Baking&Snack - February 2013 - 31

SPECIAL REPORTS
Capital Spending Survey, Part 1

by Dan Malovany
Investing in baking and snack operations requires a little
luck, a lot of preparation and an even greater trust in a
company’s ability to play its cards right to minimize risk
and guarantee rewards. During the past three years following the Great Recession, several businesses such as
Mexico City-based Grupo Bimbo and Flowers Foods,
Thomasville, GA, continued to place some of the biggest
bets by making major acquisitions coupled with significant capital spending strategies to secure their positions
as the respective No. 1 and No. 2 players in the industry.
While capital spending strengthened during the past
three years, the industry as a whole is still looking for
that big breakout year, according to Marjorie Troxel
Hellmer, president of Kansas City, MO-based Cypress
Research Associates, which conducted Baking & Snack’s
20th Annual Capital Spending Survey.
In many ways, baking and snack companies are like
sprinters stuck in a three-point stance waiting for the
gun to fire. Or, as Ms. Troxel Hellmer described, they’re
like a predator perched and eyeing its prey. They’re
primed and ready, but in the end, signs always seem to
pop up that keep them from making the ultimate leap.
“They’re like the animal that is crouched, ready to
pounce but hasn’t leaped yet,” she said. “We’ve been in
that posture as an industry for years. We keep thinking
[the economy] is going to break out six months from
now, but it remains stalled. These companies are ready to
get out of that crouching position, but they keep waiting
for external signs of safety.”
From a macro perspective, those conditions include
high unemployment rates, slow economic recovery, political uncertainty and, most recently, the dreaded fiscal
cliff. Uncertainty in tax rates, tax incentives, the overall outlook for the country and even the prospects for
the global economy, Ms. Troxel Hellmer noted, make
it challenging for cautious executives to take a longterm approach to their businesses and capital spending
practices.
Closer to home, food companies continue to face
higher commodity costs and pricing pressures. As a
result, it’s not surprising that 70% of those surveyed reported their businesses as “financially sound, but profits

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have taken a hit” during the past year. Only 20% stated
they were “firmly in the black and seeing no ill effects”
from the economy while 10% cited “unstable conditions
and turbulent profits.”

Confidence grows for 2013
Although many executives expressed concern about
economy, they’re much more bullish about the baking
industry. For the third year in a row, nearly 90% of the
survey’s respondents described the outlook for the industry as positive, but there was an undercurrent to
their responses. “Everyone knows they’d rather be in the
baking industry than the banking industry,” Ms. Troxel
Hellmer explained. “There is a lot of caution under this
positive outlook, but it is positive. No doubt about that.”
The survey’s results also signaled a growing confidence in 2013, especially in companies’ ability to manage their businesses and manage their future, even
though there are many factors they cannot control.
“Successful companies have already made the necessary adjustments to weather the difficult economy and
to absorb the commodity pressures,” she said. “Once
these executives talk about their company’s standing,
they indicate they’re doing pretty well, even if the economy may not be doing well.”
Such confidence is reflected in answers to several survey questions. When asked how much their companies
plan to spend on capital improvements in 2013 compared with 2012, 50% stated they plan to spend more
money for this year compared with 38% of respondents

February 2013 / Baking & Snack / 31

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Baking&Snack - February 2013

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