Baking & Snack’s 2024 Trends in Commercial Baking Industry Product Innovation & Development study, conducted by Cypress Research, found that new product development is making a comeback and has mostly recovered to pre-pandemic levels. Despite product development bouncing back on all fronts, that doesn’t mean there aren’t pressures or lingering effects of the pandemic and the crises that followed. 

Respondents who rated Invention or Innovation lower in importance to their product development strategy for the next 12 to 18 months cited several reasons for this. Cost savings and increased focus on existing portfolio and products were at the top with 61% and 56%, respectively. It’s important to point out that the percentage that reported cost savings held steady as a pressure from the 2022 study while the increased focus on existing products dropped from the 62% who cited that reason two years ago.

Several pressures that kept bakers away from Inventing and Innovating have eased in the past two years. Increased focus on other operations and manufacturing priorities dropped from 50% of respondents in 2022 to 35% in 2024. Reduced internal R&D resources dropped 11 points to only 20% of respondents in 2024. Difficulty accessing necessary ingredients fell from 38% in 2022 to only 10% in this year’s research. In fact, when asked how difficult it is for their company to source ingredients, only 22% responded with very difficult or extremely difficult. 

“We do see supply chain recovery reflected in the data,” said Marjorie Hellmer, president of Cypress Research. “For almost a quarter, it’s still difficult to source some ingredients — quite difficult — which could be specific to certain ingredients or countries of origin, but it’s still quite difficult for nearly a quarter of the industry.”

Additionally, the 2024 study added two reasons bakers could choose to reflect the changing dynamics of the marketplace: inflationary pressures and lack of labor/limited capacity. Nearly a quarter of bakery professionals said inflationary pressures were a primary reason their companies are not fully focused on Invention and Innovation, while only 10% cited lack of labor/limited capacity. 

When asked about how ingredient costs have changed in the past year, 55% reported that costs have increased up to 25%. Twenty-six percent of bakers said costs have gone up even more than that, resulting in a total of 81% of survey respondents saying their ingredient costs are rising. Supply chain, capacity and workforce impacts of the pandemic seem to be evening out, but rising costs remain an issue. 

These economic challenges are certainly having an impact on not only the focus on Product Innovation and Invention but also how the R&D lab is operated and staffed. Forty-two percent of bakery R&D professionals said the economy has changed the way the product development department runs to a moderate or great extent. For many of them, that appears to be a freeze on both budget and staff.

When it comes to R&D, 58% reported that their budget is the same as 2023; this is up 16 points from 2022. Those who reported an increased budget dropped from 31% in 2022 to 23% in 2024. Only 2% of baking companies increased their 2024 R&D staff and 6% kept their staff the same, though it’s unclear if this is due to a budget decision or simply because of a workforce shortage. In the qualitative portion of the study, bakers reported that they struggled to “find creative bakers with technical skills” and that there was “a lack of skilled staff.” Dramatic increases in the cost of labor also came up as a recurring theme. By keeping staffing the same, baking companies potentially stand to manage those costs. 

“Keeping staffing levels steady and higher ingredient costs make for a challenging circumstance for bakery R&D departments,” Hellmer noted. 

Between tight product development timelines, frozen budgets and staffing, and higher ingredient costs, it’s no wonder that 60% of respondents cited balancing short-term innovation with long-term thinking as their top R&D challenge. After that, it’s a tight field with about a third of respondents reportedly challenged by product development-related resources/funding, not enough time for creativity, talent/hiring the right skill set and companies being resistant to change. 

“These teams have been charged with all these lofty goals for product development — more innovation within existing lines and true breakthrough invention — but their budgets look a lot like last year’s as ingredient costs continue to increase and you’re facing other economic headwinds and labor shortages,” Hellmer explained. “All of these make for a challenging set of circumstances for bakery R&D departments.”

This article is an excerpt from the September 2024 issue of Baking & Snack. To read the entire feature one State of the Baking Industry, click here.