Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
April 8, 2008

Regulatory Report:
Sponsored by:
Boston Mulls Hood-Cleaning Certification
NYC Restaurants Get Calorie-Posting Reprieve; Georgia Preempts Attempts
Bay Area Eateries Bill Customers For New Healthcare Costs
Connecticut, Alabama Clean-Air Proposals Have Foes Smoking
Baltimore, Boston, Friendly's Not Friendly To Bad Fat

Industry Report:
Sponsored by:
Server Products
KFC Feels The Heat, Intros Grilled Chicken
Jack Cuts Water Use At HQ In Half
McDonald's McMuffin Creator Dies At 89
BK's Plan For Nothing But Whoppers No Fish Tale
Pressure On Food Prices Not Easing Anytime Soon
FMI Offers Sustainability Summit In June

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In This Section:
NRA's Performance Index Remains Flat In February
Menu Price Inflation Cutting Into Restaurant Sales
Consumers Just Plain Gloomy About Economy
Why Are Truckers Striking? Diesel Oil Prices Are Setting Records

This issue's Regulatory ReportSponsor: Enodis
Industry ReportSponsor: Server Products
Economic Report Manitowoc Foodservice Group

NRA's Performance Index Remains Flat In February
It ain't just the economy, folks, that's driving the slowdown in restaurant traffic, according to a new report from The NPD Group.

Operators indicated same-store sales improved in February, but their outlook for the next six months deteriorated, according to the National Restaurant Association's monthly tracking survey.

The overall Restaurant Performance Index remained flat at 98.8, the same reading as January. The indicator reached a low of 98.7 in December 2007, its lowest mark since spring '03. February also marked the fourth consecutive month the Index remained below 100, the line of demarcation between expansion and contraction.

Among bright spots: Same-store sales and traffic both improved over January, with sales rising 1.7 point and traffic up 1.3. With only minimal declines of a tenth of a point in the capital expenditure and labor markers, the overall Current Situation Index rose 0.7 point to 100.5.

But three of the four components of the Expectations Index dropped, including a substantial 1.7-point decline in the outlook for business conditions during the next six months. All of which pushed the Expectations Index down 0.6 point to a record low of 99.1. Like the overall Index, the Expectations measurement also has been below the 100 tipping point for four consecutive months.

The only component of the Expectations Index to rise was the measurement of expected capital expenditures during the next six months. It rose 0.2 point to 100.3 and has remained above 100 through the current restaurant contraction.


Section sponsored by Manitowoc Foodservice Group

Menu Price Inflation Cutting Into Restaurant Sales
Two recent studies, each by one of the two leading research firms in the foodservice market, suggest the rise in menu prices, driven by rapid increases in food, labor and energy costs, is cutting into restaurant sales and visits.

A national survey by Technomic Inc. measuring consumer perceptions of full-service restaurant menu prices shows many consumers have an exaggerated idea of how much prices have risen and will continue to rise.

A majority of respondents said they expect menu prices will increase more than 10% during the next three to six months. They also believe the largest price increases will be at large, national chains and among higher check-average concepts. A second finding: Perceptions of check averages are often 10% to 15% higher than the actual averages are.

Not surprisingly, then, comes tough news: 59% of those surveyed expect to reduce their full-service visit frequency as prices continue to rise.

The survey is part of a new Technomic program, the Consumer Price Sensitivity Survey, designed to help both full-service and quick-service operators raise prices with less impact on visits and sales.

"While consumers often state [one thing and then do another], we believe that well over half of full-service consumers are looking for ways to reduce restaurant spending—and that many of them will succeed," said Tom Miner, the lead principal on the project.

Or maybe they already have. According to an NPD Group Fast Check study, reported in the March 31 issue of the Nation's Restaurant News Online Weekly Newsletter, 32% of consumers surveyed in February said they are visting restaurants less often because of economic conditions. Another 29% said they are cooking more meals at home. Lower but still significant percentages are cutting back restaurant spending in other ways such as bypassing alcoholic beverages or desserts when they do go out.

The reality, according to the Bureau of Labor Statistics, is that menu prices have risen 3.9% during the year ending February, with quick-service restaurants' prices going up slightly faster, at 4%, than those at full-service restaurants, which rose 3.8%.

Given the big jumps in operators' costs, we'd think those increases are fairly restrained.

Section sponsored by Manitowoc Foodservice Group

Consumers Just Plain Gloomy About Economy
Despite the Commerce Department reporting an unexpected 0.5% rise in real personal incomes in February, consumers remain quite gloomy about the economy.

The University of Michigan Surveys of Consumers, reported exclusively by Reuters, said its Consumer Sentiment Index reached 69.5 in the final March reading, its lowest level since February 1992. The Consumer Expectations Index also fell again, to 60.1, its lowest level since January '92.

Part of the problem is consumers think inflation is only going to get worse. Their one-year inflation expectations hit 4.3% in March, up from 3.6% in February. The March figure was the highest reading since '90, except for the period just after Hurricane Katrina in 2005.

As a statement released by the University of Michigan put it, "Consumer confidence slipped due to growing concerns about weakening prospects for the economy as well as anticipated increases in unemployment and inflation during the year ahead."

Whew! We need something to cheer us up.

Section sponsored by Manitowoc Foodservice Group

Why Are Truckers Striking? Diesel Oil Prices Are Setting Records
We often concentrate on gasoline prices and their impact on consumers and restaurant spending. But the record-high price of diesel fuel also affects nearly everyone in foodservice, from operators relying on food and supplies shipments, to dealers and distributors running trucks, to manufacturers paying freight fuel surcharges.

Unfortunately, the federal Energy Information Administration said diesel will remain at record levels throughout 2008, driven by record high crude oil prices.

The average diesel price across the United States very nearly reached $4 a gallon the week ended March 24. And while it fell slightly last week, to an average of $3.964, prices are expected to remain at peak levels through the rest of the month, before falling later in the year.

Gasoline prices, meanwhile, continued to rise last week, hitting an average of $3.29 for the week ended March 31.

Part of the problem, according to Tom Stundza, executive editor at Purchasing magazine, is that American refiners just don't have enough capacity for diesel or the flexibility to shift production easily from gasoline to diesel and back. He expects some refiners may begin making the hard and expensive decision to expand capacity.

In the meantime, the impact on the cost of everything foodservice operators use will be negatively affected.

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