Apple and Molson Coors signal differing views on U.S. manufacturing

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It’s a contrarian view to consider Apple a manufacturer and not a tech company. But as we’ve argued, how else to describe the world’s most valuable brand? Last year Apple spent about $50 billion with U.S.-based suppliers and manufacturers to build its suite of technology products. By any measure, a company that invests $50 billion in the domestic supply-chain is an American OEM.

For its part, Apple has avoided the “manufacturer” label. And who can blame ’em? Keeping its factories offshore has worked in Apple’s favor in two big ways: keeping 700,000-plus “employees” outsourced and ensconced in offshore factories keeps labor costs down and working conditions obscured behind an “Asian Wall.” It also enables the company to call itself a technology company versus the dirty-and-dying image associated with manufacturing.

We play along with this curious reasoning, because, well, who cares? We love a winner and Apple’s certainly that.

But what if Apple had made more of an investment in American manufacturing early on? I quoted Harold Meyerson earlier this year, who wrote, “If those 700,000 were employed directly by Apple, of course, then Apple would be the world’s largest manufacturer.” What if billions in cash holdings had been invested in training, in apprenticeships, in factories, in resources to develop a more capable supply chain? What if Apple had wrapped itself in America’s industrial legacy, instead?

Last week the company signaled plans to do just that.

Yes, a small percentage of Apple’s $350 billion repatriation of cash and services will be invested in manufacturing infrastructure. But the company’s stated intentions matter to U.S. manufacturing.

Contrast this with news emanating from Molson Coors.

With a blog post titled “Brewery Taproom Visits Dragging Down Sales at the Corner Bar,” the company proclaimed, “As the number of local taprooms and brew pubs continues to grow, so does the number of legal-age drinkers bypassing their traditional neighborhood bars.”

Further, “Total on-premise traffic fell 3.6 percent in 2017, according to data analyzed by MillerCoors. Even more troublesome: In five major U.S. cities (Denver, San Diego, Seattle, Phoenix, and Detroit), between 79 percent and 82 percent of consumers did not visit a bar following a trip to a tasting room, the data show.”

Huh? Today the corner bar is a craft taproom. Where has Molly Ballash, the MillerCoors category development manager for on-premise, been the past few years? “Our bar partners are missing out on high-volume occasions like dinner and happy hour.”

If Molson Coors’ bar partners were today the craft breweries dazzling the sector, the company would be leading from the front. Its choice instead has been to diminish the entrepreneurs inspiring a new generation of beer drinkers, work to hamstring craft’s tenuous distribution channels, and otherwise act like an out-of-touch legacy brand.

Like Apple, Molson Coors also has a choice. It could develop the Coors Craft Fund and award one deserving, early-stage brewery cash and resources. It could graciously return compliments from craft operators who admire the consistent excellence of its iconic pilsner, Coors Banquet Beer, and respect its outstanding malting operation and supply chain acumen.

Apple has decided to take America’s shiny new manufacturing sector out for a test drive. Molson Coors could do the same by supporting its worthy beer-making heirs.

The time is now.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.

Here’s why manufacturing will, or won’t, prosper in 2018

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U.S. manufacturing enters 2018 with momentum and considerable promise. For starters, in this golden age of corporatism, America’s blue-chip manufacturing brands are prospering.

More than that, manufacturers have a once-in-a-generation chance to improve their own fortunes by investing the windfall of tax reform into new companies and a more capable domestic supply chain.

Whether American OEMs choose to do so may define the fortunes of the sector for the next decade. It’s why this moment holds both promise and peril.

Here’s why manufacturing will, or won’t, prosper in 2018.

Will:

1. There are fewer big companies in the U.S. as influence and power consolidate into a new corporate oligarchy, but those at the top are thriving. Confidence within the membership of the National Association of Manufacturers has never been higher.

2. Lower corporate tax rates will provide a short-term financial boost for companies large and small, and a long-term benefit for those that reinvest in new factories and equipment.

3. Powerful trends point to sustained employment growth in multiple manufacturing industries even as robotics and automation put downward pressure on job growth in others.

4. Today, communities seek out manufacturing companies when, a decade ago, light industrial employers were less attractive than technology and service companies.

5. Higher education doesn’t deserve much of the self-serving attacks from its critics, but trends redirecting young people into trade and away from four-year degrees serve the economy, and manufacturing, well. There’s good reason to believe we’re on our way to solving manufacturing’s long-term labor challenge. The battleship has been turned.

