Little Rock, an area east of Interstate 30 and north of the Union Pacific railroad.

The Maumelle facility, which includes segregated rooms to handle different temperature and storage requirements, increased its pallet storage from 7,000 to 18,000 with the expansion. Cypress has increased daily processing of goods from 2 million pounds a day to about 4.5 million pounds daily.

Americold and Cypress noted that advanced automation will be part of the expanded production operations, which will be more efficient and lower power bills, which besides labor is the largest expense associated with cold storage.

For example, though Cypress is doubling the size of the Maumelle facility, power costs will rise only by 20%, McAfee said.

Automation is key to growth and delivering greater savings in the cold-storage industry, according to a research report from Jones Lang LaSalle, or JLL, a global commercial real estate services company.

"Companies are adopting and relying heavily upon technology designed to streamline cold supply chains," JLL said in the report.

To drive further savings, Cypress is considering installing solar panels at its storage warehouses to deliver even greater cost savings and to help customers meet their sustainability initiatives.

"That's something that also could potentially give us a competitive advantage because all of our customers have green initiatives," McAfee added. "That will help our customers fulfill their environmental goals."

Environmental, social and governance reporting is a requirement for customers and investors across multiple industries today.

JLL notes that going green is a growing trend for cold-storage facilities, many of which are in need of upgrades considering 78% of cold-storage warehouses were built before 2000, the research report said.

"Power required to keep products cold can make up more than a quarter of the building's operational costs," the report notes. "Greener practices and energy efficiencies could cut these costs by nearly half."

Cold-storage expansions in Arkansas should fuel job opportunities for years to come, according to Preston.

"These are investments that are going to be around for a while; they're not making this investment to close up or move anytime soon," he added. "They are going to provide good, sustained and long-term jobs."

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