Foodservice Equipment Reports Fortnightly
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Welcome to FER Fortnightly Online Newsletter
April 6, 2010








Regulatory Report:
Sponsored by:
Manitowoc Foodservice
Iowa Decides Against 82-Year Old Cooking Practice
Scottsdale Ponders Disposer Ban
Healthcare Bill Makes Menu Labeling Mandatory
Senate Committee Proposes Equipment Assistance
Feds Shutter Whale Meat Sushi Store

Industry Report:
Sponsored by:
Server Products
ITW Marks Third Year As Energy Star Honoree
Brinker Selling On The Border
Beijing, Dubai Add Fatburger Stores
Darden Designing Eight LEED-Based Units
Moe's Southwest Will Add 50 Stores, Expand To Turkey
Red Mango Prepares For Airport Landings
AHF Debuts First Regional Chapters
L.A. Food-Truck Chain Plans Franchising



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In This Section:
Restaurateurs' Expectations Rise Sharply As Current Capital Expenditure Marker Hits Record Low
Consumer Spending At Restaurants Fell In 2009, Says NPD, As Overall Traffic Fell 4%
Even Big Chains Struggled Last Year, Technomic Reports In Its Annual Top 500
Wholesale Food Prices Rise Again, While Menu-Price Increases Are At 50-Year Low
Confidence Measures Show Consumers Remain Wary

This issue's Regulatory ReportSponsor: Manitowoc Foodservice
Industry ReportSponsor: Server Products
Economic Report Henny Penny

By Robin Ashton

Restaurateurs' Expectations Rise Sharply As Current Capital Expenditure Marker Hits Record Low

Foodservice industry observers often note that capital spending lags behind movements in operator fortunes, and the National Restaurant Association's latest Restaurant Performance Index survey, conducted for February, is a good example. While expectations for sales, future business conditions, staffing and even expected capital spending soared—driving the overall RPI to its highest reading since November 2007—the indicator for those who made a capital expenditure during the past three months hit 96, a record low. Only 30% of operators reported they bought equipment, supplies or furnishings during that period, down from 32% in the January survey. During the mid-decade boom years, the percentage making a capital expenditure often exceeded 60%.

The overall RPI rose 0.7 point to 99, just one point shy of the 100 level that indicates stability; above 100 is expansion, and below is contraction. It was the 28th consecutive month the RPI has signaled recession.

The paltry cap-ex activity may have been partly affected by severe weather during February and much of the winter, especially in the population-heavy Eastern states. Current same-store sales barely budged higher and customer traffic fell 0.2 point in the February readings. Overall, the four-component Current Situation Index rose only 0.1 point, thanks almost entirely to a 1.1 point gain in the labor component.

On the other hand, the Expectations Index, which also has four components, jumped a substantial 1.2 points, ending at 101.4. The Expectations Index has now exceeded the 100 level for three consecutive months.

Expectations for same-store sales in six months soared 1.6 points, the outlook for business conditions improved 1.3 points, and that for staffing 0.9 point. The indicator for those intending to make a capital purchase rose a strong 1.2 points, with 48% of those surveyed saying they plan such a purchase, up from 43% in January. So while the past three months have been tough, there is hope for the future.

Information on NRA's TrendMapper research, which includes expanded information from the group's surveys for the Restaurant Performance Index, is available at www.restaurant.org/research.

 

Section sponsored by Henny Penny

Consumer Spending At Restaurants Fell In 2009, Says NPD, As Overall Traffic Fell 4%
As the numbers for 2009 come in, two things seem clear. First, last year was the worst year for foodservice in most of our lifetimes. Second, the worst appears to be behind us. The NPD Group reported last month that overall foodservice traffic, including visits to noncommercial facilities, fell 4% in calendar '09, with declines versus year prior in every single quarter of the year.

Restaurant traffic was off 3% in '09. With average check growth below 2%, the Port Washington, N.Y.-based research firm said consumer spending at restaurants "declined for the first time since the company began tracking the foodservice industry in 1976." Top-line numbers from Technomic Inc.'s annual Top 500 chain analysis tell a similar story (see article below).

All foodservice segments experienced customer-count declines last year, according to NPD's CREST and CREST OnSite consumer research. Quickservice restaurants saw traffic fall 3%, midscale concepts were off 5%. Casual dining was off 4%, fine dining and upscale hotel traffic was down a whopping 13%, and visits to noncommercial foodservice operations fell 9%. Among the noncommercial segments, business and industry, vending and lodging saw the biggest traffic declines.

"In '08, consumers appeared to trade down some full-service visits for fast-food visits," said Bonnie Riggs, NPD's restaurant industry analyst. "In '09, they made fewer visits to restaurants overall. When consumers did visit restaurants, they favored lower-priced options."

