Bakers Journal

Features Business and Operations
2010 forecast


February 23, 2010
By Brian Hartz


Topics

It’s a new year – but is the recession over? That’s what we’re being
told by folks such as the Bank of Canada and U.S. Federal Reserve. They
say the bad times are officially behind us and that in 2010 we’ll be on
the road to recovery.

2010for
Enrolment in baking and culinary programs is surging, but will there be jobs for graduates?


It’s a new year – but is the recession over? That’s what we’re being told by folks such as the Bank of Canada and U.S. Federal Reserve. They say the bad times are officially behind us and that in 2010 we’ll be on the road to recovery.

Sounds good, doesn’t it? Look closely, though, and you’ll see some lingering clouds. Job losses continue to plague the economy from top to bottom, and for the baking and foodservice industry in particular, the introduction of Harmonized Sales Tax (HST) in several provinces looks to be of great concern.

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Also, a host of issues such as sodium reduction, allergen-free baking, clean labelling, functional foods, education and training, and trans fats will demand attention in 2010 as bakeries look to stay competitive while keeping on top of consumer and industry trends.

In a recent conference call, we discussed many of these topics with the Bakers Journal editorial advisory board; this article will recount some of the views expressed by this diverse panel of experts as we reflect on 2009 and look ahead to 2010. In an upcoming issue, we’ll tackle the rest of the agenda.

Outlook for growth
The Conference Board of Canada forecast production in the bakery and tortilla sector to bounce back to 2.3 per cent annual growth between 2010 and 2013, after a decline of 0.8 per cent in 2009. Experts such as Puratos Canada marketing manager Vikram Chowdhury, filling in for colleague John McColl, tend to agree with that prediction.

“We’ll see about two per cent growth in baked goods,” Chowdhury says. “This growth will stem from health and wellness products. Exotic flavours will also keep customers coming back. According to our research, in 2008, 28 per cent of all food products in 2008 were made with exotic ingredients. Another key trend will continue to be private label brands such as the President’s Choice line.”

Private label has indeed been one of the hot topics of 2009; however, it tends to lead to smaller profit margins for manufacturers and thus it’s a trend that many would rather see less of in 2010. Whether that happens remains to be seen, but with sales increasing to emerging markets such as China and Mexico, exports look to mitigate the decline in margins brought on by private label.

At the local level, however, bakers see opportunities for growth in areas such as premium sandwiches and catering.

“We’re forecasting some growth but not in double digits like last year,” says Andrea Damon Gibson of Fred’s Bread in North York, Ont. “We see big growth in breads for gourmet sandwiches and paninis. People are not spending as much on big lunches in restaurants but are willing to pay a bit more for a nice takeaway sandwich.”

This is backed up by data from the Conference Board of Canada, which says food and beverage makers have “been able to attract consumers to new value-added products with higher margins by providing increased convenience or food with greater health benefits.”

Richard Crossman, head baker for Artisano Bakery Café, concurs: “Our catering department has really started to pick up – about 25 per cent since Sept. 1. A lot of companies are opting for catered lunches instead of going out. In fact, we just hired a catering manager because of all the orders we were getting. So, there should be some good growth [in that area].”

Outlook for employment
Crossman indicated that Artisano had hired three other new people recently; however, increasing employment numbers has been the exception rather than the rule among small businesses (0-99 employees), the category into which most bakeries in Canada fit. According to Industry Canada, in the first quarter of 2009, the Canadian economy shed more than 109,000 jobs, with small businesses accounting for 84 per cent of that change.

Meanwhile, interest in the study of baking continues to grow. So, is there a massive gulf looming between job seekers and jobs available?

“Over the summer, we spent $1.8 million on upgrading our baking and pastry labs, and we have 300 students in the first- and second-year baking and pastry arts program,” says Keith Muller, chairman of George Brown College’s chef school. “We can’t keep ahead of enrolment, really. My concern, in the current economic climate, is whether there will be jobs for our graduates.”

Those graduates’ prospects are looking brighter as small businesses in Canada continue to not only open, but also perform well in difficult circumstances. According to Industry Canada, the number of businesses rose by 0.4 per cent in 2008 to 2,314,563 – with small businesses accounting for 97.8 per cent of that seven-figure total. Since the full onset of the recession, small businesses with 20-99 employees also suffered the smallest drop in GDP (-0.4 per cent) from the fourth quarter of 2008 to the second quarter of 2009.

“Over the past 20 years,” Industry Canada reported, “the number of small businesses has been growing during periods of economic growth as well as during economic downturns.”

More specific to the baking sector, limited-service eateries such as bakery cafés are benefiting from the woes of full-service restaurants. According to the Conference Board of Canada, sales at full-service restaurants dropped slightly from January 2008 to May 2009, while sales at their limited-service brethren – a category that would include bakery cafés – rose dramatically by 4.6 per cent.

“People need to eat, even during a recession,” the board reports. “But what and where they choose to eat are being influenced by economic conditions.”

Tax harmonization
HST stands to be a major factor in consumers’ decisions as to what and where they eat. Already in effect in most of Atlantic Canada (Prince Edward Island is the lone exception), tax harmonization is coming to Ontario and British Columbia starting July 1, 2010. However, British Columbia’s will be the lowest in Canada by combining the seven per cent Provincial Sales Tax (PST) with the five per cent federal Goods and Services Tax (GST), for a single sales tax rate of 12 per cent. All other provinces with an HST, and the one proposed by Ontario, have a rate of 13 per cent.

Don’t expect that measly one per cent difference to mollify bakeries, however – especially if, as Ontario just announced, only purchases under $4 will be exempt from HST. It’s certainly possible to spend less than $4 at a bakery if you’re just grabbing a snack, but even when you throw in something cheap like a cup of coffee to go with that bagel, doughnut or muffin, odds are the total cost is going to be pushing, if not exceeding, the HST threshold.

“The HST announcement has created a great deal of uncertainty for our members,” said Canadian Restaurant and Foodservices Association president Garth Whyte. “It is clear they are deeply concerned about the damage the HST will do to their business. We will be looking to the B.C. government and the federal government to fix this major tax shift.”

Despite the looming spectre of HST, the Conference Board of Canada is predicting robust growth for the economies of British Columbia and Ontario in 2010, spurred, respectively, by the Vancouver Olympics and increased public spending on infrastructure projects. The board’s provincial economic report, issued on Nov. 13, forecast 4.2 per cent growth for British Columbia and 3.2 per cent for Ontario. Saskatchewan will also recover nicely from the recession, posting 3.7 per cent economic growth, the board says.

The economy will undoubtedly continue to dominate conversations among baking industry professionals in 2010. Positive signs abound, however, and the upbeat predictions of think-tanks give rise to a guarded sense of optimism about 2010. Whether we’re heading into a full-blown recovery remains to be seen, but at the very least a bit of sunshine is peeking through the gloom. / BJ


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