6. Ask most anyone if it’s important that we make more stuff in America, and they’ll likely say yes. As obvious as this may sound, it’s a cultural sea change. We value manufacturing again.

Won’t:

1. Large manufacturers are prospering, but many small and middle-market manufacturers operate on a knife’s edge. Incentives, access to capital, labor, technology, new markets, and OEM supply chains tilt to a shrinking cadre of large companies and away from smaller operators. It’s also unclear whether blue-chip OEMs are committed to a more capable domestic supply chain; whether a newfound tax windfall, pressure from the White House, or new tariffs will compel big companies to make more in America.

Harold Meyerson, writing in The American Prospect notes that Steve Jobs once remarked to President Obama that “Apple had 700,000 factory workers employed in China.” What if Apple had invested in U.S. labor and infrastructure? “If those 700,000 were employed directly by Apple, of course, then Apple would be the world’s largest manufacturer. “Instead,” Meyerson says, “Apple conceals its factories — and responsibility for the working conditions there — behind two Chinese walls.”

Have things changed? We’ll find out. President Trump and the GOP Congress have provided U.S. corporations the means to invest in a new domestic supply chain; they’ve also provided us a measuring stick. If OEMs shift their gaze onshore, we’ll know.

2. Public sector support for manufacturing can be spotty. There’s no uniform manufacturing ‘playbook’ for developers, a challenge to begin with as manufacturing spans mulitple industries.

Meyerson’s Apple example underscores why this is important. Is a company that designs or engineers a consumer product locally, but is forced to push production offshore because of a lackluster domestic supply chain, a tech or design firm or a manufacturing company?

What if we’d celebrated our community of contract manufacturers the past decade as we do tech firms, and made it easy for our fictional design company to locate domestic production here?

Manufacturing’s future lies in the supply chain. 2018 included.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.

Related: Five reasons why manufacturing jobs are coming back to stay

3 takeaways from the (first) week in manufacturing

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Fresh off an eventful 2017, manufacturing picked up where it left off and continues to make news:

1. Manufacturing’s employment surge defies conventional wisdom

The business press is conflicted about manufacturing’s role in America’s 21st century economy. Much of the ambivalence stems from manufacturing’s employment paradox: U.S. productivity is at all-time highs, employment near an all-time low. With total jobs as the measure, it’s easy to conflate today’s otherwise healthy sector with a bleak future, and many analysts do.

In 2017, we forecast that employment growth in dynamic manufacturing industries would offset losses in sectors that clearly are in the midst of a fundamental change. New data from the Bureau of Labor Statistics released last week suggests we were right.

The United States added 196,000 jobs in manufacturing in 2017, according to data released today by the Bureau of Labor Statistics. In December 2016, there were 12,343,000 people employed in manufacturing in this country, according to BLS. By December 2017, that had risen to 12,539,000.

That represents a dramatic swing from the year before. In 2016, according to the historical data published by BLS, the United States lost 16,000 jobs. In December 2015, according to the data, there were 12,359,000 people employed in manufacturing in the United States. That dropped to 12,343,000 in December 2016.

Will the net gains hold? Can manufacturing continue to add 200,000 jobs per year to offset structural losses sure to impact legacy industries?

The answer lies in our collective ability to nurture and accelerate thousands of new domestic brands alongside a capable new supply chain. Develop the supply chain and companies will make more things here.

2. Tesla’s production challenges challenge business analysts

Elon Musk would likely admit that a good share of personal and professional criticism he receives is well earned. But criticism of Tesla’s Model 3 production challenges is unrelenting.

In the latest fusillade, Business Insider lectured, “Tesla’s Achilles’ heel has always been its inability to build cars as effectively as the Toyotas and General Motors of the world.” Forbes‘ Jim Collins lamented, “Tesla is not a sustainable enterprise from a manufacturing standpoint, and investors buying the stock at current levels are completely missing that fundamental truth.” Stock picker Seeking Alpha announced, “Tesla’s game is ending.”

Tesla’s operation isn’t perfect, but among other things the company has demanded accountability from its supply chain, a kick in the pants that has already had a positive impact on U.S. manufacturing. Hale Foote, president of Tesla supplier Scandic, said in a CompanyWeek interview, “Bay Area companies like Tesla and Apple want to fail faster to succeed sooner. . . . In Detroit for example, there’s a seven- to 10-year development cycle. That’s why Tesla is so different. They don’t follow that old way of thinking. The idea is to iterate constantly and invent, invent, invent.”