The group also reported that while traffic fell 2.9% in the fourth quarter '09 versus year prior, the decline was not as severe as the 4% fall in the third quarter or the 3% drop in the second. Still, NPD expects customer visits to continue falling until the fourth quarter this year.

Further information on research products from The NPD Group are available at www.npd.com.


Section sponsored by Henny Penny

Even Big Chains Struggled Last Year, Technomic Reports In Its Annual Top 500
The top 500 chain brands barely managed current-dollar growth in 2009, according to Technomic Inc. The Chicago-based research firm's Top 500 Chain Restaurant Report is scheduled for publication in late April, but the company released top-line numbers in late March. Combined sales for the 500 grew at a paltry 0.8%, a come-down from '08's 3.4% growth. With Technomic estimating average '09 menu-price inflation at 2.5%, the biggest chain brands collectively were negative in real terms.

"As the U.S. economy remained in recession, restaurant operators continued to face a host of challenges, including cost pressures followed by declines in consumer dining demand," said Technomic Pres. Ron Paul. "The data in this study clearly support what we've been hearing in our consumer research surveys over the past year."

Only 40% of the top 500 chains managed nominal-dollar gains last year; 283 chains thus toted lower sales compared with 213 chains with declines in '08. As many chains closed underperforming units, unit growth for all 500 concepts was a meager 0.3% in the United States. Growth in international sales and units helped many of the largest chains. International sales rose 3.3%; international unit counts were up 5.2%. Pulling out the off-shore sales growth, combined top 500 sales in the United States fell 0.8%.

Still, even with the hostile market conditions last year, the largest chain concepts outperformed the broader market. In comparison with the top 500's 0.8% current-dollar growth, Technomic estimates total restaurant and bar sales were off 3.5% in nominal dollars in '09, according to its most recent forecast released in January this year.

Information on the Technomic Top 500 Chain Restaurant Report and other Technomic products is available at www.technomic.com.


Section sponsored by Henny Penny

Wholesale Food Prices Rise Again, While Menu-Price Increases Are At 50-Year Low
Wholesale food prices recorded another 0.4% gain in February in both the finished- and all-foods categories, according to data from the Producer Price Index released mid-March by the federal Bureau of Labor Statistics. It was the fifth straight increase for finished foods and the seventh in the all-foods category. Higher prices for fresh and dry vegetables, affected by inclement weather, and fresh eggs, led the increases, though prices increased for most other food commodities as well.

Operators benefited last year from a record decline in food prices, helping them maintain margins despite the severe downturns in sales and traffic. The National Restaurant Association calculates wholesale prices have risen 4.7% since the current run-ups began.

Meanwhile, operators feeling the bite of falling sales raised menu prices only 0.1% in February. The number is part of the BLS's Consumer Price Index, also released mid-March. Menu-price increases, which remained surprisingly aggressive early in the Great Recession, have moderated dramatically during the past year. Menu prices have risen just 1.4% over the past 12 months, according to NRA, which said it's the smallest 12-month increase since 1956.

Grocery-store prices also increased 0.1% in February, the BLS reported, the third straight monthly increase after 12 consecutive months of declines. Grocery prices remained 1.5% below prices a year ago. A number of researchers, including both The NPD Group and Technomic Inc., have noted that the relatively lower prices for food in grocery stores have hurt foodservice sales and traffic, particularly among those with stressed incomes.


Section sponsored by Henny Penny

Confidence Measures Show Consumers Remain Wary
The Thomson Reuters/University of Michigan's Consumer Sentiment Index held steady in March, The Conference Board's Consumer Confidence Index bounced back after a surprising plunge in February, but the trends remain the same: Consumers are still quite negative about their own financial outlooks during the coming year. This is one of the reasons most foodservice forecasters don't expect a quick rebound in traffic and sales.

The Conference Board's Confidence Index rose to 52.5 in March from February's 46.4 reading, but remained below January's level.

"Despite this month's increase, consumers continue to express concern about current business and labor- market conditions," said Lynn Franco at The Conference Board. "And their outlook for the next six months is still rather pessimistic. Overall, consumer confidence levels have not changed significantly since last spring."

The University of Michigan's Consumer Sentiment Index held steady in March at 73.6. Richard Curtin, director of the university's Surveys of Consumers, put it this way in the group's release: "Consumers anticipated the economy to improve but nonetheless expected their own personal financial situation to remain unfavorable during the year ahead." He notes in the release this situation is not unusual coming out of recessions. Still, the mood doesn't help consumer spending on "discretionaries" such as foodservice.


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