Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
May 21, 2009

Regulatory Report:
Sponsored by:
Manitowoc Foodservice
ASTM Looking For Input On New Test Standards
Maryland, D.C. Compare Notes On Carryout-Bag Tax
Massachusetts Tells Chains To Count Calories; Connecticut May Follow. ...
... While Congress Debates Best Acronym

Industry Report:
Sponsored by:
Server Products
Manitowoc Completes Sale Of Enodis Ice
NRA Taps EPA For Water, Energy Savings Program
ASHFSA, HFM Approve Formation Of AHF
McCafe Openings Continue Apace
Asbury Foodservice Adds Industry Veteran Hodge

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In This Section:
Heard In The Aisles At NRA Show: Is -30% Or Flat The New 'Up'?
Public E&S Companies Fare Better Than Expected In Q1
Traffic Falls 1.5% In Winter Quarter, But Trend Improving
Economists See Some Light Beginning To Shine

This issue's Regulatory ReportSponsor: Manitowoc Foodservice
Industry ReportSponsor: Server Products
Economic Report FETCO Corp.

By Robin Ashton

Heard In The Aisles At NRA Show: Is -30% Or Flat The New 'Up'?

We had a lot of discussions of the state of the equipment and supplies market at the just-concluded National Restaurant Association Restaurant, Hotel-Motel Show, held in Chicago May 16-19. First, most E&S exhibitors said the show exceeded their expectations, which admittedly were quite low given the economy and the fact that The NAFEM Show had been only three months earlier.

While numbers were down, many exhibitors indicated quality was high. Most of the major chains showed up, if with fewer personnel. We saw lots of consultants, often with foodservice directors in tow, as well as a sampling of dealers. Even the numbers of international visitors, who many thought would be frightened off by the swine flu, were better than expected.

Several exhibitors told us leads were actually close to last year's totals, which is remarkable given the perceptions of the state of the industry. Just goes to show somebody is always buying or planning to buy in foodservice.

The joke of the show was "What is the new 'up'?" The way some told it, flat is the new up. For others, -30% is the new up. That's quite a range. Most heavy equipment manufacturers readily admitted to being off 10% to 20% since the beginning of the year. A few did mention 30% or more. Supplies and tabletop marketers seem to have stabilized in the -5% to -15% range. Not much of that sounds like -30% to us. And the newly released numbers from the public E&S companies (see article following) show that combined sales were off less than double-digits in the first quarter of 2009. This is roughly in line with the number from the Manufacturers' Agents Association for the Foodservice Industry's MAFSI Barometer, which was off 11% first quarter. Public companies generally do a bit better than the general market, so the reports really do line up with each other.

What's more important, many E&S manufacturers told us sales have improved, if only slightly, since March. While some are afraid this is simply inventory replenishment, and that sales will slide again over the summer, there are some improvements in operator sales and traffic trends as well as some Federal stimulus money that may sustain increased buying.

Of course, everyone asked us whether we were sticking with our current revised forecast, which has the industry overall down just shy of 14% real for '09. In a word, yes. We do think the first quarter was the bottom and that sales will improve gradually through the year, though remain negative compared to last year until we get to the fourth quarter. Fourth quarter '08 was so negative, we might even see sales nip ahead of last year.


Section sponsored by FETCO Corp.

Public E&S Companies Fare Better Than Expected In Q1
Blended sales of seven public foodservice equipment and supplies companies fell 8.2% in the first quarter of 2009 compared with the year- earlier period, according to data compiled by John Muldowney, principal at Clarity Marketing, Tipp City, Ohio. While several companies were off at double-digit rates, the overall number was better than expected, at least by us.

The five equipment-oriented companies were off a combined total of just 7.7% for the quarter. (These numbers pull out the effects of acquisitions.) While one major company saw sales fall 22%, one other company and one major division of yet another company actually reported fractional gains for the quarter. Major chain rollouts were factors in both cases.

The two supplies-oriented firms saw sales fall a combined 10.2%, a significant improvement over fourth-quarter '08.

These first-quarter numbers are very much in line with those reported by the Manufacturers' Agents Association for the Foodservice Industry. The MAFSI Barometer reported sales fell 11% in the quarter compared to year-earlier levels. Typically, the public companies, more tied to chain business and helped by international growth, outperform the general market. And while no one would call these results positive, they are quite a bit better than many had feared.

Acquisitions are shrinking the base, though not the combined sales, of the industry's publicly traded companies. Manitowoc's acquisition of Enodis and Middleby's purchase of TurboChef have eliminated two companies from the mix.

Section sponsored by FETCO Corp.

Traffic Falls 1.5% In Winter Quarter, But Trend Improving
Commercial restaurant traffic fell for the second straight quarter this winter, according to data from the NPD Group's Consumer Reports on Eating Share Trends. The CREST study reported overall traffic was off 1.5% for the quarter ended February compared to the year-earlier period. This compares with a 0.5% drop in traffic for the quarter ended in November 2008. Even quick-service restaurants saw traffic fall 1%, the first decline in QSR traffic since the winter '03 quarter. NPD cited low consumer confidence, job losses and poor weather as factors for the decline in traffic.

"While not yet the worst NPD has seen, we are halfway to it. There are still restaurants attracting more consumers, but more are losing them than gaining," said Harry Balzer, chief industry analyst at NPD. Traffic fell for four consecutives quarters in '02 and '03, with traffic off 1.8% in the September to November quarter '02.

Not that there wasn't some good news in the numbers. NPD noted check averages for the quarter rose 2% over year-earlier, for a net 0.5-point gain in overall sales. And weekend visits rose during the period, reversing a trend more than a year old.

"Consumers seemed more willing to use foodservice as a special occasion on the weekend," said Michele Schmal, v.p. of foodservice product development at NPD. "Perhaps they are looking for a chance for a little escape via affordable luxuries amidst the economic doom and gloom."

And subsequently, NPD reported in Nation's Restaurant News that the traffic trend actually improved in February, with traffic off only 1.1% in February versus a three-point fall in January. Traffic has been negative every month since September except for November.

Section sponsored by FETCO Corp.

Economists See Some Light Beginning To Shine
Now here's some welcome news: The more than 50 leading economic forecasting groups surveyed each month by Blue Chip Economic Indicators actually are a bit more optimistic these days, according to the consensus numbers reported in the May newsletter.

While economic activity fell a more-than-expected 6.1% in real terms in first-quarter 2009, compared with a 6.3% drop in real gross domestic product in fourth-quarter '08, the economists boosted their estimates of GDP growth for the second through fourth quarters of '09. The consensus now calls for a more moderate 1.7% decline in real GDP this quarter, followed by positive real growth of 0.5% and 1.8% in the third and fourth quarters. For the year, the economists now forecast real GDP will fall 2.8%, down 0.2 point from last month's forecast, but completely a result of the worse than expected first quarter number. For next year, the forecast is a 1.9% rise in real GDP, an improvement of 0.1 point over earlier projections.

The economists have also upgraded forecasts of personal consumption expenditures. Consumer spending rose a very unexpected 2.2% in the first quarter following back-to-back quarters of dramatically falling spending. While the economists expect spending will fall 0.3% in real terms in the second quarter, they foresee positive though moderate growth in consumer spending through the rest of the year and into '10. The annual PCE number for '09 rose half a point to -0.6% and held steady at 1.7% growth next year.

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