Chapel Hill News

County makes deal too sweet for candy company to pass up

Hi-Chew is a fruit-flavored, chewable candy similar in many ways to Starburst.
Hi-Chew is a fruit-flavored, chewable candy similar in many ways to Starburst. MORINAGA

Officials revealed the state and local incentives Thursday night used to woo Morinaga, the maker of Japan’s top-selling candy, to Orange County.

Morinaga & Co., the world’s No. 2 candy maker behind Hershey’s, has sold its products to U.S. consumers with a sweet tooth for the last five years. That candy soon will be produced at a facility in Mebane that Orange County Manager Frank Clifton said could become the county’s third-largest taxpayer.

Morinaga’s U.S. subsidiary announced last week that it plans to invest $48 million in a 120,000-square-foot candy plant in Orange County that is expected to create 90 to 120 jobs over three years. U.S. sales growth of Hi-Chew – a fruit-flavored, chewable candy like Starburst – triggered the decision to build a plant in North America, said Masao Hoshino, CEO of Morinaga America.

Hoshino declined to provide sales figures but said Hi-Chew sales are expected to double this year after nearly doubling in 2012. At that pace, he added, the company is on track to experience shortages unless it expands its manufacturing capacity. The Mebane plant could break ground in March and begin production by mid-2015.

Employees will be paid an average wage of $37,969, according to N.C. Department of Commerce spokesman Joshua Ellis. That’s just below Orange County’s average annual salary of $38,310. The company also will provide employees with health insurance, said Steve Brantley, Orange County’s economic development director.

“The fact is,” he said, “we have a lot of people who don’t have Ph.D.s, who don’t work at Carolina and Duke.”

Brantley said the Mebane plant is contingent on finalizing the state and local incentives, including an agreement for utilities to the undeveloped site. Progress Energy and Duke Power have agreed to pay to extend gas and electric service to the factory. Adding water and sewer is expected to cost about $675,000 and will be paid for in part from the county’s quarter-cent economic development sales tax.

Brantley said the successful recruitment of Morinaga is the product of the county’s decision to diversify its tax base and recruit more companies in the wake of the recession. In November 2011, Orange County voters approved the quarter-cent sales tax, with half of that money going to economic development each year for the next decade.

“We can talk all day about what I think is transformative about this project, but I think it’s a great illustration of what the board has been focused on for the last three years or longer,” he said.

The county plans to reimburse up to 75 percent of the estimated property taxes from the company’s capital investment over five years if Morinaga meets its goals, Brantley said. The Orange County Board of Commissioners will hold a public hearing before voting on the incentive package this fall. If the company makes the $48 million investment, that could amount to a benefit payment of $308,880 over five years, Brantley said. The deal is similar to one the German company AKG got when it expanded in 2011.

Mebane could vote on similar incentives in early October.

State grants include $264,000 from the One North Carolina Fund. Ellis said he also anticipates that the state will provide a Community Development Block Grant of as much as $400,000 for infrastructure improvements to the site.

The State Employment Security Commission – now the Division of Employment Security – also will pre-screen job applicants, who Brantley said will be hired from low- and moderate-income parts of the county. Durham Tech’s Orange County campus will train the new employees, and the state also will pay for some workers to train at the company’s factory in Japan, he said.

The N.C. Department of Transportation also has agreed to extend Ben Wilson Road, which runs parallel to I-40/I-85 at the Orange-Alamance border. The new plant and the road extension could pave the way for a new highway interchange in the future.

Clifton said landowner Ben Wilson met with Morinaga officials and helped land the company. Wilson said he might use money from the sale to reinvest in other sites, Clifton said. The cost of land can be a major hurdle for local governments trying to attract business, he said.

The Mebane plant is planned for a site facing Interstate 85/40 near the Orange-Alamance border and the Tanger Outlets. Hoshino said that Mebane’s central location vis-à-vis the rest of the United States was a key factor in the company’s decision, and that it also considered sites in Georgia, Oregon and Canada.

Brantley said Morinaga officials visited Orange County about a dozen times since the beginning of last year. They also inspected sites in at least a dozen North Carolina counties, he said.

“We’re very excited in a huge way,” he said. “Their standards are very high.”

Morinaga began distributing Hi-Chew on the West Coast in 2008 and now sells it along the East Coast as well. By the end of the year the company expects the candy, which is currently imported from a manufacturing plant in Taiwan, to be available throughout the continental United States.

The company initially launched Hi-Chew in Asian grocery stores in the United States, but has been expanding into the mainstream. In the West, Hi-Chew candy is sold by retailers such as Costco, 7-Eleven and Ralph’s, a supermarket chain owned by Kroger, according to Hoshino.

Brantley said he has seen Hi-Chew candy for sale at the IT’SUGAR store at The Streets at Southpoint in Durham.

Hi-Chew contains real fruit juice and has “long-lasting flavor,” a soft texture and doesn’t stick to your teeth, Hoshino said. In the U.S. market, it’s available in six flavors: cherry, green apple, grape, mango, peach and strawberry.

Hi-Chew is the No. 1 candy in Japan, and Morinaga, which was founded in Tokyo in 1899, has the largest share of the Japanese candy market. The company sells more than 40 different products – including ice cream and cake mixes as well as candy – and boasts $1.75 billion in annual worldwide sales.