Baking & Snack - March 2019 - 24

CENSUS

"When you look back 15
years, what you really
see is that snacking is a
'durable growth' story."
Elizabeth Avery, SNAC International

gies, and a lot of that comes through investing in automation," Mr. Van Laar noted. "Smaller companies did not
always have the capital to make those improvements."

The next long-term trend
Prior to an acquisition, four plants might produce all
sandwich cookies. After merging the two operations,
often only two more highly automated bakeries are
now needed. "Consolidation was inevitable because of
the aging of equipment, and it was ripe for upgrades,"
Mr. Van Laar recalled. "Bakers were able to move products around for a better mix in production, and, overall,
the industry has made us more efficient."
The wave of consolidation has subsided during the
past five years and been replaced by a greater emphasis
on capital spending. "I think we'll look back at this period and say, 'Wow. This was a big uptick in investment,' "
Mr. MacKie predicted.
Historically, about 85% of capital expenditures targeted machinery and buildings, with the bulk spent on
equipment in the overall commercial baking industry,
according to the analysis by Cypress Research. Overall,
census data showed that total investment rose steadily
to $2.37 billion in 2012 compared with $1.86 billion
in 2002, despite the impact of the Great Recession and
financial crisis that made it nearly impossible for businesses to borrow money from 2008 to 2010.
Looking forward, Cypress Research projected that
cap spending may reach $3.03 billion in 2022 and approach $3.89 billion by 2032. Marjorie Hellmer, Cypress
Research president, noted those conservative projections are based on the average annual growth rate between 2002 and 2012 of 2.3% for machinery/equipment
and 4.9% for buildings. "Given the historical trends,
earmarking an annual average increase of 2% for capital
expenditures in commercial baking seems viable during the next 13 years," Ms. Hellmer said. "A 2% annual
increase in capital expenditures certainly isn't a declaration of bullishness on the industry's part. It plays on
the industry's reputation for conservative investments in
plants, reflecting the strategy to enable facilities to make
products that are in demand."
But there is reason for greater optimism because bakers and snack producers have better tools to determine

24 Baking & Snack March 2019 / www.bakingandsnack.com

and even justify the return on investment (ROI) for
equipment purchases, according to Mr. Van Laar.
Since 2012, he observed, more sophisticated - and
user-friendly - data management systems are allowing
operations to pinpoint bottlenecks, reduce downtime
and garner higher yields that achieve a quicker ROI than
in the past. In addition to replacing aging capacity with
new technology, companies are also investing to enhance food safety processes through Global Food Safety
Initiatives and to comply with the onslaught of requirements from the Food Safety Modernization Act.
Once an afterthought, Mr. Van Laar noted, sanitary
design has become front-of-mind to control allergens,
avoid recalls and streamline cleaning and maintenance
procedures. "Procedures in plants today are incredible," he said. "It starts in the front where the product is
sourced all the way until it leaves the bakery's shipping
area. It's amazing to me what we do as an industry today
compared to what we used to do."
Perhaps the greatest emerging need involves recruiting and retaining skilled employees. "It's labor, labor,
labor," Mr. Van Laar said. "It's the shortage of labor, the
turnover of labor, the churning of labor and the education of labor. We know labor issues overshadow the entire industry. From an operations standpoint, it's probably the biggest factor that we deal with."
Cypress Research's analysis indicates employment
in the commercial baking industry has slipped from
295,000 in 2002 but has held steady at around 250,000
since 2007. About 180,000 of them work in production.
While employment has leveled off, Mr. MacKie noted
the labor issue goes beyond numbers. "Twelve years ago,
a lot of investment was made to reduce headcount," he
said. "Today, it's spurred in part by the workforce gap."
That abyss is expected to widen. "We're on the cusp
of what is going to be pretty significant turnover in the
next five or six years," Mr. MacKie said. "I talked to half
a dozen bakers last year who said part of their strategy
for capital spending is to allow their companies to automate pieces of the baking process that enables them
to retrain and reinvest in their employees in higher value activities."
Mr. Van Laar noted investment in education definitely adds value to the company. After examining the
Cypress Research's analysis, he made a few calculations
about how the cookie and cracker segment has changed
from 2002 through 2016. His overall conclusion is the
payback in training can be substantial. "We have had a
60% increase in production per employee - and that's
huge - and that was in the past 15 years," he said.
When it comes to seeing the big picture, a look at the
past allows companies to see how far they've gone and
how the industry can prepare for what's to come.

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