Foodservice Equipment Reports Fortnightly
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Welcome to FER Fortnightly Online Newsletter
April 24, 2007








Regulatory Report:
Sponsored by:
Lincoln Foodservice Products Inc./Enodis
Bay Area Readies For Another Hearing On Charbroiler Regs
California Adopts ICC Building Codes
Court Reprieves Outdoor Dining In Providence
Brits Get Serious About Ban On Some Food Ads

Industry Report:
Sponsored by:
FHV2007
FDA Says Olives May Be Tainted
FER Names Award Winners
EPA Says Food Industry Can Save Energy
NRA Show Unveils Green Pavilion
Fast-Growing Chains Get Their Own Meeting



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In This Section:
Materials Price Hikes Outstrip Expectations
Sales Growth Slowed, Traffic Dipped In January, Says NPD
Blue Chip Economists Cut GDP Forecasts, But Not Spending Outlook
Consumer Sentiment Hits Eight-Month Low In Early April Reading

This issue's Regulatory ReportSponsor: Lincoln Foodservice Products Inc./Enodis
Industry ReportSponsor: FHV2007
Economic Report The NAFEM Show 2007

Materials Price Hikes Outstrip Expectations
Inflationary prices may be settling at the consumer end, but not in our world. March Consumer Price Index data released April 17 showed the core inflation rate, minus energy and food, up a mere 0.1%. This drove the Dow Industrial Average to a record high last week.

But the information for industrial materials is grim. First quarter 2007 transaction data from Purchasing magazine and purchasingdata.com show prices for a wide variety of materials and commodities "well ahead of expectations," according to a release from Executive Editor Tom Stundza. Blended prices for a market basket of commodities tracked by Purchasing jumped 6% in the first quarter. This has led to an increase in the magazine's forecast for the year to 12%. The market basket index rose 14.5% last year.

As we've reported consistently (see FER Fortnightly March 27, '07, at http://www.fermag.com/fortnightly/03.27.07/economic/home.htm#manufacturers), prices for nickel continue to drive the best grades of stainless steel to record levels. The transaction average price for 304 stainless sheet in the first quarter was $4,406 a ton according to Purchasing's research, 13.4% higher than during the fourth quarter '06. The price of this material, widely used in foodservice equipment and supplies, is 95% higher now than it was a year ago.

Unfortunately, stainless isn't the only material or commodity with rising prices. Purchasing expects the costs of other steels to rise during the year, in spite of slowing demand in the United States. A group of non-ferrous metals, including copper, zinc, lead and nickel, was 12% more expensive in the first quarter than Purchasing had forecast just a few months before. Stundza also notes that chemical and plastic resin prices have yet to respond to higher natural gas prices, which, of course, also impact foodservice operators' margins.

The average transaction price of natural gas for industrial buyers—most foodservice operators pay more—rose $1.08 a thousand cubic feet (mcf) to $8.89 in the first quarter, a jump of 13.8% from the fourth quarter '06. And Purchasing forecasts it will cost a dollar more by year-end.

What's causing the upward pressure, given a slowing U.S. economy? Stundza writes it's the same culprits we've seen during the past three years: "Materials costs are being inflated by overseas demand surges and recent rallies in costs of crude oil, mined goods and processed materials."

Expect more price pressure from E&S manufacturers as well. (Data and forecasts on more than 100 materials and commodities are available at www.purchasingdata.com.)

 

Section sponsored by The NAFEM Show 2007

Sales Growth Slowed, Traffic Dipped In January, Says NPD
Confirming other evidence, the NPD Group's CREST service charted a 1% decline in overall traffic in January 2007 for commercial foodservice, compared with a very mild January '06. Sales rose only 2%, all of it due to increased check averages, probably driven by menu price increases. The traffic dip in January is the third straight month of flat or lower traffic, indicating traffic for CREST's November-January quarter will likely be negative overall.

Both quick-service and midscale restaurants experienced traffic declines. A glimmer of good news can be seen in a 2% gain in casual dining traffic. That segment was hammered last year during the run-ups in gasoline prices. Of course, the latest surge in such prices may push traffic lower again.

Michele Schmal, v.p. of NPD Group's CREST Product Management, noted the traffic declines struck core lunch and dinner occasions. "Still consumers continue to expand their appetites for morning meals and P.M snacks."


Section sponsored by The NAFEM Show 2007

Blue Chip Economists Cut GDP Forecasts, But Not Spending Outlook
The more than 50 leading economic groups polled by Blue Chip Economic Indicators cut their forecast of 2007 growth of real gross domestic product yet again in April and, for the first time, also pared the forecast for '08.

The consensus forecasts for '07 calendar-year real GDP growth dropped to 2.3%. The economists have cut the consensus number nearly half a point in the past two months as data has begun to accumulate.

But nearly all this softening is in areas of the economy that do not directly affect foodservice operator sales, though there are other forces impinging on their capital purchases. As for indicators that do impact foodservice more directly: The forecasts for real growth in disposable personal income and personal consumption expenditures remained above 3%, though the DPI forecast eroded 0.1 point to 3.2%.

Prompting the GDP forecast reductions are lower estimates for capital spending, housing growth and growth in business inventories. The economists also raised their forecasts for increases in the consumer price indexes for both '07 and '08 to 2.4% and 2.3% respectively.


Section sponsored by The NAFEM Show 2007

Consumer Sentiment Hits Eight-Month Low In Early April Reading
The Consumer Sentiment Index fielded by The University of Michigan Surveys of Consumers dropped more than three points to 85.3 in the preliminary April reading released April 13. If the number holds through the month, it will be the lowest reading since August 2006. The Expectations Index also hit an eight-month low. The indices are now reported exclusively by Reuters.

Surprisingly, all the decline in sentiment came from upper-income households, perhaps indicating the decline in housing prices is a bigger factor in the negative pressure than rising gasoline prices, though consumers also noted that. In fact, the Surveys' one-year inflation index rose to 3.3% from the 3% it had registered for three consecutive months.



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