No doubt Tesla’s cash burn and Musk’s financial brinksmanship are unsettling. But capital markets exist to be tapped. Even if Tesla tanks, and I’m betting on Musk, we’ll have been reminded that a steadfast commitment to domestic sourcing and manufacturing every single part of a complex product locally is possible, given the will.

3. Colorado companies innovating with cannabis

Editorial writers at the Wall Street Journal would have done well last week to cut short their defense of AG Jeff Sessions after making the very reasonable point that Congress must legislate a permanent reconciliation to the contradictory state and federal laws driving marijuana businesses — and Sessions — nuts.

Instead, the WSJ argued that a burgeoning $10 billion market would be better left in the shadows, its proprietors subject to federal prosecution, until such a time that Congress agrees otherwise. It seems a fatuous argument give the current state of dysfunction in D.C. and the stability of state-run marijuana markets.

Lost in the self-serving data cited by the WSJ is the irony that the attorney general’s views lack any connection to science or a scientific method.

We’re here to help out the AG.

In Eric Peterson’s enlightening summary of innovation in Colorado’s marijuana industry, we revisit a dozen cannabis companies profiled in CompanyWeek the past few years. Science and technology inform some, manufacturing acumen guide others. All are motivated entrepreneurs pulling a multi-billion dollar industry out from the shadows into the mainstream. In any other industry, the WSJ would be extolling their virtues. We’ll do it instead.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.

Year in Review: Manufacturing is again a center of U.S. innovation

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In 2013, we set out to report on growth companies across multiple manufacturing industries. Since then, we’ve written about nearly 850 businesses, a market sample that likely paints the most complete picture anywhere in media or trade of the transformation of this most iconic of American industrial sectors.

As we reflect back on 2017 through the lens, literally, of the CompanyWeek photojournalists and editors responsible for bringing to life the regional manufacturing economy, it’s also useful to take stock of this transforming sector based on the data we’ve compiled from our rich catalog of company profiles.

So as Jonathan Castner and Judson Pryanovich document their favorite photo shoots of 2017, and Eric Peterson and Alicia Cunningham muse on their favorite profiles from Colorado and Utah, here’s a brief overview of the data:

In every interview, we ask executives to identify their challenges, opportunities and needs:

Top Challenges

1. Managing growth

2. Workforce

3. Market education/product awareness

Top Needs:

1. Workforce

2. Financing/Funding

3. Real estate

4. New service and supply partners

Fastest growing industry:

Food manufacturing; 2018 forecast of 23,100 workers hired, or more than 42 percent of the nondurable goods subsector employees forecast. (source: CU Leeds School of Business 2018 Business Forecast)

It’s important to note our content bias: Where possible we interview companies with growth prospects, or in the case today of Colorado’s rich craft brewing ecosystem, operating in growth markets.

But manufacturing industries written off in prevous years, like consumer and lifestyle manufacturing, are in this region, growth industries. CompanyWeek‘s catalog of company profiles is today shaped by the proliferation of companies in manufacturing industries making a profound comeback. These companies emphatically cite new markets, new products, and market leadership as the top three opportunities available to their business. In our geographical footprint, manufacturing has rediscovered its historical role as an epicenter of innovation.

Our mission in 2018 is to help manufacturers connect with each other and the supply chain to expand domestic manufacturing — to Make More in America. If you’re a manufacturer or domestic supply-chain provider, we’ll get you connected with other companies profiled in CompanyWeek. Here’s how.

In the meantime, celebrate the perspective of the writers and photojournalists who’ve brought the sector to life the past year.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

Why investment capital will remain elusive with corporate ‘tax reform’

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The premise of the ‘Tax Cuts and Jobs Act’ is that lower taxes will lead to an increase in business investment and consumer spending, spurring on growth that will more than offset revenue cuts. We do it by entrusting the corporate class with a windfall we hope they spend wisely.

There’s reason to believe it won’t play out this way.

Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co., has pointed out the price-earnings ratio of the stock market over the past 20 years has been 70 percent higher than the previous 100. The profit margins of U.S. corporations have been 30 percent higher. It’s a golden age for U.S. corporations.

