Otto Cuyler of Cuyler FoodPro discusses what he’s seeing in the market for food processing machinery during the COVID-19 pandemic.
About this segment of Blackbird TV
Recorded: September 21, 2020
Published: November 3, 2020
I’d like to introduce my friend, Otto Cuyler. Otto from Cuyler FoodPro, a renowned appraiser. Otto has a specialty in the food and food processing industry. How are you doing, man? I’m good, David. I’d just like to talk a little bit about some current events. Here we are, we’re in a pandemic, and some industries are sinking, some industries are swimming, a lot of places are treading water—to keep that theme. What are you seeing right now in the equipment values, particularly what are you seeing in the food processing space? You and I worked on a couple of projects during the pandemic that are in the food processing space, but they’re off to the side. If you want to talk about the core of the food processing, which could be meat poultry fruit and vegetable beverage, those types of things, most of this comes down to pandemic-related access. For example, let me go to an extreme. There has been a lot of activity in craft brewing over the last…I mean, that was coming anyway, before, as we came into January / February… we had been calling craft brewing bubble was bursting already, before we got to 2020, and then this just kind of put a nail in the coffin, only because the mandates require that people couldn’t go in there, for especially for those that were restaurants. Those would be microbreweries rather than craft, I think that the tier is a little different not that the craft brewing industry isn’t suffering a little trouble, but particularly those brew pubs, those smaller ones, you know a lot of states they can’t even open yet. That’s exactly right and that’s that’s where i’m talking about so i mean craft brewery is an appropriate term but you’re right micro brewery would be a food service location typically and because people can’t go in there and still really can’t go in there at full capacity most people rely on the kind of profit margins that require 100% occupancy when they can get it, doing the best they can. So anything less than that is going to hurt their bottom line and ultimately if they were struggling to begin with, so that’s more your side of the industry so we’ve seen that we’ve seen I don’t know since February, either things that you and I have discussed and things that are online that have come across my desk, 12, 14, there’s probably more that we don’t know about, right? All around the country, so that’s what’s happening there. To switch to the main core of the food industry, the meat, poultry, beverage, vegetables—the things that we buy on a regular basis, that come through our refrigerator. Anything that comes through our kitchen or pantry or refrigerator is doing exceptionally well. That segment of the industry is—if you look at some of the data, arguably you’ll find that the retail side of the food industry, meaning retail foods in a supermarket to keep our household going now that kids are at home, college kids, even, are at home, so there’s an increase in the acquisition and stocking—we won’t even talk about hoarding—but the stocking of our pantries. That part is doing phenomenally well, and is the industry. The fresh food and processed food industries from that perspective is the one in two best com best industries to benefit from the pandemic or the results of the pandemic. So, vis-a-vis that increased demand, because we’re all home cooking, and I know my personal grocery bills have gone up, because of that, we extrapolate that there’s a strength in the equipment market value as well, because as these factories have to ramp up, stuff breaks, they need to source a new piece, and so there’s more activity going on, and that supports the value essentially of the collateral, which is really what we’re talking about here, is we’re talking about the bank’s collateral so there’s support from what I’m hearing you say there’s support in the collateral value for food processing equipment throughout the pandemic. Correct. I would say that if anything, the market is improved even with or without the pandemic, the market has improved, but—I don’t want to get bogged down in it—but the other side of the retail is the institutional, so those companies that have equipment installed that support a base or products that go to restaurants or institutions, because we toured, for example, we toured Cornell University last weekend, and it’s a ghost town. There’s no food service at Cornell University. They have hundreds or thousands of students, right? Most high schools, I mean at least in New York State that I’m aware of, those things aren’t happening. So things that are packaged in large containers for institutional use, number 10 cans, things like that, that part of their business if they do retail and institutional, that part is slowed down. So to your point about equipment, the equipment that is geared towards institutional: not so good. So great differences. They’re both food, but they’re completely different silos. That’s that’s exactly right and you have to separate that in this situation to your question regarding the pandemic, the market is not there. I’ll give you one example. We appraised a large apple processor. They had five factories, and so the follow-up to that was “how are you guys doing with all these different plans and all these different lines?” They had 20 different lines and they’re moving all of their resources from the institutional side to the retail side, converting what they can to push their products that are the best sellers from a retail example and those little applesauce cups are you know terrific to have in the house for kids, just to give them a snack, and things like that. So people are stocking up on those, but their institutional lines, they’re just like sitting there doing nothing. Will it ultimately kill the value of that? I mean, if that’s a question, I don’t think so. I think we have to kind of see what happens with that, but there’s going to be a pent-up demand so as soon as we get back to 100% occupancy. Hospitals visitors can’t, you know, to some extent that’s there but it’s not there at the capacity, once those things come back online, all that equipment’s going to have to come back online and everybody knows that so if they moth-ball it for a year then that’s not unreasonable. I don’t think that kills the value unless there’s a default. Now I think this is your question, if there’s a default right now and we had this and we have to take this to market in the next 90 days, institutional equipment would be bought in speculation not for immediate use, you and I have been in thousands and thousands of factories over the years, and most of these companies—unless they’re really really big—any individual site will have anything from you know a small P.C., all the way up to five gallon buckets of ketchup, and everything in the same factory. Some companies do segregate for an institutional plant or a consumer plant, but it’s been my experience that there’s usually, as you pointed out, a couple of lines or three lines and and they can pivot that particular facility to fill the needs of of the marketplace at any given time so you’re seeing that the institutional packaging sizes have been mothballed and and the focus has gone to consumer if that does change and when that does change do you see that there’s going to be a maintenance issue with the institutional equipment that’s been offline for you know maybe six months now. I don’t think so, the companies that we deal with they have good maintenance programs good preventative maintenance programs and they won’t overlook that because any management any management would sit in meetings with the maintenance team and go “all right, so what are you guys doing about the institutional stuff? We still have to run that and grease that every…” they have protocols for that, right? So no I don’t see that as a problem. Machinery does like to run, so I think if the mothballing goes on for a period of time and it depends on the environment so I guess there’s a yeah there’s a “what-if” there. Depends on the environment if it’s an outdoor environment you don’t run something you know that rust and you know just drive really quickly yeah like a car you let a car sit for a year and you start it back up there’s going to be a problem with it so I think there is some to that but I think that this economic situation that we’re talking about specifically about the marketing of institutional food machinery is going to be I’m not saying short-lived I think there’s another year in this i think we’re status quo on this conversation for another year before things start to really fire back up from an institutional side but that’s just my personal uh opinion based on the true or false news that i’ve heard. Otto Cuyler, my good friend, my associate, thanks for joining us today. My pleasure.