A study by Food2Multimedia
Pandemic, war, inflation, skilled worker shortage – how are such crises affecting the investment behavior of baked goods manufacturers? We asked well-known solution providers in the industry, who have been supplying baked goods manufacturers worldwide for years, for their assessment; specialists as well as full-service suppliers. The answers were anonymized.
More than half of the suppliers surveyed reported falling customer numbers. This is hardly surprising, as it reflects the global trend towards ever greater concentration in the baking industry that has been observed for years. For just under a third of the suppliers – almost all specialists in fields such as packaging, the supply of molds and trays, or automation solutions – the number has remained the same, nevertheless. This reflects an increased customer interest in solutions in the respective areas, on the one hand, and for the increasing depersonalization and automation of production and logistics processes, on the other. If production lines are to run largely without personnel, they need automated raw material supply as well as standardized and automatically stackable trays and molds. If you want to supply supermarkets, catering and food service, you need hygienically packaged products.
Almost one in five suppliers (18.2%) of the responding capital goods manufacturers even reported they saw an increase in customer numbers. These are often full-service providers or turnkey suppliers, which is probably also an indication that customers increasingly want to keep the number of their suppliers manageable.
The decline in customer numbers is mitigated slightly if the statements on investment volumes are included in the analysis, as the decline is at least less prevalent there. A good 40% of equipment suppliers complain about a decrease in the total volume per customer. Another 30% have just as much on the order list as before. Moreover, more than a quarter can even look forward to higher sales per customer. However, it is not possible to extract any clear tendencies from the responses as to which type of system is being invested in more, less, or at constant ratios. It tends to be the larger suppliers with a broader portfolio for whom the order volume has grown. This may reflect a tendency to concentrate on fewer suppliers in the face of automation and the increased importance of higher-level control systems in order to avoid problems with networking.
The price war among suppliers of capital goods has become tougher
Investments raise a number of questions, regardless of whether they can or must be financed from the company’s own funds or through loans. When will the plant in question be needed? How long will the products manufactured on it be successful on the market? What economic benefit will it generate during this time and, last but not least, the question of whether or not it can be sold after use – all of this can be summarized in the question of how long will it take for the investment to be amortized. Such information is also used by investors and banks to assess the value of the company. The majority (57.6%) of capital goods suppliers do not see any change in their customers‘ behavior with regard to the amortization period, but more than one in five customers demand faster amortization than in the past. Slightly fewer have even extended the time horizon.
There is harmony and unanimity among suppliers to the baking industry when it comes to the question of how well-informed customers are about potential solutions for their business, the options available to them on the market and the price demands of the various suppliers. According to their own statements, four out of five suppliers encounter well-informed customers. However, this could also be due to the fact that competition among capital goods manufacturers has become tougher – something that one of our interviewees explicitly noted – price comparisons and tough negotiations are now part of the investment behavior of baked goods manufacturers.
Only one in five of the companies we surveyed ticked ‘no’ when asked about their customers’ prior know-how. However, these are mainly providers that offer tailor-made solutions and are therefore only able to make price comparisons to a limited extent.
The price war among suppliers of capital goods has become tougher
Confidence in the future profitability of one’s own company on the market is the decisive basis for the willingness of managers to invest, as well as for the green light of capital owners and banks to finance them. The economists’ sharp pencil is effective regardless of whether the company is to continue or be sold. The times when corporations in particular were prepared to pay massive amounts of money for market entry or market share, regardless of the profitability of the object of purchase, as was the case in the 1970s and 1980s, are over.
You have to believe in the future, and the current profitability situation is being calculated month after month. It is therefore no wonder that almost 80% of all capital goods manufacturers cite the current profitability situation as the most important reason for companies’ willingness to invest.
Concerns about permanent staff shortages
In second place among the factors that influence the willingness to invest is the question of whether companies have a sufficient supply of qualified staff or employees who can be trained to meet the specific needs of entrepreneurs. This is by no means just a current issue, and it is also identified by baked goods manufacturers as a problem in the medium and long term. More than half (57.6%) of the suppliers to the bakery industry cite the current and future staff availability as an important reason for the bakers’ willingness to invest money. As we will see later, this is not just about reducing staffing requirements in companies through digitalization and automation, but also about making work processes easier for existing employees.
Politics and the society worldwide are in a phase of transformation that is putting many certainties to the test. In Europe in particular, and especially in Germany, where decades of relative calm and predictability a thing of the past, this also influences the willingness to invest. The political situation in Germany and Europe therefore ranks third among the factors influencing willingness to invest, with a decisive ratio of 45.5% of all the responses.
In an industry in which the number of companies is decreasing while their size is increasing, the professionalization of management staff is also growing. Impulse investments ‘on instinct’ because something was discovered at a trade fair or by a competitor are becoming less common. Instead, long-term and systematic planning is taking place and care is being taken to ensure that appropriate information and decision-making structures are anchored in the company. Energy requirements and energy supply are becoming increasingly important, although the promotion of self-sufficiency in terms of energy is cited much less frequently as a driver for the willingness to invest. However, the various subsidy programs that are offered in different countries for energy-saving investments are exerting an influence, too.
Food retail is no longer a fearful opponent
It may look different in each country, but the time of big battles for the baked goods market seems to be over, at least for the time being. The cards have clearly been dealt, in production as well as in distribution. This indicates that the power of the food trade as a competitor in the market plays a rather subordinate role – which, in turn, says nothing about its power as a distribution partner, especially for bakeries that only use this channel. However, there are probably several reasons why the opinion of banks no longer plays a major role in investment decisions. The financial solidity of current bakery manufacturers would be one and the possibility of obtaining the necessary leeway outside the banks, for example with supplier loans or on the capital market, would be another.
When it comes to specific investments,
personnel savings are at the top of the list
Just how pressing the issue of sufficient qualified personnel is, today and in the future, is once again made abundantly clear when it comes to specific investments. With a rate of 72.2%, the argument for personnel savings is at the top of the list of assessment criteria.
Two out of three investors are simultaneously looking to increase the efficiency of their production facilities, which certainly correlates with the poor supply of personnel. At the same time, however, it is also a sign of the pressure on profitability to which companies are exposed due to rising costs for raw materials, wages, energy, logistics, etc.
Only a third of all suppliers surveyed cited energy as a fundamental argument for their willingness to invest. When it comes to specific investments, however, the picture is different. In this case, saving energy is an important criterion for almost half of all customers.
The question remains as to what bakeries are currently investing in, and this is likely to depend largely on what has already been invested in the recent past. At the top of the list, as already mentioned, is the companies’ efforts to make work such as lifting and carrying easier for staff and to save unnecessary walking. This is followed, in second place, by equipment for processing dough, instead of portioning and shaping dough pieces by hand.
Making work easier is the order of the day
Of course, other classic systems such as silos, kneaders, processing machines, ovens, fermentation and refrigeration systems, etc., are also on the list. The second major topic regarding operational costs, energy and its efficient use, is reflected in the energy-intensive in the types of investments ranked 3 to 6 above, where the aim is not to send energy ‘up the chimney’ or ‘down the drain’.
More than one in four companies is currently investing in an integrated production control system. At first glance, the fact that only 12.1% of respondents to the previous question indicated that networking in an integrated production control system was a criterion for bakeries when making investments may seem contradictory to the 32.1% mentioned here (ranked seventh in the chart above) – respondents who prioritize integrated production control for investments. This can be resolved by the fact that the networking capability of newly purchased machines and systems is now a matter of course. The fact that one in three people is currently investing in integrated production control is more likely to indicate that such higher-level systems are now being purchased more frequently because more automation is needed.
