The diverse array of momentous changes affecting the baking industry in 2019 poses a serious challenge for executives as they plan for this year’s International Baking Industry Exposition (IBIE). The tight labor market, the declining centrality of supermarkets as an outlet for baked foods, the rapid growth of third-party delivery providers for food service, the emergence of Gen Z as the largest generation and a continuing shift in food sales away from baked foods such as organic bread and other increasingly sophisticated specialty products all must be seriously considered as part of capital expenditure planning for baking.

While the tight labor market certainly will be as great a driver of capital investment priorities as at any IBIE in the past (and automation has been a top priority for decades), other economic trends bear watching. An abrupt shift in the macroeconomic picture and attitudes of the Federal Reserve suggests that the interest rate environment should remain attractive for bakers grappling with the complicated mix of forces confronting them as they look to make capital investments for the years ahead.

Overhanging these important shifts underway is a generally darkening picture for flour-based foods, particularly for bread and rolls. In the 52 weeks ended May 19, sales of fresh bread and rolls totaled 5.4 billion units, down 5.5% from a year earlier, according to figures from I.R.I., a Chicago-based market research firm. Unit trend sales for baked foods have been soft for several years, but the nearly 5% unit volume decline over the past year represents a meaningful deterioration of the demand picture. Most baked foods segments were down, including declines of 5.5% in bread, 2.7% in buns, 12% in pita, 1.1% in bagels, 5.8% in English muffins, 1.2% in bakery snacks and pastry/Danish/coffee cake, 2.3% in other cakes and 5.2% in donuts. Only muffins broke the trend, generating 7.5% growth.

Standing out in the data has been a precipitous decline in sales of private label bread, which fell 12% to 1.1 billion units, according to I.R.I. Even after the steep drop, private label bread eclipsed bread sales of the largest U.S. baking companies, including Grupo Bimbo, Mexico City, at 837 million units and Flowers Foods, Inc., Thomasville, Ga., at 695 million. The slide in bread sales was not limited to private label. Branded bread sales fell 2.2% as well.

This weakness has been mirrored in flour production trends. Production was down January to March 2019, marking the third consecutive quarter in which it declined from year-earlier production. At 103,647,000 hundredweights, January to March production this year was the smallest in the past 17 quarters, or since January to March 2015. The 1.9% decrease in flour production from January to March 2018 was the largest quarterly drop in almost six years.

Whether the hemorrhage in the U.S. bread market will be staunched remains to be seen. For most of the three years since the previous IBIE, leaders of the grain-based foods industry have been exploring bold steps to work cooperatively to aggressively promote the industry’s products. While pleased by work of the Grain Foods Foundation over the past 15 years, many bakers and millers concluded the organization would be unable to “move the needle” given the relatively modest size of its budget and the incessant and loud voices of baked foods critics.

After gathering input from industry leaders, a decision was made to explore a checkoff program for grain-based foods. Grains remain the largest energy source in the American diet and as the leading food category finds itself forever with a large target squarely on its back. Of the roughly 2,500 calories consumed daily, grains in 2015 accounted for about 524 calories, or a little more than a fifth, according to U.S. Department of Agriculture data.

Among foods competing with grains for “share of stomach,” the only major food source other than grains without a checkoff program is poultry, meaning that the largest food group is spending the least to sustain or build its market. The recognition that grain-based foods competes at a disadvantage on a playing field that is not level and the long track record of success of many other such programs (e.g., dairy and eggs) has convinced a strong coalition of industry leaders to move forward on an ambitious program focused principally on so-called breadbasket products.

The knowledge that a checkoff program is likely to move forward should be reassuring to bakers as they plan for IBIE 2019. Still, even if a program is initiated, the underlying changes cited throughout this special edition bear close watching. The plunge in private label bread sales represents an acceleration of a decades-long decline in the position of enriched white bread as a dietary staple in the United States. Recent data showing a weakening trend in the demand for whole wheat flour suggest that heightened innovation will be required if bread is to maximize its marketplace potential. Fast-growing categories such as organic, sprouted and even gluten-free bread show that ever-greater creativity will be required.