Consumer confidence: Check. Baking industry confidence: Check. Revenue growth: Check. After the International Baking Industry Exposition (IBIE) and after the 2016 presidential election, bakers are looking forward in a more positive climate than has been seen in quite some time.
For 16 years, Baking & Snack has conducted its annual Capital Spending Survey, and since the 2008 recession, aside from last year’s Equipment Trends Survey, the general theme has been that of cautious optimism. This year, Cypress Research Associates, Kansas City, MO, took a step back in an effort to gauge the climate of the industry on the heels of a record-breaking IBIE and an unprecedented presidential election. The result was Baking & Snack’s first-ever Baking Industry Confidence Survey.
“Everything, of course, builds on consumer confidence,” said Marjorie Hellmer, Cypress president. “And confidence levels have moved off the charts. They’re at their highest levels since 2001.”
The state of manufacturing
Gauging the health of the baking industry begins by taking the temperature of general manufacturing. And that can be delivered in a good-news-bad-news scenario: The strength of the US dollar is up, but that doesn’t necessarily bode well for US manufacturing, according to a Forbes manufacturing forecast published last May.
The report cited three overriding factors that contributed to what Forbes contributor Bill Connerly referred to as a “so-so outlook” on manufacturing: export markets, weak capital spending and lack of oil drilling. Although the dollar’s strength bodes well for US consumers, it puts a veritable choke hold on foreign buyers, according to Mr. Connerly’s report.
Couple that with manufacturing companies focusing spending on cost reduction (e.g., labor costs) rather than growth, and the impact on infrastructure that comes with low domestic oil drilling, it’s no wonder his outlook is rather bleak.
But wait … there’s more to the story. As Ms. Hellmer noted, consumers are confident, and that means they’re spending. In fact, Mr. Connerly predicted consumer spending to grow at about 4% annually. With the Consumer Confidence Index having posted at 113.7 in December, there just might be a glimmer of light at the end of the tunnel.
And then there’s the baking industry, which in many respects is a whole different animal compared with the broader US manufacturing industry of which it is a part. “Food and beverage is quite different from general manufacturing,” Ms. Hellmer said. “When you look at food and beverage, it’s a stable, if not growth, sector. The performance is pretty reliable.”
Being a mature industry, bakery growth isn’t necessarily apparent on a year-over-year basis as opposed to more digitally focused areas of manufacturing that are still on a clear — even exponential — upward trajectory. Not to mention, baking is also a very traditional, legacy-focused industry with tighter margins dictating cautious, calculated growth plans that focus more on efficiency than capacity.
So, what gives? Before we look at how bakers are investing, the first step is understanding why they choose to invest. And that starts with the how they perceive the health of the industry and where it’s headed. “I looked at these study findings asking myself, ‘Is the industry investing to produce more? Are these bakers looking to grow?’ ” Ms. Hellmer noted. “In the past, investments have been more focused on efficiency and reductions in labor costs. But if bakers move toward automation, will they loosen the purse strings instead of making do?”
Read on for more reasons to feel optimistic.