“It's the economy, stupid,” or so said James Carville to get Bill Clinton elected in 1992. Baking Management's inaugural Wholesale Baking Industry Study serves to confirm the continued accuracy of this now-classic phrase — the economy continues to be the elephant in the room in almost every industry, with baking no exception.
More than 60 percent of manufacturers believe the current economic climate is the biggest challenge affecting their businesses today. When asked about their top concern regarding the commercial baking industry in 2010, “economy,” was the word used most frequently. Other replies were merely variations on the theme; one respondent worried about the “effects of market consolidation on profitability,” while another saw opportunity in the “collapse of smaller competitors.”
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And despite what they say, consumers are continuing with their penny-pinching ways. Though consumers frequently request more healthful food, especially whole grains, manufacturers report that consumers' demand for value is the biggest factor driving business. According to those manufacturers, value actually dwarfs health and nutrition in terms of driving the commercial baking business. So while consumers pay lip service to the health and wellness trend, the bottom line is the ultimate factor in their purchasing decisions.
Growth in pan breads, commercial bread, buns and rolls, which has far outpaced the growth of sweetgoods, croissants and snack cakes, bears out the lingering influence of the economy. People are eating at home more and splurging on perceived luxuries less.
Consumers want value, and bakers are acquiescing. Ingredient costs have gone up, but bakery manufacturers haven't raised product prices to keep pace. They are eating some of the ingredient costs in order to maintain volume, because if the costs were passed on to the consumer, sales volume would drop.
The growth of private label has been a direct effect of this economic milieu. As consumers seek to save, they turn to less-expensive store brands, which means smaller margins for manufacturers. Surprisingly, 40 percent of manufacturers report no change in business, despite consumers' turn toward private label. Only 20 percent see a lot of change. Does this mean they are holding strong against private label? Another year's worth of data will tell.
None of this is surprising, considering the recent recession; every so often it appears that consumer confidence is spiking, but lasting unemployment continues to undermine the recovery. But by manufacturers' own admissions, the prognosis isn't all doom and gloom. More than 75 percent of respondents expect sales volume to increase over last year. Not a lot of manufacturers are adding to product lines, but a far fewer are dropping products completely, so manufacturers report positive momentum toward product line diversification. The real trick will be ensuring volume growth is profitable. Bakers are being tugged in two directions, with pressure from rising ingredient costs squaring off with consumer pressure to lower prices.
Manufacturers are looking into alternative arenas to make the balance sheet work. According to the survey, labor is the most expensive aspect of running bakeries. Less than 20 percent of respondents say capital expenditure for equipment improvements is the most expensive aspect of running their bakery, but nearly all report some level of modernization, automation, reduction in energy consumption and increase in efficiency. As plants are modernized and made more efficient, the labor burden decreases. Manufacturers are realizing that capital expenditures often are one-time costs that serve to permanently decrease labor costs.
Use the following charts and graphics to see how your bakery measures up against other manufacturers' opinions and observations.
The objective of this study was to judge the status of the wholesale bakery business in 2010. The investigation, conducted exclusively for Baking Management magazine, used methodology and data collection from Penton Research. Data was collected June 18-27, 2010. Methodology conforms to accepted marketing research methods, practices and procedures. Copyright Penton Media, Minneapolis, Minn. All rights reserved. Information in this study may not be quoted, paraphrased or reproduced in any way, in whole or in part, except by the express written consent of the publisher.
MANUFACTURERS CONTENT WITH PRODUCT MIX
| Cakes | 20% |
| Cookies | 20% |
| Artisan bread | 13% |
| Buns and rolls | 13% |
| Danish | 13% |
| Donuts | 13% |
| Other sweetgoods | 11% |
| Muffins | 9% |
| Pan bread/commercial bread | 9% |
| Snack cakes | 9% |
| Croissants | 7% |
| English muffins | 4% |
| Bagels | 2% |
| Pie | 2% |
| Other | 9% |
| Not adding any items | 33% |
| Donuts | 5% |
| Pie | 5% |
| Artisan bread | 2% |
| Bagels | 2% |
| Pan bread/commercial bread | 2% |
| Buns and rolls | 0% |
| Cakes | 0% |
| Cookies | 0% |
| Croissants | 0% |
| Danish | 0% |
| English muffins | 0% |
| Muffins | 0% |
| Other sweetgoods | 0% |
| Snack cakes | 0% |
| Other | 0% |
| Did not drop any products | 88% |
Source: Baking Management Wholesale Bakery Industry Study, 2010
AUTOMATION IS TOPS IN BOOSTING PRODUCTIVITY
| Automation/adding new lines | 53% |
| Organization | 12% |
| Communication systems | 6% |
| Training | 6% |
| Expansion | 6% |
| New products | 6% |
| Other | 11% |
Source: Baking Management Wholesale Bakery Industry Study, 2010
BREADS STILL KING IN WHOLESALE BAKING
| Buns and rolls | 47% |
| Pan bread/commercial bread | 45% |
| Muffins | 40% |
| Cakes | 38% |
| Artisan bread | 34% |
| Danish | 34% |
| Cookies | 30% |
| Croissants | 28% |
| Other sweetgoods | 28% |
| Pie | 28% |
| Snack cakes | 26% |
| Bagels | 23% |
| English muffins | 23% |
| Donuts | 21% |
| Other | 21% |
Source: Baking Management Wholesale Bakery Industry Study, 2010
BREAD RECORDING GREATEST SALES GROWTH
| Buns and rolls | 22% |
| Pan bread/commercial bread | 22% |
| Cakes | 20% |
| Artisan bread | 17% |
| Pie | 17% |
| Cookies | 15% |
| Muffins | 15% |
| Danish | 7% |
| Donuts | 7% |
| Bagels | 5% |
| Croissants | 5% |
| Other sweetgoods | 5% |
| Snack cakes | 2% |
| English muffins | 0% |
| Other | 12% |
Source: Baking Management Wholesale Bakery Industry Study, 2010