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Food and Beverage Manufacturers Must Continue Evolving Their Real Estate Strategies

The COVID-19 pandemic has placed significant stresses on food and beverage supply chains across the board, adding challenges to an already intricate industry, Cushman & Wakefield reports. “While the impacts of COVID-19 are still unfolding, it’s increasingly clear that food and beverage companies will need to continue to evolve their strategies when it comes to inventory management, real estate decisions, automation, packaging and sustainability,” among other factors. 

“Everyone is trying to build in ways to add in extra supply, so the chain doesn’t break like it did last year,” said Ken Reiff, co-lead of the food and beverage advisory group at Cushman & Wakefield. “Whether that means utilizing larger distribution centers or more smaller facilities nearby, adding in that flexibility and extra storage is crucial.” 

Reiff sat down recently with three F&B industry experts—Betsy Power, director, Global Real Estate, Frito-Lay/Pepsico; David Varalli, director of real estate, TreeHouse Foods; and Dennis Julio, head of global real estate, Nestle—for a deep dive into their post-pandemic strategies. We’ve excerpted that discussion here, with a focus on the real estate impacts. 

“We are seeing a greater proportion of our overall global transaction activity devoted to industrial real estate, including land acquisitions for factories, expansion of existing production facilities, and additional lease acquisitions and relocations on the logistics side,” Julio said. “This also includes larger-scale distribution centers than we are typically used to seeing.”  
For the most part, he continued, “we like to keep terms flexible and try to avoid longer leases, but lately, we’ve had to resort to longer-term transactions because of the competitive industrial market and our reduced leverage. And now, given the dramatic rise in the industrial real estate market, we are also looking more closely at owning versus leasing when it makes financial sense, especially in key markets.”  
Frito-Lay/Pepsico’s warehousing traditionally has been owned real estate—often older and smaller, said Power. “From a strategic sales perspective, we recently decided to update our infrastructure, expanding our buildings to larger footprints… we want to be able to mix operations that we couldn’t mix before, so we are shifting from an owned strategy to a leased strategy in order to gain flexibility and move more quickly if markets shift.  
She continued, “We are also building many last-mile facilities, that we call product exchange centers, to get closer to the market. And there’s been an enormous amount of construction going on for buildings ranging from 10,000 square feet in rural markets to 30,000 square feet in metro.  
“We have over 1,000 SKUs, but at the end of the day, if we don’t have room to stock them in a warehouse, we lose sales.”   
At TreeHouse, Varalli said, “We have always prioritized flexibility in our supply chain in order to serve our customers’ evolving needs while meeting dynamic consumer demands, which has driven us to shorter lease terms historically. The competition for industrial buildings, however, has recently forced us to reevaluate our strategy and lock into longer term leases.“ 

Pictured: Pecos Logistics Center in Denver, where Pepsico made a big leasing commitment in 2020.


Inside The Story

Cushman & Wakefield's Reiff

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

  • ◦Lease
  • ◦Sale/Acquisition
  • ◦Development
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