At the same time, Grantham notes that companies aren’t using these dividends to build new plants in the U.S. They’re buying back stock, for one, to drive equity prices higher. Great for corporate executives and stockholders, not so good for U.S. economic growth. “There aren’t as many new firms that get started,” says Grantham, “the number of public companies has halved, the number of people working for firms that are one or two years old, are half what they used to be in 1970.”

Instead, the capital resulting from higher profits is camped out in paper, including billions in private equity. There are 10 times as many private equity firms in the U.S. today than there was in 1990, with over $500 billion to invest but a record capital overhang. Corporations and private investors have more capital to invest than ever. They’re conservative when it comes to investing it.

Why aren’t they spending?

Investors point to a lack of companies. “Equity firms tell us the toughest issue they face is simply finding enough good candidates to look at,” according to Generational Equity, a PE firm based in Dallas, in 2012. “They are hungry for deals, but they just don’t see enough.” Five years later, $100 billion more in equity capital is poised to be invested through dozens of new firms, family offices, and capital funds. It’s more likely that investors aren’t seeing enough deals they like, not that deals aren’t there to be had.

It’s not for want of opportunity. The economy is undergoing a shift to small and middle-market companies. Doug Tatum chronicles the importance of early-stage companies navigating the perilous stage from start-up mode to growth company in ‘No Man’s Land’. Today these emerging middle-market companies “account for less than 3 percent of all businesses, yet contribute 30 percent of all new jobs added by all businesses,” Tatum says. He also writes, “From 2010 to 2013, the number of companies in the U.S. with 20 to 99 employees increased 10 percent, while the number of U.S. corporations with 1,000-plus employees decreased by 16 percent.” Grantham’s point.

For Tatum, these companies are the new heroes of the U.S. economy. They’re also the most vulnerable, as capital and management expertise are most elusive for businesses of this size.

If tax cuts don’t motivate buyers, will lower rates improve the quality of acquisition targets for investors? It’s hard to say. In over 800 interviews with manufacturing executives that we’ve completed the last four years, only a handful of companies cited high taxes as a barrier to growth.

Today the corporate class seems comfortable investing in next quarter’s profits, not next year’s emerging growth company. Tax cuts help the balance sheet. Tax reform, done right, might pursuade them differently.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

Let’s recalibrate “Made in America” to include global operators

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“Made in America” has never been an ideal slogan to rally U.S. manufacturing from its post-globalization doldrums. Too many American companies have come to rely on offshore suppliers and contract manufacturers. Rather, “Made in America” has become a call to arms, a rediscovery of our manufacturing chops. It’s more symbol than substance.

This shouldn’t diminish the extraordinary efforts of U.S. companies that today fully embrace the business and brand benefits of actually making everything in America, or sourcing the components needed to manufacture and assemble goods from domestic suppliers.

But for hundreds of thousands of otherwise well intentioned U.S. brands and OEMs that manage global supply chains to manufacture products, “Made in America” sloganeering has run its course. For them, it’s time for a new and more inclusive rallying cry that’s unyieldingly pro-U.S. manufacturing yet cognizant of the shortcomings of the domestic manufacturing supply chain.

How else to reconcile manufacturing realities?

If your company makes backpacks or athletic shoes by the thousands or garments even by the dozens, in most cases — not all — success involves global operations. Vietnam is today an epicenter of backpack manufacturing, built by investments from U.S. companies (and, ironically, the U.S. government). Apparel entrepreneurs today seek out Asian factories that produce goods for world-class American brands. Consumer and industrial giants design and engineer products in the U.S. but rely on a network of contract manufacturers, foundries, and assemblers located around the globe.

The tie that binds these manufacturers from distinct and separate industries is labor. Machine operators, assemblers, sewers, and skilled makers by the thousands — the tradespeople of advanced manufacturing economies — are today found offshore. Corporate investments follow.

But today other trends point to a wholesale onshoring of manufacturing capabilities, trends that even the most accomplished global operators also embrace. Shortening a supply chain is good business.

American companies are tapping an immeasurable fount of domestic creativity and innovation to design and engineer new products and reimagine entire industry sectors. Robotics and automation and technologies like 3D printing are enabling companies to prototype and manufacture closer to home. Brands conceived in California or Utah are working harder than ever to keep production in those places to enrich communities and control IP and quality, core tenets of today’s entrepreneurial class.

