2013 Baking Industry Forecast: New year, same refrain

Like getting the chorus of a pop song stuck in your head, it seems as though we will be singing the same old tune in 2013 as we did in 2012. Europe remains mired in debt, and China faces a slowing growth rate and expanding housing bubble. At home, uncertainty following the Obama administration’s sweeping health care reform and fears about how the government would handle the combination of tax hikes and budget cuts set to take effect Jan. 1–also known as the fiscal cliff–left businesses skittish about capital spending and hiring in December, erasing what little momentum the economy had going into 2013.

Last month, the International Monetary Fund lowered its growth estimate for the global economy to 3.6 percent for 2013. Domestically, the U.S. economy grew at a pallid 1.3 percent in the third quarter, down from estimates of 1.7 percent.

Slow, sustained growth
However, there are bright spots. The national unemployment rate dipped below 8 percent this fall and home resales rose sharply in November, indicating recovery in the housing market is gaining steam. Many economists expect consumer spending to rebound in 2013, boosted by a stronger-than-expected performance in November (despite Superstorm Sandy) and early reports indicating positive December numbers. The House approved a last-minute bill to avert the dreaded fiscal cliff, staving off widespread tax increases and deep spending cuts. The last-minute deal maintains tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000. It will raise tax rates for those who make more, marking the first time in 20 years that rates jumped for the wealthiest Americans. Still, many analysts were pessimistic about the deal, which doesn’t address issues such as the $16.4 trillion debt ceiling that the United States reached on Dec. 31 or cuts in federal spending to most programs and agencies.

Alan Beaulieu, president at ITR Economics, Boscawen, N.H., says that despite appearances, the economy has been growing steadily for the last few years. “Interestingly enough, we have been in a sustained period of growth since 2009, but it hasn’t been a bubble period so we dismiss it,” he says. “The GDP is at a record high, inflation is low, employment is going in a good direction. These are good years.”

And while the first half of 2013 will see continued growth, the latter part will see a correction as higher energy and food prices and slower employment growth pressure consumers, Beaulieu adds. “We should keep our eyes peeled on the second half of ’13, which is likely to have a stock market correction. Luxury spending will decrease as we go into the second half of the year.”

Bakery owners anxiously await the full impact Obamacare will have on employee health care and benefits.

For many bakery owners and supermarket bakery directors, competition will remain tight in 2013 as shoppers continue seeking the best value. “I think it’s going to be a very tough year,” says Scott Baker, president of 5 Generation Bakers, Zelienople, Pa. “People are more willing to go to club stores or make three stops on their shopping trip because they want to get the best deal. But retail bakeries have been experiencing this for much of the last decade. It’s more of the same, and they have learned to compete and survive these challenges.”

Will Seppi, general manager of Costeaux French Bakery, Healdsburg, Calif., notes that a lot hinges on decisions being made in Washington regarding spending cuts and taxes as well as the health care overhaul. “Domestically, tax- and politics-wise there could be some clamping of consumer belts with tax rates rising from the first of the year,” he says. “We’ll also have to see what happens with Obamacare. It’s important to us to offer competitive benefits that our employees want and we can afford, but a lot is still unknown. Those are frustrations, and you try to plan the best you can. We want to make decisions but are skittish because we don’t know what the impact will be.”

Beaulieu says that because Obamacare doesn’t fully kick in until 2014, the full impact won’t be felt until then, when a combination of other factors are likely to come to a head and affect the economy.

“Employment is likely to tail off because of Obamacare changes. That, combined with the reduction in federal spending, and massive increase in taxes is really what we’re looking at for 2014. All that has a negative bearing on the economy. But we believe it’s all about being prepared.”

Despite continued economic pressures, the “recession-proof” nature of the food industry lends itself to an optimistic outlook as consumers always seek out small rewards like sweet treats or gourmet food products.

“From the baking industry standpoint, I feel pretty good,” says Eric Deising, president of Deising’s Bakery, Restaurant & Catering Co., Kingston, N.Y. “We offer products that fit into any economy–good or bad. Most bakeries are closely linked to communities. When times are the toughest, communities stand together. As with any business involving food, you are assured that people will have to eat at some point in order to live, so repeat business will happen as long as you provide the products they desire at the right price.”

“I think it’s going to be a little better than last year,” says Roland Krueger, bakery merchandiser for Buehler’s Fresh Foods, Wooster, Ohio. “Over the course of the last couple years, we’ve seen people either shopping down or not indulging as much as before. But the one thing about bakery that’s still true is it’s an affordable indulgence. If you want to treat yourself, you can still do it affordably. You’re not buying an $18 T-bone steak from the meat department each week, but you can treat yourself to a brownie, donut or pastry.”

Were our predictions right in 2012? Read last year's forecast to find out.