2022 FCC Food Report: Exploring bakery and tortilla products
This information is shared from the 2022 FCC Food Report — highlighting the opportunities and challenges for Canadian food manufacturers by industry. To get the bigger picture — read the full report.
The foodservice industry is an important market for baked goods. In Q3 and Q4, sales increased over 16% as COVID restrictions eased and people ate out more. Cookies, crackers and pasta recorded sales growth of nearly 20% in November, picking up where it left off pre-pandemic when it grew over 20% in 2019 and over 30% in Q1 2020.
Grocery sales declined for the year as consumers purchased less shelf-stable baked goods like pasta and less bread volumes. Gains were made from improved foodservice volumes and strong exports to the U.S. Overall, industry sales grew 11.5% YoY (Table F.1) as healthy snacks and starches demand remains strong.
Total employment increased nearly 9% in 2021 while average hourly wages including overtime were flat. Hours worked per employee were up, which contributed to higher overall labour costs as the tight labour market impacted hiring.
Table F.1: A rebound in volumes drove sales growth in 2021
Gross margin as a percent of revenue decreased to a decade low in 2020 (Figure F.1). Margins improved in 2021, particularly in Q3/Q4, but remain below 2019 levels and the 2013 index year. The industry has struggled to pass on material cost increases in the face of aggressive competition.
Raw material costs increased in 2021 but were partially offset by lower labour costs as a percent of sales and higher prices. This doesn’t tell the complete story though, and it remains elevated versus 2019. Accounting for inflation, the output value per employee was down YoY as the industry struggled with floor productivity and finding qualified workers. While margins improved on a percentage basis, margins measured in dollars were squeezed because of recruitment challenges and difficulty sourcing inputs.
Selling prices were a strong end to 2021 and start to 2022 creating optimism for the remainder of the year. Improving productivity will be key to long-term success.
Figure F.1: Margins improved in 2021 but remained below 2019 levels
FCC Economics projects sales to increase 8.2% in 2022. Sales are expected to be the strongest in Q2 as COVID restrictions ease and consumer spending increases. Growth will likely moderate into Q4 as COVID-related consumer savings diminish. Higher inflation is also eroding consumer purchasing power and can also nudge people away from premium and pricier bakery products. In the short term, elevated savings will be supportive of sales.
Figure F.2: Bakery and tortilla sales are expected to increase 8.2% in 2022
Bakery grocery sales fell 0.3% in 2021 YoY, slightly below the total grocery increase of 0.3% (Table F.2). Tonnage fell 3.9% and inflation was 3.8%. Bread sales declined 2.1% with tonnages falling 4.3% YoY after sales rose over 6% last year. Pasta was the category with the largest decline in sales, falling over 10% with volumes declining over 11%. Much like other pandemic grocery winners, there was a reduction in sales, although sales remain above pre-pandemic levels.
Pizza crust and dough was the big winner in bakery sales. Sales increased 7.1%. Although we did see sales shift back towards foodservices in 2021, home-cooking remains a strong trend. Tortilla and wrap sales increased 3.0%, continuing its growth streak after seeing 15.4% growth in 2020. Many tortillas in the market advertised additional vitamins and healthy grains, and consumers seem to have responded with volumes up 18% over 2019.
Table F.2: Bread sales underperformed relative to total grocery in 2021 YoY
A foodservice rebound and the convenience and staple products that bakers provide set the stage for solid performance. Opportunity to provide healthy and locally produced goods allows for differentiation. Finding ways to alleviate labour challenge strains will boost productivity and drive growth.