KANSAS CITY, MO. — All indicators are up. That’s the report from the BEMA Intel quarterly summary from the fourth quarter of 2020. A year plagued by uncertainty finished with a strong positive outlook for the wholesale baking industry, especially on the equipment investment side.

Ninety-two percent of bakery equipment manufacturers who responded to the BEMA Intel Member Pulse Survey expressed a positive industry outlook for the US equipment industry, and 100% of equipment manufacturers were positive about their company’s business outlook for the next six months.

Compare that with only 70% and 79% of equipment manufacturers were positive about the next six months for their businesses in quarters 2 and 3 respectively for 2020, and that data shows that increased demand for packaged baked goods is impacting bakers’ appetite for investment.

“The reality is there has been a significant and sustained pick-up in investment in our industry,” said Jason Ward, president of AMF Bakery Systems and BEMA board member. “When you go back to the March to June period of 2020, we were in the middle of a COVID coma. There was extreme uncertainty in our business. Projects were placed on hold. There was a pause in place across many sectors of the economy. We didn’t know how long that period was going to last and when the other side was going to come.”

That other side appears to have arrived as 2020 ended and it became clear that consumers had an appetite for the wholesale baking industry’s products.

According to data from IRI for the 52 weeks ending Dec. 27, 2020, bread sales rose 9.6%, hamburger and hot dog buns jumped 17.5%.All other fresh rolls, buns, croissants increased 15.7%.

In fact, all bakery categories representing the commercial aisle in the BEMA Intel report saw gains in dollar sales between 2019 and 2020, even if those increases were modest.

“People are preparing more meals at home. This has lead to an increase in demand for retail baked goods and has resulted in increased demand for bakery equipment. said Tim Cook, chief executive officer of Shick Esteve, and first vice chairman of BEMA.

Bakers have turned to increased automation to not only keep up with demand but also keep their employees safe.

“Bakers have a desire to push forward with automation in order to increase efficiency and product safety.”  Mr. Cook said.

Automation also allowed manufacturers to reallocate labor to areas that are less production dependent. In the face of a pandemic this can make the difference between being able to fill orders or not.

 Mr. Cook pointed out that while the pandemic temporarily paused some investment last year, it fast-tracked other investments.

“Projects related to automation that were previously not quite compelling from an ROI perspective look different in light of COVID-19,” he said. “Bakers are particularly looking to further automate ingredients and packaging. These projects were not new — they were being discussed — but they became more attractive and compelling in a pandemic world.”

While this is all good news for the baking industry, there are indicators in the BEMA Intel data that bakers should keep an eye on. Investments in equipment may be rising but so are ingredient and labor costs.

Ingredient costs for white pan bread, in particular, jumped 7.9% for the fourth quarter of 2020. Likewise, ingredients for shortbread cookie increased 3.7%, cake donut rose 2.4% and Devil’s food cake inched up 1.3%. Much of this is driven by flour costs, which are projected to stay high for at least a year.

Jennifer Lindsey, vice president of global marketing, Corbion, attributed much of this to exports.

“Exports are fully booked out,” she said. “Countries, especially China, are stocking and holding.”

This is mostly pandemic-related as countries are stocking up just in case recovery is interrupted. But Ms. Lindsey also pointed to China’s rebounding pork industry.

“Farming practices have improved since one of the vectors of the swine flu outbreak was feeding practices. Now pigs are fed grain feed, soy being a big part of that,” she explained. “That matters because acreage of corn and soy competes for acreage of wheat.”

The high demand for corn and soy drives up the prices, which also impacts wheat prices to compete for acreage.

Despite these higher input costs, Mr. Ward and Mr. Cook don’t see any signs that investment in operations will slow down any time soon.

“As your input costs increase that doesn’t mean you turn off investment,” Mr. Ward said. “You just have to be sure they are investment that deliver a strong return.”

While the pandemic may have driven up input costs, it has also driven up consumer demand, justifying the equipment investment for more efficient bakery production. The trick for 2021 will be in how long that consumer demand lasts.

“So far all the signs remain very positive for the baking industry, but at some point, there will be a leveling off,” Mr. Cook said. “What will be really interesting to see is whether or not COVID has created a new demand for baked products.? Will people continue eating at home, or will they go back to the old normal, and will demand level off as a result?”