As industrial bakers look to 2024, they see a picture of enduring strength as markets stabilize and investment remains a key path out of some of the industry’s biggest challenges. 

In Baking & Snack’s 2024 Capital Spending Study, conducted by Cypress Research and sponsored by BEMA, outlook and investment plans have stabilized after a tumultuous few years. While on the surface, stabilization may show up as negative numbers, the results are still strong when looked at within the context of the explosive growth seen over the past three years. 

“I wouldn’t want anyone to look too closely at the negative numbers in this study without keeping in perspective how high they remain,” said Clay Miller, president of Burford Corp., a Middleby Bakery company, and first vice chairman of BEMA. “It would be easy to get lost in the fact that the COVID bump has bottomed out, but these numbers are still elevated compared to pre-COVID. Just because these numbers aren’t better than last year, doesn’t mean they aren’t good. I’d be happy to have a year as good as last year.” 

Good news regarding the economy and bakery in general have baking companies feeling optimistic about business in 2024, which leads to a likelihood to reinvest in their operations. On top of that, persistent challenges such as high input costs and lack of labor encourage baking companies to continue turning to automation. These converging realities make for a positive, if not more stable, outlook for 2024. 

After the volatility of 2020-22, top economic indicators are showing a stabilizing economy. The Federal Reserve has announced plans to lower interest rates at least three times in 2024. Inflation slowed down at the end of 2023.  Moreover, BEMA Intel data for Q3 of 2023 revealed that the consumer price index (CPI) for baked goods is on a downward trend as well as the CPI for food at home overall. The grain-based foods share index in Q3 of 2023 compared to Q3 of 2022 was up 2.2%. Baking ingredient costs were also down compared to a year ago, reported Milling & Baking News.  

“All of the core indicators we track to evaluate the health of the economy and industry are coming down,” said Marjorie Hellmer, president of Cypress Research.

Overall, this paints a positive picture of the baking industry’s outlook, and bakers feel it in their own businesses as well as the industry at large. According to the Capital Spending Study, 46% of respondents were very positive and the same percentage were somewhat positive for their company’s business outlook for 2024. This holds steady from 2023’s survey, which showed 48% of respondents had a very positive outlook and 47% had a somewhat positive outlook. 

“Company outlook should be our main indicator when looking at industry health,” Hellmer said. “While outlook may have dropped from 2022 to 2023, today’s positive outlook for 2024 is now holding steady with 2023’s projections.” 

This trend extended when bakers were asked about the US industrial baking industry, with 30% of respondents having a very positive outlook for both 2023 and 2024. For 2024’s survey, however, more bakers were somewhat positive on the US industry’s outlook — 57% in 2024 vs. 54% in 2023 — and bakers who had a very negative outlook decreased to zero from 1% in 2023. 

“The percentage of respondents reporting a somewhat or very negative outlook hasn’t moved much over the years, so it’s safe to say that bakers are not a pessimistic bunch,” Hellmer noted.

While comparing 2023 to 2024’s results shows an industry holding steady, analyzing this data across the past few years reveals the tumultuous times the industry has endured. Respondents have been asked every year whether the US industrial baking industry would fare better, worse or the same as the previous year. Respondents who predicted the industry would perform better drastically dropped between their 2021 outlook (61%) and 2022 outlook (35%). This represents the bump the industry received from the pandemic and the subsequent course correction. 

Since that correction, however, the industry has regained ground. In 2023, those who predicted the industry would fare better was up to 40%, and for 2024, there’s a slight increase to 42%. Notably, those saying the industry would perform worse has also fluctuated: 11% for 2022, 15% for 2023 and 9% for 2024. The baking industry may be coming down from its pandemic high, but it certainly is landing in a strong position. 

“At this point, both bakers and industry suppliers have experienced record growth year after year, so this tempering we’ve seen is to be expected,” Miller said. “But the industry is still in a strong position that is elevated compared to what we saw pre-pandemic.” 

Unlike company and US industry outlook, viewpoints for the global baking industry saw a significant shift. In 2023’s study, 19% of bakers reported a very positive outlook for the global industrial baking industry, and in this year’s survey, that number increased to 26%. While global unrest continues, its impact on the baking industry has lessened. 

Positive indicators inside and outside the baking industry have bakers feeling comfortable enough to continue investing in their operations. More than half of respondents said their companies plan to increase their capital investments compared to the past year. And for the fifth year in a row, bakers report that they have designated more annual revenue to capital spending projects. 

In 2024, 54% of bakers projected they will increase their capital investments compared to 2023, 33% said they would remain the same and 13% said they would decrease their capital investments. These numbers are nearly identical when zeroed in on equipment investments: 55% plan to increase spending, 30% plan to maintain spending and 15% plan to decrease spending. 

Bakers were also asked to report how they’re actual spending for 2023 compared to 2022. When compared to those numbers, Hellmer pointed out a common phenomenon. When it came to actual capital investments in 2023 compared to 2022, 66% reported investments increased, 28% reported they were the same and only 6% reported they decreased. Equipment investments tracked similarly: 67% reported an increase in investments, 27% reported they remained the same and 6% decreased. 

“Bakers tend to underestimate whether they will increase their spending, sometimes by as much as 10 points, and we see that reflected in these data points when we compare 2023 actuals to projections for 2024,” she explained. “They would rather play it safe and stay in the ‘same’ category, which is smaller than the ‘increase’ category, just another indicator of the health of the industry.” 

The trending data for actual capital spending since 2020 also could point to 2023 being the peak of increasing capital investments. In 2020, 45% of bakers said they were increasing their capital spending, and that share has steadily risen: 52% in 2021, 57% in 2022 and 66% in 2023. If bakers are accurate in their projections for 2024 with 55% estimating an increase, that would be a shift from previous years.  

This article is an excerpt from the February 2024 issue of Baking & Snack. To read the entire feature on Capital Spending Study, click here.