More with less
March 1, 2015
by Ryan Atkinson
To say a lot happened in time between the past two quinquennial Economic Census releases from the US Census Bureau might be an understatement. The previous edition, offered in June 2009, covered the numbers in 2007, by which time the industry had weathered the low-carbohydrate craze but was at the beginning of the financial crisis that shook the country later in the decade.
Not surprisingly, that report didn’t paint a particularly cheery picture.
Five years later, the latest federal data, covering 2012, is available. The numbers reflect the brunt of the economic recession but show a resilient baking and snack food industry that has emerged changed but solid. (The gap in gathering information from 2012 and reporting it in 2015 happens because the Census Bureau uses data assembled by the Internal Revenue Service.)
“When I talk to people, they’re so energized and excited about our industry right now,” said Kerwin Brown, president and CEO of BEMA, Overland Park, KS. “I think the data shows that. It shows a whole theme of doing more with less; running better and leaner.”
When viewed as a whole, “better and leaner” is a fitting summation of what the Economic Census shows. The number of establishments grew slightly, increasing 2.5% to 5,044, including a 2.5% bump in facilities with 100 employees or more. The number of total industry employees, however, fell by nearly 8% to 283,710.
“While the number of establishments has gone up, the number of employees has gone down, leading me to believe that there may be more production per employee due to some automation,” said Alan Hiebert, senior education coordinator for the International Dairy-Deli-Bakery Association.
The category that contributed most to the lower number of employees was commercial bakeries, which saw a drop of 19.2% in workforce while losing just 2% of its number of facilities. That percentage is, by far, the steepest decline in workforce in the commercial bakeries industry as reported by the Economic Census going back to 1982. To put it into perspective, the 2007 numbers saw a 10% drop in employee numbers, which was double the second largest five-year decline in the past 30 years. The figures for 2012 double that.
On the other hand, that same category increased its total capital expenditures by 1.9% to $745,593,000. That number is now finally above what it was in 1997. While there was some growth in the 2007 numbers, it came after the baseline year of 2002, which was considered a particularly poor one for the baking industry. Furthermore, commercial bakeries saw a 9% increase in total value of shipments, which was at $27.9 billion in 2012 after coming in at $25.6 billion in 2007.
The total market saw capital expenditures jump 7.3% to $2.6 billion and its total shipment value go up 17.6%, from $87.2 billion in 2007 to $102.6 billion in 2012.
“One thing I continually hear from bakers is, we’re doing more with less,” Mr. Brown said. “You look at the period of time, and you had the 2008-09 issues. You had a lot of consolidation in the industry. Certainly through that, people go leaner, and there’s a sense that they haven’t really hired back a number of people.”
That mindset and resulting capacity needs may have spurred the current torrid pace of capital equipment purchases. Bakeries may have been using outdated equipment, but those lines were working fine, plugging along at, say, 60 loaves of bread per minute. Throw a new line in, and it’s possible to achieve a drastic spike in output without having to add to the workforce. That combination of faster, more efficient equipment requiring less service and less maintenance time certainly contributes to the “more with less” mantra.
Another factor contributing to the rise in establishments and fall in number of employees is most likely the result of ongoing consolidation in snack operations as well as bakeries.
“I think the data reflects that the snack industry has been fairly consistent over the long term in terms of steady growth,” said David Walsh, marketing and member services, Snack Food Association. “However, what has taken off over the last several years and has continued is the trend of industry consolidation.”
There appear to still be many start-ups in the snack food manufacturing category, but just as in other categories, the total number of employees has decreased. While the number of facilities increased slightly, the industry saw a decrease of 8.7% in number of employees, from 62,482 in the 2007 numbers to 57,059.
That could be a reflection of more snack operations coming under one umbrella as companies continue to merge and purchase smaller businesses. That would explain why the numbers maintain their steady growth. The Economic Census showed a 19.2% increase in total value of shipments for the snack food manufacturing category.
“The increase in numbers in general speaks to how steady the snack industry is in terms of overall growth, especially in categories such as ready-to-eat popcorn and snacks that are high in protein, such as jerkies,” Mr. Walsh said.
Once again, the tortilla category was one of the big winners in the Economic Census numbers, continuing a trend that stretches back at least 10 years. “Demand for tortillas is growing, and we saw higher investment in that segment in 2012 than we did in 2007,” Mr. Hiebert said.
After experiencing a 71% increase in total value of shipments in 2007, tortillas jumped another 42.2% in the 2012 numbers. The tortilla industry shipped a total of more than $3.6 billion, up from nearly $2.6 billion in 2007. That mirrors the continued rise of wraps and frozen, ready-to-eat items such as quesadillas and taquitos.
“It’s crazy to see tortillas continue to grow like they have,” Mr. Brown said. “That’s been about 15 years of growth, and it continues to grow as a category. You can’t go anywhere without seeing a wrap.”
Also earning a significant increase was the category that includes dough, flour mixes and manufacturing from purchased flour. That category’s shipments jumped 60.5%, hitting $12.8 billion. The 2007 Economic Census saw it at just under $8 billion. Some attribute that success to frozen and par-baked doughs. The convenience of frozen doughs has spurred their use in restaurants and their success in-store. The number of establishments in this category with more than 100 employees grew from 62 to 75, by far the biggest leap among all baking categories.
“People who are making great frozen dough products are in huge demand. They’re seeing a 20% growth rate almost annually,” Mr. Brown said. “The quality is so high, and I think that’s a big reason for the huge growth. You see it in the numbers. It’s so hard for end users to find the right person, get them trained, keep them employed — all those elements. On the frozen dough side, you take it out, set it out for a while and bake it.”
Mr. Heibert agreed: “We’re seeing more investments in facilities to make frozen baked goods. At least some of those frozen products are sold to in-store bakeries where they are thawed for sale or baked off.”
And as with tortillas, Mr. Brown attributed at least some of the success of frozen products to the popularity of ready-to-eat foods. “If you walk into our local convenience store, you see a lot of frozen dough products, like pizza, and wraps. People are buying them up. My local store just added a lot of those products in the past three months. It’s still growing.”
‘Exciting and positive’
While not every category saw extraordinary results according to the Economic Census — the cookie and cracker manufacturing category increased its total value of shipments just 6% — the overall results garnered positive reaction. That falls in line with what many are hearing around the industry: Things are looking up.
It’s a buzz that Mr. Brown anticipated as he got ready for the BEMA winter summit meeting and the American Society of Baking’s BakingTech 2015, co-located in Chicago during early March.
“It’s a very exciting, very positive vibe,” he said. “I know I’m excited. I think we’re going to get to Chicago, and there’s going to be this buzz about energy and sales and growth. Bakers are continuing to spend money on their facilities, and they keep becoming more efficient. It’s the whole theme of doing more with less.”