The past few years have been a pressure cooker for the baking industry. High demand for baked goods and a changing labor market fueled a sharp increase in both positive industry outlook and an appetite for investment. In addition to these drivers for automation, companies endured many marketplace pressures that would normally put a damper on investment and growth. 

Supply chain challenges have led to long lead times for everything from ingredients to equipment and spare parts to packaging materials. Add to that inflationary pressures and concerns today about rising interest rates, and one would assume that the results of Baking & Snack’s 2022-23 Industrial Baking Capital Spending Study, sponsored by BEMA and conducted by Cypress Research, would show an industry ready to reign in investments, but that hasn’t proven true. 

“Bakers are telling us that their biggest concerns are with the cost of raw materials, inflationary pressures and labor-related challenges and supply chain disruptions,” said Marjorie Hellmer, president of Cypress Research. “They have all of these things on their minds while we’re asking to what extent are you going to invest back into your companies. And even with all those pressures and tight margins, they are still planning to invest at almost the same level as last year.” 

It would be false to say that those pressures haven’t had any impact on the baking industry’s outlook or investment plans. There has been some tempering of enthusiasm and a slight slowdown in investment, but at the same time, many in the industry see capital spending as the way out of today’s challenges. 

“If you’re running a facility, you want to solve any issues you’re facing the best way that you can. And at this moment, we’ve realized for some time now that the solution is not more people, it’s automation,” said Kerwin Brown, president and chief executive officer, BEMA. “Bakers have seen that demand for their products is positive, so they know they need to continue to invest like they can invest. If demand weren’t so positive, they probably wouldn’t be investing this much.” 

Overall, the baking industry is in a strong position as it looks ahead to 2023. 

“People are still positive,” said Jim Warren, BEMA chairman and vice president, Exact Mixing, Reading Bakery Systems. “It’s still a good time in the industry, but the past 24 months, we’ve been on the mountaintop as far as orders for equipment. We’re still going to be well above average for 2023, but we can’t stay on the mountaintop.” 

Despite downward pressures facing the baking industry — as all industries are facing them — respondents to the survey still report a positive outlook for their companies and the United States industrial baking industry. Ninety-five percent of respondents reported a somewhat or very positive outlook for their companies, and 84% have a positive outlook for the US industry at large. Nuance and softening of the positivity, however, can be found when looking more closely at the numbers. 

When it comes to company outlook, the change from 2022 outlook to 2023 can be found in the degree of positivity. In the 2022 study, 55% of respondents were very positive about their company’s outlook, while for 2023, that percentage dropped to 48%. Those who moved away from a very positive outlook, however, didn’t go far, as those who had a somewhat positive outlook increased from 39% for 2022 to 47% in 2023. This data point reveals an industry in a strong place, even if abating a little.

“Overall outlook is down slightly because of some of the mediating factors such as inflation and supply chain challenges; some of the halo effect from the pandemic is tempering a bit, and the industry is coming in line with more realistic expectations,” Ms. Hellmer said. “The industry isn’t going to be able to hit consecutive home runs year after year after year with increasing profits. So we see that this year is a bit of a correction. The enthusiasm is still there in the industry, but it’s just a bit tempered.” 

When it comes to the US baking industry as a whole, 30% of respondents reported a very positive outlook for the industry compared to 2022’s 22%. Respondents who were somewhat positive fell from 68% in 2022 to 54% for 2023. Those with a somewhat negative outlook, on the other hand, grew from 9% to 15%. 

“At the end of 2020 as bakers looked to 2021, they had an incredibly high level of positivity with 37% reporting a very positive industry outlook, and looking ahead to 2023, it’s down to 30%,” Ms. Hellmer pointed out. “Everyone was so glad to get out of 2019 and 2020, there was more excitement for 2021. It’s tempered since then, but the outlook is still overwhelmingly positive.”

The outlook for the US baking industry becomes even more positive when bakers were asked if they expect the industry to do better, the same or worse in 2023 compared to the year before. The results reveal an industry in motion, definitely not stagnant, with 40% expecting the industry to do better, 44% expecting it to do the same and 15% expecting it to perform worse than 2022. Those expecting the industry to perform the same was the only group that shrank from 53% expecting 2022 to be the same and 35% expecting the industry to do better. Even more telling is that when bakers were asked in 2019 — 

before the coronavirus pandemic and subsequent challenges — to predict the US baking industry’s outlook for 2020, respondents reported an industry in stasis: Only 27% expected the industry to perform better than 2019, 66% expected more of the same, and 7% expected it to be worse. 

“The demand for baked goods and the challenges of the pandemic spurred optimism and investment for the baking industry that continues today,” Ms. Hellmer said. 

All of this points to the pandemic and its impact on the American consumer as a catalyst for shaking the industry out of a sleepy cycle into one of positivity and investment. While some of that has leveled out since the 2020-21 study, demand for baked goods remains strong. Sales have seen some slowdown due to inflation and a balancing between foodservice and retail channels, but the discrepancies between unit sales and dollar sales reported by IRI in BEMA Intel for Q3 of 2022 show that bakery products remain inflation-proof. 

While IRI reported unit sales in the commercial bakery aisle to be down 3.6%, dollar sales were up 14.8%. While that does show some inflationary impact, baking companies are still able to pass on price increases to the consumer, especially when looking at specific products. Bread in the commercial aisle, for example, saw a 13.8% increase in dollar sales with only a 0.6% decrease in unit sales, suggesting the staple baked good hasn’t seen an inflation impact. 

Channel is an incredibly important part of demand, however. Cookies in the commercial aisle, for example, have seen a major impact with IRI reporting unit sales down 8.3% compared to last year and dollar sales up 9.7%. Cookie sales in the in-store bakery, however, were reported to be up, both in dollars (15.7%) and units (1.7%). 

When it comes to the 2022-23 Industrial Baking Capital Spending Study, respondents’ outlook by channel was also telling. As foodservice recovers, it appears to be having an impact on at-home eating. Forty-one percent of respondents were very positive about foodservice’s outlook for 2023 compared to 29% for 2022. For retail, 42% were very positive compared to 47% last year. However, the retail channel remains robust with 90% of respondents expecting a somewhat or very positive outlook. Eighty-seven percent reported a positive outlook for foodservice, which was down from 92% for 2022. 

This article is an excerpt from the February 2023 issue of Baking & Snack. To read the entire feature on Capital Spending Study, click here.