KANSAS CITY — This year’s International Baking Industry Exposition (IBIE), happening Sept. 17-21 in Las Vegas, will be an especially important event for bakers dealing with unprecedented challenges such as supply chain disruptions, significant labor shortages and cost increases. 

To help bakers get the most out of IBIE 2022, Sosland Publishing Co. hosted a webinar providing an exclusive look at their State of the Industrial Baking Industry study, which provided a groundbreaking look at the issues the industrial baking industry is facing and the strategies its employing to combat them. 

The survey, conducted by Cypress Research, was fielded in May and June of this year and received 188 industrial responses from baking manufacturers in top management positions, including operation and production managers, C-suite executives, engineers, and R&D/product developers. Roughly half of respondents were also from large baking companies, reporting annual sales of $100 million or more. 

A pandemic pivot

In response to the COVID-19 pandemic, many bakeries were forced to pivot their business strategy to maintain or grow business. According to the study, 54% of respondents employed longer production runs to reduce changeover, 44% refined scheduling to streamline operations, 40% identified new supply chain partners, and 32% made capital investments driven by the workforce gap.

“Most of these pivots can be brought back to labor issues,” said Marjorie Helmer, president of Cypress Research. “The pandemic response from companies has included increasing wages to be more competitive, and nearly half have offered more flexible work hours and shifts, something we didn’t really talk about even five years ago to this extent.”

Charlotte Atchley, editor of Baking & Snack, noted that these pivots reflect bakers’ need to keep up with high demand amid a short labor supply, and she expected the trends of higher pay and flexible hours to keep labor to stay. 

“I don’t see the younger workforce letting go of those priorities anytime soon,” she said. 

Ms. Atchley also said she expects the industry’s shift towards automation to grow, and that bakers will continue to have supply chain contingency plans in place after the challenges of the last few years.  

On the product and sales side, a majority of respondents (62%) reduced SKUs due to the pandemic, while 55% gained new customers/markets they didn’t have before the pandemic. E-commerce is another trend that’s emerged significantly, with 35% of bakers developing a new e-commerce platform in response to COVID-19.

Rationalizing SKUs helped many bakers regain capacity for their best-selling products during the pandemic, but with companies launching new products again, Ms. Atchley said this strategy will become less necessary as business evens out. She also expects bakers to move away from creating their own e-commerce platforms and instead work with third parties, as operating one’s own platform requires lots of resources and expertise. 

Industry outlook is positive

While the baking industry has been rocked by many challenges recently, the overall industry outlook of survey respondents is positive. 

Fifty-eight percent said they have a “very positive” outlook for their company in 2023, compared to just 46% in 2022. 

This outlook does depend on company size, Ms. Hellmer noted, with nearly 70% of large to midsize bakeries reporting feeling very positive about their company next year, compared to about 50% of small manufacturers. Ms. Atchley attributed this substantial gap to larger bakeries’ ability to better absorb the challenges any one of its facilities may face.

Respondents’ outlook also depended on the sales channel they operated in. Fifty-two percent of bakers in the retail channel reported a very positive outlook for 2022, compared to just 44% of the distributor channel and 38% of those in restaurant and foodservice. However, this gap has lessened for 2023 (50% compared to 48% and 43%, respectively). 

“Foodservice, restaurant and distributor channels had the most room to recover, because we know those channels were hit the hardest by the pandemic,” Ms. Atchley explained. “It’s encouraging to see that retail is also expected to remain strong, even as foodservice and restaurant comes back.”

Sixty-eight percent of respondents also expect their company revenue to be up in 2023, but with 81% also planning to raise prices next year, Ms. Atchley noted that much of the revenue growth for bakers will be driven by inflation rather than an increase in unit sales.

While raising prices will bring in greater revenue for bakers, they’re dealing with cost increases of their own. Seventy-nine percent of respondents expect company costs to go up in 2023, led by expected increases in ingredients (85%), energy (79%), packaging (82%) and hourly employee wages (68%). These numbers were high for bakeries of all sizes, with professionals from larger bakeries slightly more likely to report anticipated price increases. 

