Baking & Snack’s 2024 Capital Spending Study, conducted by Cypress Research and sponsored by BEMA, revealed baking companies’ positivity and investment interest is holding steady from 2023 levels. How baking companies are investing is certainly shifting, and that’s driven by key challenges they are facing in 2024. When asked about their biggest challenges looking ahead to 2024, bakers reported labor and costs are their biggest concerns. Bakers are focused on reducing the reliance on labor and improving efficiencies to reduce costs. 

 “When asked what their biggest challenges were for the next 12 to 18 months, 73% of bakers said attracting and retaining a quality workforce,” said Kerwin Brown, president of BEMA. “The next three are all cost concerns: labor costs, increased raw material costs and inflationary pressures. These are all hitting their bottom lines and profitability.”

These concerns are having a direct impact on companies’ 2024 capital spending plans with lack of labor being the biggest driver. Fifty-eight percent of survey respondents reported that their companies will increase capital spending due to lack of labor. After that, 52% said rising raw material costs will increase capital spending. 

When looking at how baking companies will spend those dollars, the shift starts to appear. Investments in facility expansions and new buildings are down in 2024 compared to 2023. Most companies intend to use capital spending dollars on systems improvements (84%).

“Post-pandemic through 2023, we saw a huge investment of people adding new production lines or expanding existing facilities for additional capabilities or flexibility,” said Clay Miller, president, Burford Corp., a Middleby Bakery company and first vice chairman of BEMA. “Now they’re taking a pause after expansion and reinvesting in the equipment they already have. This also leads into investing in automation to help with their labor issues.” 

With those new expansion projects off the ground, investing in maintenance is also high on the list with 69% of bakers reporting plans to spend their capital investment budget on maintenance and parts. 

“Bakers have pushed their existing lines and equipment to the limit, and now they have to go back and address that,” Miller said.  

These shifts toward improving on existing lines and processes fall in line with bakeries’ goals for 2024. Seventy-two percent want to improve process capability/flexibility, up from 64% in 2023. Sixty-six percent want to improve product quality, consistency and accuracy, compared to 58% in 2023. Decreasing labor costs is tied for third place with increasing capacity for existing products at 61%. However, significantly more bakers are prioritizing decreasing labor costs in 2024 than in 2023 (61% vs. 52%). 

By focusing on systems improvements and maintenance, bakers will be addressing many of these goals as well as rising costs. Miller and Brown both noted that a large part of that solution will be investments in automation. In fact, 46% of bakers said one of their biggest challenges for the next 12 to 18 months was a need for greater automation. 

“When bakers invest in automation, they always see improved product quality as well as less waste and labor while also saving on costs,” Brown said. 

As bakers try to work around challenges they can’t control — rising costs and labor — they are trying to squeeze out every bit of efficiency possible from their operations. 

“They’re automating because they don’t have the labor, and they’re also looking for ways to reduce their costs,” he said. “Bakers are maximizing the lines they already have. With so many older manufacturing facilities operating in this industry, bakers are going to improve on those until they just can’t anymore.” 

Overwhelmingly, the most opportunity for automation investment exists where the majority of companies plan to spend dollars on equipment: packaging. Eighty-three percent of respondents said their companies plan to allocate budget to packaging equipment. Makeup, dividing and depositing came in second with 56% of respondents saying their companies planned to spend money in that area. It’s a tight field after packaging with mixing (54%), material handling (51%) and warehouse and distribution (46%) following.  

“It feels like packaging will be the No. 1 area for investment through the end of time,” Brown said. “Just from the fact that there are so many different formats to package baked goods in: six-counts, four-counts, two-counts. Bakers can automate the front end and make millions of three different types of products, but the flexibility needs in packaging mean that department will always be playing catch-up.” 

Not only is the packaging department slow to automate due to needed flexibility, but it is also notorious for being the most crowded. 

“Anywhere we see a bunch of people doing repetitive work, that’s an area bakers are looking to automate — not to displace those people, but to move them into other roles,” Miller explained. “Automation, such as in the case of robotics in packaging, can relieve the issue of finding people to work on the frontline in a bakery. It reduces your reliance on labor, and that’s where the return on investment comes in.” 

Surprisingly, when looking at the data, challenges that loomed large in the past have fallen off in terms of capital spending impact: namely supply chain and interest rates. While the industry has watched the Federal Reserve’s moves on interest rates closely, only 25% of respondents reported plans to decrease capital spending due to rising interest rates. In fact, 40% reported rising interest rates increased their capital spending plans. News about rising interest rates at the end of 2023 turned out to be more optimistic than expected, but bakers’ ROI calculations have also changed. 

“Automation has such a great ROI component that it’s easier to justify for bakers even as the cost has gone up,” Miller explained. 

Those returns include keeping production lines up and running, meeting customer demands and reducing waste and costs. 

“When automation is your end game and the results are so impactful, a rise in interest rates doesn’t always negate a decision to invest,” Brown said. “Getting quality product out the door has become more important than anything, and that’s shortened the timeline for ROI.” 

Supply chain disruptions have had even less of an impact on capital spending than interest rates. Forty-six percent said supply chain disruption would have no impact on their company’s capital spending plans for 2024. However, when asked about the challenges bakers were facing in the next 12 to 18 months, 44% of bakers said supply chain would be among their biggest challenges. Miller suggested supply chain disruption’s impact on capital spending might be showing up in other areas such as extended equipment lead times, which 47% of bakers said would increase capital spending and 17% said would decrease spending. 

“Supply chain disruption isn’t an unknown anymore, but the lead time issue is still there; it’s a known issue rather than an unknown,” he said. “And some of it still exists but in the form of cost increases; it’s feeding into rising raw material costs and equipment costs, which are impacting capital spending. The effects continue to ripple out.” 

As the dust settles from the past three years, the baking industry has shown itself to be built on a firm foundation. As the economy stabilizes, bakers feel confident enough to invest where they need to in order to keep pace with the growth they anticipate for their businesses. 

“The need to invest is here, and I wonder if it will ever dissipate,” Brown said. “Maybe the trend to expand facilities or build new ones will come and go, but that trend toward automation, that feels like a forever trend to me.”

As the economy and baking industry settle after a tumultuous few years, bakers have seen the need for continuous improvement in their facilities, and they are more than willing to make the investments needed for more efficient production that drives down costs and improves product quality.

This article is an excerpt from the February 2024 issue of Baking & Snack. To read the entire feature on Capital Spending Study, click here.