Capacity and labor have been the crossroads of capital investment for the baking industry these past two years, and 2023 appears to be no different. That’s according to the results of Baking & Snack’s 2022-23 Industrial Baking Industry Capital Spending Study, sponsored by BEMA and conducted by Cypress Research. And it bears out in our conversations with the Rotella family in our feature on Rotella’s Italian Bakery, La Vista, Neb.
Rotella’s has invested in new equipment, production lines and facilities nearly nonstop for the past 40 years. Each time, the reason was the same: a need for more capacity. With its expansion into national accounts and frozen products, the family-owned baking company has had to constantly expand operations to satisfy its exponential growth. Production lines that were built for overflow and downtime were quickly running at full capacity.
The rest of the baking industry has felt this intense demand and growth since 2020 for all the obvious reasons: increased at-home eating and a rediscovery of baked goods both as filling, versatile staples and affordable treats. It’s important to note that even though US industries have been faced with tremendous challenges — inflation, rising raw material costs, supply chain problems and labor constraints — the baking industry has proven resilient in the face of all of it. As you’ll read in our Capital Spending report, respondents’ outlook for their companies has softened a bit, from “very positive” to “somewhat positive.”
However, what stood out to me was how industry outlook compared to that of 2020. Bakers’ outlook for 2020 reflects how bakers felt from where they sat at the end of 2019 when the survey was fielded. This was before we could have anticipated the pandemic or its repercussions. When asked how they expected the baking industry to perform in 2020 compared to 2019, only 27% of respondents expected the baking industry to perform better, while 66% expected it to perform about the same. Among bakers at the end of 2022 looking ahead to 2023 for this year’s study, 40% expect the industry to perform better and 44% expect it to be about the same. Despite some softening of enthusiasm from 2022 to 2023, bakers are still cautiously optimistic.
I attribute that to the strong demand that bakers continue to experience from consumers and customers. It’s keeping their production lines filled, and labor constraints and costs are causing them to seek more automated and efficient production lines. This leads to a healthy industry with an appetite for capital investment.
While it is certain that the baking industry cannot remain on the mountaintop, bakers are confident in the immediate future enough to reinvest in their businesses and operations. The Rotellas won’t be slowing down either. They’ve already made plans in 2023 for a new freezer, warehouse and distribution facility. That will make room in the company’s South bakery for another production line. Also on the list for 2023 is another ciabatta line in the company’s East bakery, all for the sake of redundancy and taking on overflow capacity. We’ll see how long it takes for Rotella’s to max out that line as well.