It’s time to cast a wider net and celebrate not just those companies whose products are “Made in America,” but the wave of companies that today seek to “Make More in America.” Companies working to integrate engineering with manufacturing on domestic soil; to retrain a generation of equipment operators; to support local growers and new industries that bleed innovation as they contemplate local production.

In 1988, Harvard Business Journal opined that “Manufacturing Offshore Is Bad Business.” Corporate America ignored the advice.

Today let’s simply acknowledge that American brands and OEMs that “Make More in America” do so because it’s good business. Our collective challenge is to provide companies the means to do more. Connecting manufacturers with each other and a growing domestic supply chain is job one.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

America’s new industrial brand is on display here, in the Rocky Mountains

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Of the 850 or so companies we’ve profiled the past four years, is there a single business we can point to that embodies all that’s compelling about the new manufacturing economy?

It’s a tall order. But among the criteria, we might agree that said company would be:

  • Offering employment opportunities that appeal to a Millennial workforce.
  • Utilizing advanced manufacturing techniques and materials, with at the same time flashing a profound connection to the craft — to engineering and design, fabrication, construction and assembly — calling cards of U.S. industrial acumen.
  • Building products at the forefront of a resurgent Made in America movement, products that also open new export markets for the company and for counterparts in the sector; or, filling America’s massive OEM pipeline for parts and products from contract manufacturers that are often sourced overseas today.
  • Renewing an American commitment to reclaim industries offshored or otherwise abandoned in pursuit of low-cost labor or services or materials.
  • Providing primary jobs in communities in need of new employers and diversified economies, while at the same time investing in the local supply chain to build a foundation for other manufacturers and makers.
  • Inspired to embrace the mantle of U.S. manufacturing exceptionalism.

Moreover, if we can identify more than a handful of companies, across manufacturing industries, that meet these criteria, would this then formally equate to a new era — a new golden industrial age — of American manufacturing?

I’m inspired to ask these questions because this week we feature a company that meets our criteria of a bellwether modern manufacturer.

We first profiled Steamboat Springs-based Moots in CompanyWeek‘s inaugural month of September 2013. This week we revisit the company and new president Drew Medlock, seemingly a great addition to a company leading a vanguard of maker businesses reshaping the sector.

Consider:

Moots’ talented designers and fabricators, sellers, brand managers, and other employees may not fully grasp what they’re accomplishing — no more than those working at Colorado’s other cycle manufacturers like Guerilla Gravity or Alchemy — but the combination of entrepreneurialism and a renewed interest in the physical product add up to a powerful magnet for aspiring young professionals.

Moots is pioneering with advanced materials and processes — titanium and 3D printing, for starters. The Moots’ weld is also a thing of beauty.

As Medlock notes in the profile, “I think European customers have even more of an appreciation for metal bikes over carbon fiber.” Can Moots open international markets for other exporters, even if it can’t today handcraft enough bikes to become a significant player? It’s a good bet. Moots’ brand embodies quality and craftsmanship, ingenuity and industry.

Much as Utah’s ENVE Composites has done for wheels and components, Moots is leading a movement to bring cycling manufacturing back to the U.S., mainly from China and Taiwan. As Medlock points out, it’s no walk in the park. Domestic manufacturing “is always a major challenge for us in terms of cost. We always try to source . . . domestically. So that’s a challenge. It’s not easy.”

Yet for communities from Steamboat to Park City to Telluride, the primary jobs that Moots and its peers keep in the local economy can be a foothold to establish more non-service sector jobs, employment alternatives that help places escape the single-industry business cycles that bedevil local economies.

Finally, Medlock and the Moots team may not realize they’re game changers, given the day-to-day challenges of staying in business while bucking the move to offshore production, where cheap labor and materials add up to black on a spreadsheet. If they could, they might fully embrace the transformative effect many small- to medium-sized manufacturers are having on America’s manufacturing brand.

This week, we’ll do it for them, and remind the business community that if we don’t align resources to ensure that Moots and other companies like it succeed, we’ll have a missed an opportunity to change our industrial fortunes. It’s a sure bet that, in sounding a cautionary tale about supply-chain challenges, there are days when businesses like Moots and leaders like Medlock contemplate resource-rich ecosystems, wherever they may be.

Let’s not miss the opportunity to rally around change agents like Moots. Manufacturing will prosper as a result.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.

Chipotle broke its brand promise; manufacturers should take note

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For manufacturers, Chipotle and other restaurant brands that manage complex supply chains and shape raw materials into refined products are kindred spirits. They’re makers all. We’ve also profiled regional growers and ranchers who shape the ‘locavore’ community and supply Chipotle and others, so the outcomes of local food artisans are always of interest.

