Dan Malovany: State of flux
March 1, 2012
Maybe it’s just me, but too many ifs, ands or buts dominate the forces driving the current state of the industry. Bakers and snack producers indicate long-term optimism for the industry, but it’s tainted with a pinch of uncertainty and a dash of possibly righteous paranoia about the future. Businesses remain confident they can take any hit the economy delivers, but they’re wary about being sucker-punched by something unknown.
As John Anthony Orlando, vice-president of operations, Orlando Baking Co., Cleveland, OH, put it, today’s operating environment is a mixed bag. “Business is increasing, and ingredient [prices] are going up,” he said. “It’s improved in some ways, but not others.”
That’s not exactly a ringing endorsement. In fact, it’s sort of like telling someone, “Uh, you’re not half-bad looking.”
Mr. Orlando participated in our capital spending survey conducted last fall, which showed 70% of responding companies are financially sound despite their profits taking a hit during the past year. Another 15% said their companies are firmly in the black, but a different 15% suggested their companies are unstable and profits turbulent at this time.
But since then, even some of the best operators in the business indicated they aren’t immune to the ifs-ands-or-buts syndrome. During the past year, several public baking and snack manufacturers reported solid sales growth in light of tepid marketplace and economic pressure. But in the end, they saw earnings soften despite their efforts to manage such variables as higher input costs and commodity prices mixed with value-conscious consumers who remain wary about the weaker economy and potential food inflation.
Today, baking and snack companies can get some price increases, but at the same time, the market sees deep discounting continue. As a result, bakers may find their overall dollar sales rising in the short term, but their volumes remaining relatively flat in many categories.
Many companies have effectively managed their businesses through these tough times by lowering their costs through lean management initiatives and instituting Safe Quality Food and other best practices. However, evolving environmental regulations, emerging nutrition labeling requirements and initiatives such as the Food Safety Modernization Act can create uncertainty and make operating in the food industry more complex and frustrating than ever.
Likewise, bakers and snack food makers continue to invest in new equipment and better systems, but they’re demanding an ever-shorter period for return on investment. In some cases, businesses want to invest more, but they’re averse to taking on more risk.
As is too often the case, there are just too many buts in this world, which makes day-to-day business much more difficult than it needs to be.
Yes, life isn’t always fair. At times, it’s just a pain in the you-know-what that hopefully will go away and make everyone better operators in the long run.
But then again …