Nestlé USA plans to spend $675 million on a factory in Glendale, Arizona, to meet the growing demand for some of its beverages, the company told Food Dive. The new facility, which is expected to open in 2024, will create more than 350 jobs.
The 630,000-square-foot factory will produce creamers for its Coffee mate, Coffee mate Natural Bliss and Starbucks brands. It will have the capability to expand into additional beverages in the future.
"This investment should really help strengthen our leading market position and enhance our manufacturing capabilities to meet the increased consumer demand we're seeing for our beverage products," Daniel Jhung, president of Nestlé USA's beverage division, said in an interview.
As Nestlé moves forward with a new creamer factory, the nearly $700 million investment is a long-term bet that recent habits that have formed will become permanently ingrained with the U.S. consumer.
Jhung said the creamer segment was growing quickly before COVID-19, but consumer demand accelerated as more people stayed home and made their own cups of premium coffees, lattes and other caffeinated beverages using platforms like Nestlé's Nespresso. The rate of growth has eased to mid-single digits since the pandemic peak, but expansion is still well ahead of where it was before the outbreak.
Jhung said the robust growth rate, and the belief that at-home trends will remain even after COVID-19 eases, prompted Nestlé to move forward with a western U.S. plant faster than it otherwise would have.
"I always thought that at some point we're going to need this new facility because pre-pandemic the category was growing pretty healthy," he said. "But post-pandemic accelerated the need to bring that new factory up ... sooner than expected."
Gen Z and millennials have played a major role in increasing the demand for creamers. Not only have they become baristas while at home, but they are more likely to use creamers in their coffees than older demographics.
Roughly 70% of coffee is whitened (either with milk, plant-based milk, half and half, or creamer) with younger consumers more likely to do it. As millennials and Gen Z become a larger part of the total market, the number of whitened cups is forecast to rise to 90%, with creamers remaining the preferred option, Nestlé said.
In 2021, U.S. retail sales of coffee creamers totaled $3.9 billion, according to data provided by Euromonitor, up nearly 40% from 2016 to 2021. Nestlé is the market leader in the creamer space. Its Coffee mate and Coffee mate Natural Bliss collectively posted nearly $412 million in U.S. sales in 2020. This compares to Danone's International Delight at more than $158 million and Silk with just under $43 million in sales, according to data from Statista.
The decision to open a new plant in Arizona comes with a number of benefits for Nestlé.
It provides the company with close proximity to customers and consumers in the western U.S., reducing transport timelines. Currently, much of the creamers are made in an Indiana plant, one of 14 operated by the company in the U.S., before they are shipped to distribution centers across the U.S.
The facility will further help Nestlé with sustainability through a water recycling process to reduce usage, zero waste to landfill and fully recyclable product packaging made from food-safe recycled plastic. Jhung said Nestlé USA calculated how much the company could reduce its CO2 emissions by having a bigger West Coast facility. Nestlé has committed to having zero environmental impact across its company-wide operations by 2030.
The creamer plant in Arizona is the latest for Nestlé as it aims to meet an uptick in demand for many of its products. During the past two years, Nestlé said it invested nearly $3 billion in the U.S. to enhance its manufacturing footprint and in-house capabilities — from new factories and expansions to changes that help it meet its sustainability targets.
Last July, Nestlé USA announced it would invest $100 million to expand its frozen foods factory in South Carolina that manufactures brands such as Stouffer’s and Lean Cuisine. It also announced that same month it would spend $70 million to renovate a Wisconsin plant previously used for candy bars to make cookie dough. In 2020, it spent $100 million to build a Hot Pockets line at a facility in Arkansas.
The expansion comes not long after Nestlé was in the middle of a period of consolidation globally. Three years ago, it was closing one plant a month and repurposing others in an effort to boost efficiency, increase margins and improve its allocation of capital.
Nestlé is just the latest company to move forward with a construction project in order to meet increased demand — much of it spurred on by a jump in consumption during the ongoing pandemic. Other companies that have announced new plants or the expansion of existing facilities include PepsiCo's Frito-Lay, Dole, Diageo, JBS USA, Tyson Foods, General Mills and Hostess.
While many companies are opening or adding on to existing facilities, it's not uncommon for plants to close at the same time.
Last November, Mondelēz International said will invest $122.5 million over three years to boost capacity at its Richmond, Virginia, location where it makes Oreos. The announcement came a few months after it announced plans to close bakery plants in Atlanta and New Jersey because the two locations were no longer geographically strategic and the facilities were facing operational challenges, including aging infrastructure.