In This Section:
Technomic Revises Op Forecast To Negative, With Bright Spots
Foodservice Equipments Reports To Release Revised E&S Forecast At MUFES Meeting
Dare We Bring Up Macroeconomic Trends?
What, Us Worry? McDonald's To Spend $2 Billion On Capital Projects
This issue's Regulatory Report Sponsor: Enodis
Industry ReportSponsor: FHA2008
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Technomic Revises Op Forecast To Negative, With Bright Spots
Technomic Inc. predicts that the total foodservice market will shrink slightly in real terms in 2008, according to a revision of its operator sales forecast released last week. The total market, including alcoholic beverages, will decline 0.4% with nominal growth of 3.6%. Menu-price inflation is forecast at 4% in '08. If the Chicago-based research firm's forecast holds, it will mark the toughest year for foodservice since 1981.
The revision compares with Technomic's original '08 forecast, released last September, of 1% real growth and 5.1% nominal growth.
But Technomic V.P. Joe Pawlak, in releasing the new forecast, said the changes should not be seen as all doom and gloom
Most of the change comes from substantial reductions in projected growth for two segments. Full-service restaurants have been downgraded to -1.4% in the revision, compared to 0.8% in the original forecast.. And the business and industry segment is now projected to be off 8.7% in real terms versus -2.7% in the first projection.
The full-service segment, the largest single segment with estimated sales of $193.5 billion in '07, has been struggling with declining customer counts for more than a year. But same-store sales and traffic numbers in the fourth quarter of '07 have been even more notably negative. Some segment leading chains such as Chili's and Applebee's reported same-store sales declines in the 2%-3% range for the quarter versus a year ago. With menu price increases, this translates into traffic losses of 5%-6%. With the continued economic turmoil and high energy prices, Technomic researchers obviously think the pain will continue for at least part of '08.
Growth for other key segments was also pared, but most in the half-point to one-point range. And a number of segments are predicted to continue to show real growth during the year.
"I don't think we're in panic mode yet," Pawlak told FER Fortnightly. "In fact, I think there are some pockets that are still holding on, namely limited service." Limited-service restaurants, led by McDonald's, have been outperforming the market as consumers trade down for value and improved products. Technomic forecasts real growth will continue at 1% this year, though that is 0.9 point lower than the original forecast.
Retail, travel-and-leisure and education segments are also still predicted to show real growth this year.
And even for those segments most affected by the slowdown, Pawlak said, all is not lost this year. "If the economists are right (about) a turnaround in the second half of the year, we probably should start seeing more positive results later this summer."
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Section sponsored by Manitowoc Foodservice Group
Foodservice Equipments Reports To Release Revised E&S Forecast At MUFES Meeting
Technomic isn't the only forecasting group revising its 2008 forecast. Foodservice Equipments Reports Publisher Robin Ashton and forecasting partner John Muldowney, principal at Clarity Marketing, Tipp City, Ohio, will present a revision of the magazine's '08 equipment and supplies market forecast on Feb. 18 during the biennial MultiUnit Foodservice Equipment Symposium, to be held in Austin, Texas.
"With all the changes in the economic environment, John and I believe we must reassess the forecast," Ashton said. "MUFES seems a great time to present the new numbers, since so many of our chain readers and major E&S suppliers will be on hand." Ashton and Muldowney revised the forecast once already in November. An overview and the forecast time series was published in FER's January issue and in FER Fortnightly's Jan. 3 issue (click www.fermag.com/fortnightly/01.03.08/economic/home.htm#fer).
Among suppliers, only advertisers in FER are eligible to attend MUFES. For details, call Ashton at 800/986-9616.
Those who attended FER's President's Preview Forecast Meeting last August or have purchased the forecast since, and are not attending MUFES, will be sent the revision for no charge after the meeting. Others will be able to purchase the revision, along with the full forecast for $249.
Dare We Bring Up Macroeconomic Trends?
Do last week's global stock market rollercoaster ride, the Federal Reserve's surprise three-quarter-point cut in the Federal funds rate, Congress and the administration jawboning about a stimulus package and all the ensuing talk and analysis have your head spinning? Let's focus on the fundamentals.
First, energy prices remain at high historic levels, above $3 a gallon in most parts of the country. That's cutting into consumer purchasing power, especially among lower-income households.
Blue Chip Economic Indicators newsletter is forecasting some of the slowest real disposable income and personal consumption spending this year in almost two decades. A lot of the money goes to big ticket items such as cars and appliances, but some of it goes into foodservice.
Consumer sentiment, often a good gauge of eating-out behavior, took a surprising upturn according to the preliminary January reading from the University of Michigan Surveys of Consumers. The data are released exclusively by Reuters.
The Sentiment Index bounced back from December's reading of 75.5 to 80.5 in the mid-month number published Jan. 18. The Expectations Index rose to 69.1 from 65.6. Still, most analysts did not take the upswing that seriously as the indexes remain at historically low levels.
So, if we take the big three—energy prices, consumer spending trends and consumer sentiment—the outlook is still toward the negative side. We'll have to wait until the consumer reacts more to last week's events to get a better read.
Section sponsored by Manitowoc Foodservice Group
What, Us Worry? McDonald's To Spend $2 Billion On Capital Projects
We've often noted that the big chains fund their capital spending out of cash flow, not the bank. So in a time of turmoil, there is comfort to be found in McDonald's chief financial officer announcing Jan. 16 that the company plans to spend a whopping $2 billion to build, re-image and expand product offerings during 2008. And that's an increase of about $100 million from '07.
Pete Bensen, CFO, told a gathering of financial analysts at an event sponsored by Cowan & Co. in New York that McDonald's will raise capital spending in Europe, Asia and the Middle East; hold it about steady at $770 million in the United States; and cut it in Canada, Mexico and Latin America. Europe will get the biggest share of dollars and increase, with spending forecast to rise to $800 million this year, from $675 million last, as the company pursues an aggressive remodel program there. The Asia/Middle East budget will increase to $330 million, up from $290 million.
Asia and the Middle East will see the most new restaurant openings, 475 in '08 versus 360 in '07. Overall, McDonald's plans 1,000 new opening worldwide, compared with 800 in '07.
A complete slide presentation is available on the McDonald's Web site by clicking this link.
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