Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
January 16, 2007

Regulatory Report:
Sponsored by:
Delfield Co./Enodis
TVA Mulls Time-Of-Use Energy Pricing
Worcester Hopes Kennedy, Kerry Can Lead City Out Of FOG
Illinois Lucky Thirteenth In Passing Higher Wages
Sacramento County Gives Green Card To Restaurants
Trans Fat The New Tobacco; More Laws In Works

Industry Report:
Sponsored by:
Server Products
Standex Acquires APW Wyott Group, AFI
Aramark Shareholders Approve Buyout
Energy Star Launches New Web Page, Newsletter
Portions Growing; Restaurants To Blame?

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In This Section:
Materials Outlook Improves Except Stainless—And That's Ugly
Manufacturers, Ops Switching From 300 Stainless?
Consumer Spending On Services Keeps U.S. Economy Going
NRA Survey: Food Safety, Aging Facilities, Energy Among Top Trend Drivers

This issue's Regulatory ReportSponsor: Delfield Co./Enodis
Industry ReportSponsor: Server Products
Economic Report Hotelex Shanghai, April 4-7, 2007

Materials Outlook Improves Except Stainless—And That's Ugly
The slowdown in housing and manufacturing activity in the United States is having at least one positive effect: The costs of many materials used in foodservice equipment and supplies, including copper, aluminum, most plastics and building materials, have all declined or stabilized in the past few months.

But there's one big, unfortunate exception. Stainless steel, especially the 300 series steel widely used in food environments, has hit record levels. And the outlook throughout the year is for only minor improvements, according to forecasts from Purchasing magazine's quarterly research on transaction prices for key commodities.

Purchasing reports the average price of 304 stainless sheet, including a surcharge that is nearly two-thirds of the total now, reached $3,885 in the fourth quarter of 2006, well beyond the magazine's own pessimistic forecasts. And the forecast is for little or no relief until mid-year. The magazine expects no more than a 10% decline by the fourth quarter '07, to slightly above $3,500. (Many foodservice E&S companies, even large ones, pay more than these averages, which include many very large buyers in other industries.)

Tom Stundza, executive editor and a leading authority on metal prices, expressed surprise at the continuing runup. "I can't believe there are market fundamentals to support these prices. Show me where the end-use demand justifies them." He noted the price of nickel, the critical ingredient behind the price surge, "is off its peak." And he's also heard that leading U.S. service centers "are cutting back on stainless inventories."

Some of this lessening of demand comes from many users' switch to 200 and 400 series stainless, which contain less nickel and chromium, another element in stainless in relatively short supply. But sources within foodservice tell FER Fortnightly that the flight to 400 series alternatives has driven up those prices as well.

Stundza does believe the continuing slowing of larger stainless-consuming markets such as home appliances, depressed by the housing slowdown and higher interest rates, and general machinery markets, should continue to ease pressure in the second half of this year.


Section sponsored by Hotelex Shanghai, April 4-7, 2007

Manufacturers, Ops Switching From 300 Stainless?
With the seemingly never-ending price increases in the best grades of stainless steels, we wondered whether foodservice equipment and supplies manufacturers and their customers are exploring less expensive alternatives.

We spoke with three major manufacturers and fabricators and one large chain, and the answer is slowly, if at all.

But there's plenty of willingness to change among the manufacturers. "We're looking at any avenue to reduce the use of 300 series materials," said one manufacturer, who noted that 300 series stainless is widely used in components that are part of their products, as well as the equipment itself. "We just get whacked on it all, including freight surcharges."

All three manufacturers said acceptance from customers, particularly the largest and most prominent chains and consultants, is slow and grudging. "Our high-profile chains and consultants still demand 300 series and are very reluctant to discuss alternatives," said another manufacturer. "We do get a bit more of an open ear from some of the smaller chains, but they too are pretty slow to change. And even many mom and pop operators insist." He also noted that the flight to some grades of 200 and 400 series stainless has driven up the price of the best alternatives, too.

But the ongoing stainless price runups—three years and counting—and the impact on E&S prices have even some of the largest chains beginning to look at alternatives. "We're just in very early stages," said one large chain specifier, "but we are beginning to evaluate other options to the 304 stainless." He said they were checking on the possible price "opportunities" of spec changes. He added that they lean toward 200 series, "because of its corrosion resistance."

All the manufacturers understand why customers want 300 series steels. "In food contact uses," said another supplier, "304 and other 300 series materials have proven their integrity over decades. But it becomes a question of at what cost."

His company has been taking major customers through their restaurants with a magnet to show them how many components of their existing equipment are already made from other steels or materials, in a bid to demonstrate that alternatives can function successfully in non-food contact, non-splash uses. (Other steels, even other stainless series products, contain less chromium and nickel, and are thus are more magnetic.)

The reality is that change comes slowly and with some pain. But with worldwide demand for specialty steels and other high-value materials unlikely to greatly diminish soon, both suppliers and operators can be counted on to continue examine the options.

Section sponsored by Hotelex Shanghai, April 4-7, 2007

Consumer Spending On Services Keeps U.S. Economy Going
Yes, the general U.S. economy will grow at a slower rate in the first half of 2007. But consumer spending on services and nondurable goods and a cooling inflation environment have most economists predicting rising growth in the second half and into '08.

Economists polled monthly by Blue Chip Economic Indicators left their consensus forecasts for '07 growth of real gross domestic product at 2.4% for the calendar year and 2.7% for year-to-year. But the group of more than 50 economists did ramp up estimates slightly for the third and fourth quarter.

The prospect of cooling inflation has buoyed confidence that the economy can manage a "soft-landing" in this cycle. The forecast for growth of the consumer price index for '07 is nearly a point lower, 2.7%, than last year's 3.6%. Nominal GDP is predicted to grow only 4.6%, more than 1.5 points lower than '06.

The economists expect consumer spending to continue to support economic growth, especially on services such as foodservice, despite the pronounced slowdown in housing growth and a slip in vehicle sales and other hard-goods in '07.

Section sponsored by Hotelex Shanghai, April 4-7, 2007

NRA Survey: Food Safety, Aging Facilities, Energy Among Top Trend Drivers
A number of the key trends affecting the restaurant industry bode well for equipment and supplies manufacturers, as well as dealer, consultants and other service providers during the next decade, according to a "Delphi"-type survey of operators cited by the National Restaurant Association as part of its 2007 Forecast.

Food safety, concern about energy costs, a need to upgrade facilities and a growing sophistication in to-go containers all made the NRA's survey list of "7 Sure Things in 2015."

The survey predicts food safety will be even more an issue during the next decade. The study cites both training issues and increased liability for both operators and suppliers among its top seven trends.

The competitive impact of aging facilities is an issue for most operators, as is financing the needed upgrades. And most operators expect energy costs will continue to rise during the coming years, boosting the importance of energy efficiency in both back-of-the-house and building systems.

In the shorter term, the association also sees increasing interest in technology systems and in the percentage of business coming from off-premise dining among full-service operators. Momentum for conservation and recycling rounds out the top seven.

Other trends include the increasing competitiveness of the industry and consumers' ongoing desire for "comfort" foods and organic and locally sourced products.

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