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.
When money is tight, customers are more likely to shop around for a good deal, although recent years have also seen a surge in demand for handcrafted, scratch baked products. Because these products often take longer and cost more to produce, value perception is shifting toward the care put into creating a quality product rather than monetary cost.
Bakeries have a distinct advantage in value perception because of the nostalgia that’s intrinsic to many of their products. “Value in the baking industry is in the eye of the beholder,” Deising says. “If we as bakers continue to provide those comfort foods or those foods that remind customers of their childhood or heritage, we will find the niche for value.”
“It’s a quality proposition for us,” Seppi says. “Our business model is not a low-cost leader. We are a higher end, higher quality producer and our product isn’t inexpensive. The consumer has a desire for a higher quality product, but you have to tie in the service component as well. It’s one thing to produce quality product; it’s another to produce and provide the level of service and knowledge to go with it that makes the customer experience valuable. Our employees have to be knowledgeable about the product.”
Krueger also says that customer and employee education are essential to value perception. “We have a lot of long-term customers. With our loyalty card, we have high penetration with customers, but we can’t take it for granted. We have to show our value proposition, whether through promotions or just our pricing,” he says. “The other part that we are going to increase this year is educating the customers, letting them know what it is about Buehler’s that is better. Our bakeries aren’t as open with the production area, so customers come to the counter and don’t necessarily see that we’re making product from scratch, mixing it and slicing it on premise. Unless we educate them with trained staff at the counter, they won’t know what’s going on back there.”
Consumers continue to seek competitive pricing, although they’re placing more emphasis than ever on quality product.
For Baker, value perception is tied to reliability and competitive pricing, especially in the in-store bakery. “I think the number one thing that’s never changed and what a consumer thinks of value in baked goods in consistency,” he says. “It’s the number one commandment of baked goods. People want to be able to rely on you, they want to know what they can get. Obviously, when people are watching pennies, cost versus value is very important as well.”
Social life
Social media usage and users have seen significant growth in the past year, with the total amount of time spent on social media sites growing 37 percent to 121 billion minutes in July 2012, compared to 88 billion minutes in July 2011, according to Nielsen. In addition, unique social networking users increased to 171.8 million in July 2012 from 163.6 million a year earlier and consumers spend more time on social media sites than any other type of sites, Nielsen found. Beyond establishing a presence on social media, bakery owners are now harnessing its power to drive traffic to their businesses.
“Social media is by far the biggest single factor in growing our business in the last two years,” Deising says. “Using this wonderful tool to promote our business is now part of our everyday activity. It allows us to communicate directly with our existing customers and really let them know what we are doing in our store.”
For an in-store bakery that does frequent sampling and demonstrations like Buehler’s, Facebook helps notify customers of events coming up in the store. “Facebook is definitely the best way to reach out to the community. When we have sampling events in the store, we’ll post it on Facebook to let people know. It’s helpful too because we might not have the same demonstration at each store.”
In addition, the speed with which news travels via social media allows business owners to respond quickly and ensure customers are happy. “The beauty of social media is that you get to know very quickly whether they like it or not. They also let their friends know when they see something they like,” Deising says. Furthermore, the main cost to bakery owners is the time investment. “You can now target specific people and not waste big advertising dollars on people who may not ever become your customer,” he adds.
“It’s a good opportunity for feedback from customers–both positive and negative,” Baker notes. “I encourage customers to give us feedback so we can rectify problems right away.”
All about the labels
The definition of good health is no longer simply about low-fat, low-calorie products. For a growing number of consumers, it is more about a holistic approach to eating, which means incorporating more all-natural, organic foods.
According to the Huffington Post, the anti-GMO movement will gain visibility in 2013, thanks to the awareness raised through California’s efforts to pass Proposition 37 for GMO labeling, which was defeated in November.
For Seppi, whose bakery is based in Northern California, GMOs will remain top of mind for consumers in the coming year. “I think the trend for natural, GMO-free products will continue, particularly because California is on the path to clean labeling. Consumers want to know where a product is coming from and how it’s made,” he says. “We often get emails asking, ‘Is this GMO-free?’ ‘Where was this manufactured?’ It’s about how we can continue to improve product and ingredients we’re sourcing to make better, healthier bread and bakery staples.”
Buehler’s has started carrying spelt breads, sprouted grain bread and has even started producing grain and homestyle breads fortified with omega-3s with positive results. “We knew it wouldn’t be a hard sell to put omega-3s in our grain or artisan bread because those customers are already looking for it. We started doing it with our homestyle bread and it’s a steady seller for us.”
“Cupcakes will be hot in 2013. Artisan breads and clean label products will continue their upward trend,” Deising says. But regardless of his predictions, customers always dictate what’s trendy. “We have been around for over 48 years. We would not still be here if we always continued to do the same thing,” he says. “The customer has always dictated our menu. If they want more, they will tell me, whether it be asking me or my staff aside, or just by discontinuing their purchase with us. We react to either situation very quickly by giving them what they want.”