July 13, 2010
Whew! After two years of dreadfulness, I can finally say it: The market for foodservice equipment and supplies is beginning to recover. The foodservice market at the operator level has already turned north. The E&S market typically lags operator fortunes by six to 18 months. But both hard numbers and anecdotal reports already make it clear the E&S market is starting its comeback. Let’s review the evidence.
Start with operator trends. We and others have said that we would know the worst was over for commercial operators when casual dining and other full-service operations turned the corner. It’s full service, particularly at the higher end, that has been most brutally battered during this more than two-year foodservice recession, the worst in our lifetimes. But blended full-service same-store sales began to improve in the fourth quarter of 2009, according to data from Technomic Inc., and that trend has continued into ’10. Individual chain operators are still reporting negative sales and traffic, but many also have seen dramatic improvement.
Quick-service chains didn’t bottom out until the last quarter of ’09 or even first quarter this year. And that includes McDonald’s, which has outperformed everyone throughout this entire recession. But same-store sales and traffic now appear to be improving in QSR, too. After vacillating between -1% and +1% to 2% from October through March, McDonald’s has reported U.S. same-store-sales gains of 3.8% and 3.4% in April and May.
All this improvement is reflected in two key data points. The National Restaurant Association’s Restaurant Performance Index moved into expansion territory in March for the first time since October ’07. And it stayed above the 100 level the index uses as a tipping point in April. In May, Technomic raised its forecast of total foodservice sales for this year by two percentage points. While real sales are forecast to remain negative by nearly 1%, the current dollar sales prediction rose from -1.6% in the January revision to +0.6% in May.
These improvements on the operator side will take a while to turn into E&S purchases, but we already have hard numbers indicating the E&S market has turned the corner. Revenues for E&S public companies bottomed out in the third quarter of ’09 at a breathtaking -19% and have improved since. The first quarter ’10 decline was only 3.4% and would have been nearly flat without one company’s tough chain roll-out comparisons. The Business Barometer maintained by the Manufacturers’ Agents Association for the Foodservice Industry shows a similar pattern. Rep sales were off only 5.3% in the first quarter, a marked improvement over the double-digit decreases reported all last year.
So, yes, the E&S market is improving, finally. We haven’t decided if we will revise our own forecast for ’10 upwards. It currently stands at -5.1% in current dollars. If you’d like to be among the first to know, sign up for our annual Presidents’ Preview E&S Market Forecast seminar Aug. 4. Details can be found at fermag.com. And let’s all breathe a collective sigh of relief.