Outlook 2013: Fage looks to plant expansion for stability
JOHNSTOWN Fage USA Dairy has big plans for its only Greek-style yogurt manufacturing plant in the United States, located in the Johnstown Industrial Park.
And those plans will have a positive effect on the region when they are fully developed, local officials said.
The company plans to add 180,000 square feet to the current, 220,000-square-foot facility, allowing it to double annual production to 160,000 tons of yogurt. In the process, Fage will add 150 workers to the 240 now there.
The $100 million expansion is scheduled to break ground later this year, with production in the new section expected to begin in 2014.
Fage built the Johnstown plant in 2008 as a means to penetrate the U.S. market, according to Greek Reporter.Com. Prior to this, the company exported product to America from plants in Greece.
Fage spokesman Russell Evans said he could not discuss the expansion.
“Sales have been very good,” he said. “We have grown 50 percent per year on average for the last 10 years.”
Evans said the company at some point will add a new product line at the Johnstown plant. That product is called Fruyo, which consists of stirred yogurt and fruit in a homogenized base.
“It will hit the market in a couple of months. There is nothing like this out there,” he said.
The company’s hope is the expansion will help provide the profits it needs to weather the economic crisis in its homeland. Greece is suffering through one of the worst economic recessions in its history, and there are fears it will withdraw from the Eurozone, an economic and monetary union of 17 European Union member states that have adopted the euro as their common currency and sole legal tender.
Should that happen, analysts fear Fage would default on $250 million in unsecured bonds it plans to issue to pay down debt and finance the Johnstown expansion. The company has the majority of its assets in Greece, and these assets are leveraged through Greek banks, which are exposed to the country’s economic crisis, analysts said. Fage has limited liquidity and substantial indebtedness, according to Globaldata.com.
Fage said it will finance the project through bonds due in 2020. It already has issued $150 million in such notes and has $80 million in other debt outstanding, according to an analysis by Standard & Poor’s, an investment analysis company.
In October, the company restructured and moved its corporate headquarters from Greece to Luxembourg, renaming itself Fage International S.A. The U.S. operation remains under the name Fage USA Dairy. The corporate restructuring will limit Fage’s exposure to Greece’s crumbling economy, give it a better tax environment and allow it to access bank funding, according to S&P.
For Fage, growth outside of Greece, where its market share has declined, is key to its survival. Overseas sales currently account for 68 percent of Fage’s total sales, while its share of the U.S. yogurt market has grown to 4.4 percent since 2008, placing the company sixth overall in this market. Its revenues topped $385 million as of May 2012, said Globaldata.com.
Greek-style yogurt accounts for approximately $1.5 billion of the $6.8 billion U.S. yogurt market, up from $60 million in 2005. No. 1 in sales is Yoplait, according to CNNMoney.Com, with 27.8 percent of the yogurt market.
Chobani, another Greek-style yogurt maker based in South Edmeston, has about 13 percent of the market. Chobani president and CEO Hamdi Ulukaya also controls Euphrates Inc., which makes feta cheese at a facility in Johnstown that employs more than 100 people.
Any growth by Fage is good news for the local and regional economies, said Johnstown Mayor Sarah Slingerland.
“Fage is important primarily through its job creation, and that churns through the community many times. People who are employed there buy groceries and buy gas. They shop and buy homes. Fage supports a regional economy,” she said. “They are good jobs, and from what I hear, people are happy to be employed there. It is a good company to work for, and they are retaining the workforce.”
“Fage is a major employer, soon to get bigger,” said Jim Mraz, director of the Fulton County Planning Department. “They bring us international recognition. A company that size could have chosen to build that plant anywhere. They chose Fulton County.”
Fage pays property taxes and support local businesses, Mraz said.
“There is spending power with its payroll,” he said.
In addition to these benefits, the company purchases water from the city of Johnstown and pays to discharge its wastewater into the Gloversville-Johnstown Wastewater Treatment Facility. Once its addition is up and running, Fage is expected to generate 1 million gallons a day of wastewater and washwater, doubling its current output. The sewer plant as presently configured cannot handle more than 2 percent of this amount without a comprehensive upgrade. Fage would then become the facility’s largest users, and its fees will help stabilize rates for other customers, local officials said.