Operation and production

Bakeries continue to operate near capacity, with survey respondents reporting their companies are currently at an average of 78.3% operating capacity (89.9% for large bakeries, 78.7% for midsize bakeries and 74.7% for small ones). 

Many reported supply chain disruptions, including delays in receiving key inputs (62%), lack of sufficient workforce to meet demand (53%) and transportation or logistics challenges (53%). Eighty-two percent of respondents said these bottlenecks have negatively impacted their company’s production outlook.

However, an increasing number of bakers expect these disruptions to subside soon. Nearly a third report that supply chain disruptions have already improved or will be back to normal by the end of this year. And more than half expect the relief to come in the first half of 2023 or later.

To combat these bottlenecks, survey respondents have found alternate or duplicate suppliers for some inputs (82%), increased inventory of raw materials (62%), reevaluated their company’s entire supply chain (43%), brought in additional staffing (42%), paid more or leverage company size/buying power (42%) or explored more domestic US sourcing or production (30%). 

“If a solution you’ve tried is further down at the bottom, it doesn’t mean that it’s wrong,” Ms. Atchley pointed out. “This [data] tells us not only what the majority of baking companies are doing to mitigate these challenges, but also where there are some opportunities to try new things.” 

Addressing the labor shortage

While the baking industry has struggled to find and retain workers for years, the pandemic exacerbated this issue greatly. 

Survey respondents said the workforce shortage has forced existing employees to work significantly more hours (58%), forced them to significantly increase pay to remain competitive in the local labor market (52%) and harmed the timeliness of the production process (49%). 

Ms. Atchley said these numbers are especially worrisome because, unlike supply chain disruptions, it’s unclear if and when workforce shortages will be resolved. 

“We know it’s hard to get employees in the door, and we know employees want more flexible work hours, so if you’re increasing that work, and it’s hard work, I’m really concerned about bakers experiencing a burnout in the workforce that exists,” Ms. Atchley said. 

Large companies were more likely to report labor challenges in the survey, which Ms. Atchley attributed to their greater use of automation that requires a more skilled workforce. Additionally, she noted workers may find it easier to leave a larger bakery than a small, family-operated one with greater connections between employees and the executive team. 

To combat the industry skills shortage, respondents are increasing wages (64%) and automaton (61%), using temporary staffing services (54%), working with local employment offices (45%), offering hiring bonuses (38%), and creating or expanding training programs (37%). 

Ms. Atchley said revamping training and onboarding can help larger bakeries integrate new employees more effectively into the team, putting a face on the company and creating a human connection they may have previously been lacking. 

“Looking at some of these best practices and the adoption rate within the industry, it just reinforces looking at an entire toolbox of strategies around [labor],” Ms. Hellmer added. “Because it’s just not going away.”

Overall, bakery professionals anticipate significant challenges led by increases in raw material costs (71%), difficulty attracting and maintaining a quality workforce (64%), supply chain challenges (63%), transportation and logistics costs (62%), labor costs (55%), and a need for greater automation (40%). 

Cybersecurity (54%), capital constraints (57%) and continued COVID-19 infection surges (55%) were listed as moderate challenges by respondents as well. Ms. Atchley added that the fact over half of respondents indicated these issues pose a moderate challenge reveals the impact of adopting new technologies, rising costs and the continued presence of COVID-19.

“It will be really great to finally be together in person in Las Vegas in September to exchange ideas and hash out some solutions,” Ms. Atchley said. “I think that’s really been missing over the past three years — our ability to just gather in person and start to have these really important conversations around all of these challenging issues the baking industry is dealing with while it’s also experiencing some really incredible growth.”

Insights into the state of the retail baking industry will be shared in another Sosland Publishing Co. webinar, IBIE 2022: State of the Retail Baking Industry, on Aug. 10 at 2 p.m. EDT. Attendees can register for that webinar online. 

Ms. Hellmer will also be doing a deep dive into both data sets at IBIE 2022 during her panel presentation Turning on a Dime: Post-pandemic Impact & Opportunity in Retail & Industrial Baking on Monday, Sept. 19, at 8:30 a.m. More information can be found on the IBIE website.