Lots of bakeries are expected to make major capital investments in 2017.
So, consumers are buying baked goods, and the future is finally looking bright for bakers. The question still remains: How does it affect operations?
“Any time I look at these surveys — especially as it relates to capital spending — I always ask, ‘Are companies investing in things that cut expenses, or are they expanding to build capacity?’ ” Ms. Hellmer said. “I think for many baking companies, a lot of the activity continues to focus on creating efficiencies versus building capacity or building new plants. Bakery is that kind of stable industry.”
Truth be told, the baking industry will likely never be the next Silicon Valley; companies just aren’t going to dump oodles of cash into new innovation and rapid growth anytime soon. Baking companies are nothing if not calculated. They don’t splurge on the unknown. They fix what’s broken and improve what’s working.
According the survey, the average company-wide operating capacity was just shy of 73%. “We’re seeing a little over a quarter of availability,” Ms. Hellmer said. “There’s room to increase operations with existing capacity, so companies are not yet maxed out.”
When margins are tight and operations aren’t yet at capacity, spending, while strategic, is still happening. In fact, 86% of bakers reported making major capital investments in the past two to three years, and 79% still reported planning for new ones in 2017 — 55% indicated plans to increase investments over 2016.
This year, on average, 13.8% of revenue looks to be going back into capital investments, and about half of that (47.9%) will be used for equipment, according to the survey. Specifically, the bulk of the focus is being placed on packaging (73%), mixing (61%), makeup/dividing/depositing (58%) and cooling/freezing (55%).
Considering the nature of the industry, most of the concentration for investments is naturally being seen in new equipment and upgrades, as well some expansion, rather than in new construction. If a bakery isn’t leaving its building — but it’s ready to loosen those purse strings a bit — those dollars will likely target automation and eliminating bottlenecks to max out capacity. Think robotics in packaging or digital upgrades with tools such as tablets.
At the end of the day, it’s practically impossible to gauge investment trends without a having a grasp on the health of the industry. The industry outlook creates a context to understanding the motivations behind capital spending and equipment purchasing. Lucky for bakers and their suppliers, the outlook is bright.
Between the mediocre state of general manufacturing and high consumer confidence, commercial baking seems to be sitting in the catbird seat.
“Bakers are telling us that the economy is growing,” Ms. Hellmer said. “For so many years, we’ve been hedging our bets, saying, ‘We’re not sure, yet,’ or ‘The industry is unsure.’ Finally we get to blow the horn and say bakers are actually optimistic about the future.”