In the Dumps
Hey, here’s some good news going into the New Year: Fresh bread was the No. 1 consumer packaged goods product purchased by U.S. households in 2007. In fact, 97% of homes bought a total of $7.7 billion worth of packaged bread, according to ACNielsen Homescan Consumer Facts.Refrigerated milk was a close second with 95% of households. Cookies, fresh eggs and toilet tissue tied at 93%.
I know what you’re thinking. Who in the heck lives in those 7% of households that didn’t buy T.P. last year?
Ick, I hope I haven’t shaken their hands lately. Mr. Whipple - moment of silence, please - would turn over in his grave.
And what in the heck did they use in place of T.P.? Subprime mortgages? Nah, they’re not worth wiping your ... but I digress.
These certainly are good-news, bad-news days for the snack and baking industry, as well as for our bipolar nation as a whole. One day, the jobs report indicates that the economy is strong and the Dow soars 300 points. A day later, stocks plunge into the toilet in response to more bad news on the housing market.
Everywhere you look, the pundits are predicting that we’re going into a recession, if we’re not in one already, and some experts suspect that the ugly face of stagnation is lurking right around the corner. The last time that happened was when Jimmy Carter was president. If you recall, interest rates skyrocketed into the upper teens The economy was in such a mess that even a roll of two-ply paper couldn’t clean up.
That’s not to say we’re heading that way this year, but even the eternal optimists in our nation’s group of leading economic eggheads are predicting tough sledding, at least for the first half of this year. At best, they predict a squeezably soft economy.
For bakers and snack producers, who have been on that sleigh ride for about four years, that’s not good news. First, they got hit with escalating health care costs, and then by rising energy prices and outrageous fuel costs. To top it all off, corn and wheat prices have soared through the roof.
If you could pick the most difficult business model for these economic times, the snack and baking industry would be among the leaders of the pack. Hmm ... they have high labor costs and produce short shelf-life goods that are made of wheat or corn. And they use natural gas to bake or fry their products, which then are distributed aboard one of the nation’s largest direct-store delivery systems. In short, costs are going up seemingly everywhere in their businesses.
During the past few years, the good operators in our industry have been able to survive by raising prices, which only covered a portion of the hike in overhead. They also hedged on energy and commodities, which only slowed the spike in those costs. And they adjusted their product mix toward more premium and profitable variety breads and rolls.
The sharper companies also invested in select technology that boosted plant throughput, reduced labor and minimized changeovers with, if possible, a payback of 18 months or less. In fact, companies such as Flowers Foods indicate that they plant to boost capital spending in 2008. The Thomasville, Ga.-based company will invest up to $100 million in its operations, which includes adding a new plant in Bardstown, Ky. Other bakers, too, indicated at last fall’s Baking Expo that they are expanding capacity to meeting growing demand for their products.
The big concern is that if the economy tanks, this will prompt consumers to resist hikes in the price of snacks and baked goods, trade down or only buy products on promotion.
The X-factor in 2008 is Interstate Bakeries Corp., which currently is in bankruptcy reorganization and may sell off all or part of its assets in January. Ironically, many bakers have seen their businesses boom as they feasted off the business that IBC shed over the last three years. Buckle up. We’re in for a heck of a ride this year.
Yeah, some people say the economy is in the toilet. Others say it simply stinks. Personally, as an optimist, I’m going to hold my breath until the air clears.