Likewise, there are lessons to be learned when restaurant food brands flail, and for consumer manufacturers especially, Chipotle’s crash to earth the past couple years offers two important takeaways.

Lesson one, complex supply chains break. Be prepared.

Chipotle’s challenge in growing, packaging, transporting, preserving, and presenting food products have been well documented and from where I sit, there’s no need in piling on. What they accomplish day to day, week to week, is hard. Other brands that have transformed entire industry sectors with vision and innovation can relate. Failing at complex operations is inevitable. Chipotle’s supply chain was bound to crash at some point. Their recovery has been admirable.

But at the center of Chipotle’s current woes may be a more fundamental fail. As a long time customer and fan, I’ve lost the deep connection I once had with the Chipotle brand, and suspect others have as well. And until someone inside the company tells the truth, attempts to rescue the brand with Band-Aids like ‘queso’ will fail.

I was an early Chipotle customer and ate often at the chain’s first location on Evans Avenue near the campus of University of Denver. More accurately, I overate. The trademark burritos were stuffed to the point that their makers would often struggle to wrap the conglomeration into a single tortilla. (Watch Sebastian Maniscalco’s hilarious take on Chipotle’s burrito makers.)

I still eat at Chipotle, a couple times a month. I like the food, but today my visits often come with a side of irritation. The company’s burrito artisans spoon about four ounces of chicken or steak or whatever over rice or beans. I had to know so I asked. Gone is the visceral delight of being served a three-pound burrito that often doubled as lunch and dinner. Of standing in line for 15 or 20 minutes with like-minded schlumps, all giddy that the eight bucks about to be spent was true value.

Chipotle was not only a culinary delight, novel and innovative and massive, it was an over-the-top deal. And we came back, wide-eyed and ready for more. Today an algorithm dictates that a few ounces of organic pork, served in a jillion burritos, will sustain growth and the stock price.

All fine, except that the company has walked away from a its core brand appeal. When I visit the restaurant now, an accountant serves up my burrito bowl. The food’s still good. The experience, the satisfaction, gone. Is it a surprise the stock price has crashed — down 60 percent the past year? Not to me. It’s just a business now. I wonder if today it’s just a business to Steve Ells and his lieutenants.

Lesson two: Keep your promises. If divesting a share of your company or going public obscures or buries the values that attracted a legion of customers to your brand, you’re toast.

Served with a side of queso.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

San Francisco foodies look east to Boulder (naturally)

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Special guests at last month’s Pitch Slam & Autumn Awards included stakeholders from San Francisco’s dynamic food scene, in Colorado to learn more about Naturally Boulder, the trade association that’s been so instrumental in vaulting the state’s natural and organic products sector to national renown.

And why not? Colorado’s ascendant, nationally recognized food and beverage sector is leading a regional charge in nondurable goods manufacturing. Nondurable goods employment increased in Colorado by 2.6 percent in 2016 and is expected to post a 2.1 percent gain in 2017, averaging about 53,300 workers for the year, led by food and beverage.

The sector pales in size to California’s global food juggernaut, but those in San Francisco and elsewhere see the obvious: tightening up food communities and providing early-stage companies better access to resources will only accelerate growth, keep promising food brands local, and enable the entire ecosystem to better respond to the demand from consumers wanting natural and organic products from local providers. Naturally Boulder has emerged as a national model.

Part of it is the power of networks. Events like Pitch Slam are must-go gatherings that today attract investors, economic developers, and other service professionals that promising early-stage companies inevitably need to thrive. As a result, the network becomes a magnet for entrepreneurs.

San Francisco’s no stranger to this dynamic in manufacturing. SF Made is a bright national beacon among regional associations advocating for companies that comprise the modern manufacturing economy — or legacy brands that have led the way. Today we profile McRoskey Mattress Company, an SF Made member and proud California manufacturer with roots in the 19th century.

But as we’re seeing today in Colorado, focus pays dividends. And even then, the speed with which industry sectors transform can leave behind even the most agile brands.

With the help of a tight, collaborative community, companies like EVOL, LARABAR, and Justin’s pushed through exits that enriched owners and within the span of a decade, changed the national conversation about food. Just as quickly, the market has changed again.

