Baking & Snack - February 2018 - 36

CAPITAL SPENDING SURVEY

"Five years ago, [bakers] were
making short-term investments
... Now, we see more industry
confidence with bakers stretching
that expected return to make
more long-term investments."
Marjorie Hellmer, Cypress Research Associates

spending budgets will increase over last year's actual
spend. "We see fairly healthy spend levels at the top of the
industry," Ms. Hellmer observed, suggesting that those
companies budgeting in the $10 to $20 million investment range are more mid-tier manufacturers, while the
ones with capital budgets ranging from $20 to $70 million
or more are most likely global juggernauts. "The breakouts and global baking companies are spending, and then
you have those mid-tier and smaller bakeries clustering
more toward the conservative end of spending."

Where? How? And why?
So, the clouds are parting, and the climate is finally starting to improve. What's next? Perhaps the better question
is: Where, how ... and why do bakers plan to invest in
their companies? "You can see there are increases across
categories in terms of where bakers are spending, even
compared with five years ago," Ms. Hellmer suggested.
Areas such as maintenance and replacement parts,
systems improvement (system integration or automation), warehouse and distribution, and expansion for
existing facilities emerged as areas where more bakers
plan to invest than five years ago.
Although certain target investment areas - new processing equipment, new packaging equipment and upgrades for existing facilities - appear to be down compared with 2013, they took a dip in 2014 and are back
on the rise.
So, where will the actual dollars go? According to survey results, budget allocations are pretty evenly spread
at 10 to 20% across all areas of operation this year compared with five years ago when a third of capital budgets
appeared to be reserved for new processing equipment.
"There's no one area where bakers are piling up their
dollars," Ms. Hellmer noted. "They're spreading across
many different investment areas."
Planned allocations for new processing equipment
declined from 33% in 2013 budgets to 22% for 2018.
That's not surprising, considering bakers invest in new

36 Baking & Snack February 2018 / www.bakingandsnack.com

equipment designed to last 20 years or more with the
right upkeep, suggesting that manufacturers are now
better positioned in this area.
In terms of capacity, bakers appear to hold steady on
increasing capacity for existing product lines - with
43% doing so for this purpose - and nearly a third
(30%) reported upping capacity for new products. When
asked to rank the importance of capital investment
goals, 62% of survey participants identified increasing
capacity for existing products as "very important," and
48% placed the same emphasis on this for new products.
Interestingly, a breakdown by company size revealed
that mid-size and larger companies - those with more
than $25 million in annual revenue - placed a heavier
emphasis on increasing capacity for new products than
did companies with less than $25 million. The opposite
was true for increasing capacity for existing products.

2018 Capital Spending Survey sample
For Baking & Snack's annual industry study,
Kansas City, MO-based Cypress Research
Associates, LLC, surveyed 180 companies
from across a variety of baked goods and
snacks categories.
Of the survey sample, most companies
(54%) produce fully baked bread, rolls
and other items. The next largest participant categories included cakes and sweet
goods (45%) and cookies and crackers
(40%). Others included par-baked bread
and rolls (22%) and frozen dough (22%).
Companies could identify with more than
one category.
Other producers in the sample included
snack foods (potato chips, popcorn, pretzels); tortillas; pasta; waffles, wafers and
confectionery; pizza; and other items.
Additionally, 31% of respondents
indicated a company-wide annual gross
revenue of $500 million or more, and 30%
indicated revenue of less than $25 million. Bakeries with a gross revenue of $25
million to $49.9 million represented 18%
of the sample, and $50 million to $99.9
million represented 12%. Bakeries reporting $100 million to $499.9 million were 9%
of the survey participants.
The online survey was fielded prior to
the December 2017 passage of the Tax
Cuts and Jobs Act.

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Baking & Snack - February 2018

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