Baker’s appetite for investment is definitely up. Baking & Snack’s 2021-22 Commerical Baking Industry Capital Spending Study, conducted by Cypress Research and sponsored by BEMA, showed, however, that bakers are focusing their investments on areas that can ease the challenges the industry is facing. While the surge for baked goods may have dropped some from unprecedented highs in Q2 of 2020, demand has been sustained. IRI data for the commercial baking aisle, reported in BEMA Intel’s quarterly reports, show bakery product unit sales are either holding steady or growing. And certain sectors, like in-store bakery sales, are recovering from pandemic-related drops. While sales of baked goods in certain sectors are evening out, other channels recover, leaving bakers still feeling the crunch of needing to produce, produce, produce.

As one baker wrote in the qualitative section of the Capital Spending survey: “The increase in retail consumers over the course of the pandemic has changed how people eat. More people are making food at home, and it stayed that way even when the restaurant industry opened back up. We are seeing increases in the retail market holding strong at their current levels.” 

The top three 2022 goals bakers cited for their capital spending all support that need. Increasing capacity was the top goal for capital spending, with 71% of bakers focused on that. Sixty-four percent want to improve process capability and/or flexibility, and 62% want to increase production speed.

“We know increased capacity for existing products has been a challenge for bakers during this ongoing pandemic with facilities operating at nearly full or full capacity to meet their customers’ needs with incredible pressures on them,” said Marjorie Hellmer, president of Cypress Research.

Kerwin Brown, president of BEMA, echoed that insight, pointing to a different data point, however.

“The demand for baked goods among US consumers continues to be strong, something that will continue into 2022,” he said. “Because many of the baking plants are currently at or near maximum capacity, there’s a trend toward investment in this area with plans for the addition of new production lines increasing from 35% in 2021 to 39% in 2022.”

It should also be pointed out that all this increased capacity is for existing products. Increasing capacity for new products was at the bottom of the list of goals with only 53% of bakers reporting that as a driver for 2022 capital spending plans. This is a significant shift in the industry.

“Prior to the pandemic, the trend was to increase SKUs through line extensions and new products to meet the changing tastes and demands of US consumers,” explained Tim Cook, BEMA chairman and chief executive officer of Linxis Group. “As throughput decreased, more changeovers were necessary to produce these shorter-run products. Over the past two years, bakers have needed to decrease SKUs and line capacity to accommodate rising consumer demand.”

Following the top three 2022 investment goals are other priorities that can’t be ignored. Bakers want to improve product quality, consistency and accuracy (61%); improve food safety/sanitation (60%); decrease labor costs (59%) and invest in accommodations for a lack of skilled labor (56%). The fact that these goals are nearly equal in importance reflects the growing pains the baking industry feels in so many different directions. 

“The need to improve process capability, increase production and improve product quality are typically main drivers of investment, but we’ve seen so many workforce shortages related to pandemic disruptions, whether that’s staff getting sick or people leaving their jobs in record numbers across industries,” Ms. Hellmer pointed out. “That’s also putting downward pressure on the baking industry, so we’re seeing companies needing to make these capital improvements, and often they’re automating in specific areas to make these improvements.”

That was supported in the qualitative section of the Capital Spending Survey where bakers were able to write-in trends most affecting their company’s planned capital investments. The top three themes from these narrative responses were labor shortages/automation, increased demand/new opportunities, and increased capacity and efficiency. Other themes that cropped up in the qualitative responses were challenges related to the supply chain, raw material costs and increased lead times on equipment and parts.

“Bakers’ costs increased in 2021 and will continue into 2022,” Mr. Cook explained. “There were also increases in the costs of labor, raw materials, packaging and distribution. To lower the cost to produce each unit, bakers must use line efficiency, labor reduction and increasing throughput. This necessitates an investment in the optimization of lines, the addition of automation and increasing throughput.”

While conversations around labor do include best practices and new ways to find and retain workers, the overwhelming answer to the labor shortage appears to be investing in automation, as one baker pointed out: “Automation is very important as skilled labor and, in fact, any labor is difficult to find and retain.”

It makes sense, then, that the top three areas bakers will invest in are high-labor processes: packaging (86%), ingredient handling (70%) and mixing (70%).

“Packaging is prioritized the highest because it changes the most frequently and it’s the most labor-intensive process,” Mr. Cook explained. “Increased capacity is prioritized through material handling and mixing upgrades.”

These findings are supported in Baking & Snack’s forthcoming “Automating Out of the Labor Challenge” industry study, conducted by Cypress Research. Any process that is typically labor-intensive saw significant interest in investment from bakers, including packaging, ingredient handling and mixing but also decorating, loading and unloading of product and digital tools such as recipe-driven systems. These findings will be further analyzed in a Baking & Snack webinar on Feb. 23. Register for the webinar here .

With bakers experiencing headwinds that are largely out of their control, their capital spending is being used to control what they can. Bakers are turning to automation to increase capacity and efficiencies in the hopes of reaching the blue skies on the horizon.

This article is an excerpt from the February 2022 issue of Baking & Snack. To read the entire feature on Capital Spending Survey, click here.