Today, even with food-focused investment funds camped out in Colorado alongside a cadre of Wall Street veterans and family offices, the game is suddenly harder. Harder for brands to get funded; harder for early-stage brands to get shelf space at Whole Foods; and harder for entrepreneurs to sell industrial brands, today much more knowledgeable and invested in innovation, on the benefits of acquisition.

Which means foodies in San Francisco and San Diego (like Opera Patisserie, profiled this week), must all be smarter, more ambitious, and more innovative than those who came before.

It’s why associations or groups that build community and educate, incubate and accelerate companies can make all the difference. It must be why industry mavens from San Francisco see value in a trade group in Colorado, despite California’s unmatched resume for food and agriculture.

Besides, even with brands conceived in 1899 in San Francisco still leading the way, much about today’s manufacturing is just being learned.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

How Amazon’s Whole Food plans may undermine innovation

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Amazon’s disruptive model has always evoked strong feelings, good and bad. So who wins and loses as Amazon bursts into the grocery business with the acquisition of Whole Foods? Beginning this week, WF shoppers will enjoy lower prices on “high-volume staples.” It’s a short-term win for consumers.

But if Amazon’s discounting strategy extends into most WF SKUs, the small, innovative brands that have led a food manufacturing revival in California, Colorado, Oregon, and other progressive states may see margins erode, a potentially devastating development for companies that have benefitted from WF’s model.

Specialized retailers have been a catalyst of the artisanal, craft manufacturing boom. By providing early-stage brands encouragement and key shelf space, grocers like Whole Foods have fostered growth and innovation. The higher margins that shoppers pay have also worked to protect small producers: locally made, organically-sourced products are often more expensive to make, especially early on, when companies aren’t big enough to co-pack or able to invest in larger more efficient product facilities. Notes Steven Hoffman, managing director of Compass Natural Marketing, “An authentic brand will never win on price, but it can win customers who share its mission and values.”

And here’s the rub. Is Whole Foods’ values connection with customers and brands consistent with Amazon’s algorithms “that scrape competitors’ prices before automatically matching or narrowly undercutting them on its website?” What happens if Whole Foods evolves, if not to a discount brand, but a store that squeezes margins across the board? Margins that sustain early-stage companies and fuel the steady stream of new ideas pouring from food ecosystems in California, Colorado, and elsewhere.

Bill Capsalis, former president of Naturally Boulder, the go-to trade association for Colorado’s natural and organic product sector, isn’t concerned — yet.

“Let’s be clear, we’re talking about one retailer here,” Capsalis says. “Yes, they are important, but my own experiences show me that due to Whole Foods’ own policies and processes they have been getting a 10 percent to 30 percent premium on the same products you can buy at other retailers.”

Capsalis was bullish on Amazon’s acquisition of Whole Foods initially. “It’s good because brands can now preserve margin by selling direct. If you combined the expertise of Whole Foods and the way they curate brands and products — with the tech savvy and direct to consumer model of Amazon – the consumer really wins big time in this equation.”

Hoffman also takes a long view. “This is a continuum of what’s already been happening with brick and mortar retailers having to compete with e-commerce sellers,” he says. “Distributors that had been serving Whole Foods, too, are having to deal with this quantum shift, as Amazon comes with its own myriad warehouses, and margins are sure to be squeezed along all channels of distribution.”

Today, he adds, the impetus is on brands to evolve, and the game’s on. “Before, I would recommend companies explore online strategies in addition to trying to get into Whole Foods and other retail markets. Now, online strategies will become an essential part of every brand’s business model. My guess is that, if you do well on Amazon.com, you may very well end up on the shelves at Whole Foods Market.”

That said, Capsalis and others are wary. “The fears of what’s to come with this merger are real and palpable,” he says. The fears, no doubt, are related to Amazon’s track record of transforming America’s retail landscape — and the resulting unintended consequences.

Here’s what we know: Small food brands that are transforming the industry need sufficiently long runways to innovate and operate. Eroding margins can be a slippery slope in the wrong direction. In the outdoor industry, Patagonia founder Hap Klopp calls this eventuality “the race to the bottom” — a focus on cheaply-made products from discount brands that works to undermine product differentiation and, in the end, American manufacturing.

Industry advocates in California, Colorado, and across the West will do well to ensure that innovation and entrepreneurship remain the calling card of food manufacturing ecosystems, and remain key outcomes of Amazon practices, not just lower prices.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.