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2023 economic trends: Bakery and tortilla products

3 min read

This information is shared from the 2023 FCC Food and Beverage Report – highlighting the opportunities and challenges for Canadian food manufacturers by industry. To get the bigger picture – read the full report.

Baked goods expected to be food and beverage sector leader for growth in 2023

FCC Economics projects sales from bakery and tortilla product manufacturers to increase 5.4% in 2023.

Figure G.1: Bakery and tortilla sales are expected to increase 5% in 2023
Graph showing bakery and tortilla sales are expected to increase 5% in 2023.

Sources: FCC Economics, Statistics Canada, Barchart, Moody’s Analytics

Elevated consumer inflation seems to have had little impact on bakery sales. Industry sales are expected to be the strongest in Q2 as cost increases withheld during the retailer holiday cost blackout period between November and January start getting rolled out. We expect increases in input costs and pressures to increase selling prices to stabilize in the year’s second half.

Gross margins as a share of sales are forecasted to decline slightly in 2023 after seeing a sizeable decrease in 2022 (Figure G.2). We expect to see margin improvements later in the year as material costs have stabilized or come down modestly.

Figure G.2: Margins are forecasted to decline slightly in 2023
Graph showing margins are forecasted to decline slightly in 2023.

Sources: FCC Economics, Statistics Canada

How we got here: Higher commodity prices fuelled by export demand

Bakery and tortilla manufacturing sales increased 18% YoY to $16.3 billion in 2022 (Table G.1). Cookie and cracker sales increased 31% YoY, bread and bakery product sales increased 16%, while dough and pasta sales declined 8%. Cookie and cracker sales growth accelerated as the year progressed, eclipsing 40% YoY in Q4.

Table G.1: Bakery and tortilla sales were fuelled by price inflation in 2022
Table showing bakery and tortilla sales were fuelled by price inflation in 2022.

Source: Statistics Canada

The foodservice industry is an important market for baked goods, and 2022 only reinforced this industry feature. Restaurant sales increased 41% in 2022, and fast-food sales 14%. Baked goods had some of the highest consumer inflation in 2022, which did not detract from growing sales volumes as their relatively low price per calorie made them attractive. According to data from Nielsen IQ, grocery store bakery departments were the only departments with positive volume growth in 2022.

Cookies and crackers, baked desserts and certain bread products all saw volume increases for the year – a win considering the consumer shift towards restaurants and the effects of high food inflation. Additive products such as croutons, breadcrumbs and pizza dough recorded the biggest volume declines in 2022. Pizza dough sales were quite strong in 2020-21 as consumers ate more at home, so the small decrease is a positive surprise.

Industry margins came under pressure despite strong consumer demand. Margins deteriorated because of significantly higher raw material costs (up 35% YoY) and labour costs (up 18% YoY). Bakeries saw some of the strongest wage growth across food industries, with weekly employee earnings rising over 13%. This growth resulted from higher overtime costs as hours worked per employee increased. The significance of the cost increases made it difficult to pass them to retail in a single step, forcing bakeries to absorb some of the higher costs.

Bottom line
  • A foodservice rebound and bakers providing convenient staples are setting the stage for a solid performance in 2023.

  • The opportunity to provide healthy and locally produced goods allows for differentiation.

  • Finding ways to alleviate labour challenges should boost productivity and drive growth.

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FCC Economics projects sales from meat product manufacturers to increase 2.5% in 2023.