Baking & Snack’s 2021-22 Commercial Baking Industry’s Capital Spending Study, conducted by Cypress Research and sponsored by BEMA, revealed a sustained positive outlook for the baking industry, but it also pointed to the challenges the industry is facing. This combination of sustained positive and challenges of needed capacity and reduced labor are culminating into one hot investment market. Fifty-seven percent of bakery professionals plan to increase their capital investments in 2022, and 56% expect to increase their equipment purchases.
One of the most significant findings is that capital spending budgets themselves are projected to increase in 2022. In 2021, bakers designated an average of 8.5% of their company’s revenue to capital projects. In 2022, they have earmarked an average of 11.3% of company revenue for capital investments. And 36% of bakers indicated that the pandemic itself is the reason they plan to spend more.
“Only 14% of bakers reported that their companies are planning to spend less on capital improvements in 2022 compared to 2021, so again, this is a great indicator of industry health,” said Marjorie Hellmer, president of Cypress Research.
This has also been reflected last year in BEMA Intel’s quarterly Member Pulse Survey. In Q3 of 2021, 50% of BEMA members reported increased quarterly bookings compared to the previous quarter. In Q2, 66% of members reported the same. Seventy-two percent of BEMA members anticipate their company sales to increase during the next 12 months. On both sides of the equation, bakers and equipment companies are reporting high levels of investment to meet the needs of high demand in the midst of a challenging labor market.
How bakers plan to spend that money uncovers all the challenges bakers have faced the past two years. Rather than upgrading existing equipment or production lines, bakers’ priorities seem evenly split between maintaining existing equipment and production lines and adding new ones. In 2022, interest has grown in adding new equipment and production lines.
“If we look at study trends just for adding new equipment and lines, we saw that 27% of bakers reported that commitment in 2020,” Ms. Hellmer said. “It rose to 35% of bakers in 2021 and to 39% of bakers who project adding new equipment and production lines in 2022. So we’re seeing a jump of 12 percentage points in just a few years.”
When it comes to specific spending on equipment, bakers are overwhelmingly planning to invest in maintenance and replacement parts. That’s not new, as Ms. Hellmer pointed out, but thinking in the context of the current supply chain challenges, this data point takes on new meaning.
“I don’t think that commitment is higher than what we have typically seen in past studies, but we know that’s a pain point for bakers and their supply chain partners right now, getting those parts to the bakers,” she said.
After maintenance and replacement parts, 88% of bakers reported plans to invest in systems improvements in 2022, another typically high priority. Worth noting, however, is that 58% of bakers are planning to expand their facilities either with new production lines or building expansions in 2022, up from 47% in 2020. And nearly a quarter of bakers indicated 2022 plans to invest in bricks-and-mortar. Whether that appetite remains when interest rates and borrowing expenses rise remains to be seen.
“If these companies made it through the pandemic, they are poised to continue to invest in their companies and people even more to meet their customers’ needs, and I think that’s what we’re seeing here,” Ms. Hellmer said.
This article is an excerpt from the February 2022 issue of Baking & Snack. To read the entire feature on Capital Spending Survey, click here.