Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
May 24, 2007

Regulatory Report:
Sponsored by:
STAR Service & Parts/Enodis
San Francisco Calls For Voluntary Water Conservation
Indiana County To Post Inspections Online
Trans Fat Out, Off Table And Dismissed
Smokers Win In Tobacco Country, Lose Elsewhere

Industry Report:
Sponsored by:
NAFEM Opens Global Networking Event To All
Hanson Steps Up As New FEDA President
Papa John's Accelerates Openings

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In This Section:
SPECIAL REPORT: First Quarter 2007 Update
Big Public E&S Companies Report Another Decent Quarter
Operator Sales Growth Slows But Doesn't Tank
First Quarter GDP Tanks; Blue Chip Cuts Forecasts, But Consumer Mood Improves

This issue's Regulatory ReportSponsor: STAR Service & Parts/Enodis
Industry ReportSponsor: FHA2008
Economic Report Manitowoc Foodservice Group

SPECIAL REPORT: First Quarter 2007 Update
The big picture on first quarter 2007 is now firming up. Most of the sources that track or affect the foodservice equipment and supply business have reported their data, and we've fleshed out the numbers with input from manufacturers, reps, dealers and operators we spoke with during the just concluded National Restaurant Association Show—most of whom report continued growth in the first part of the year.

So with all that in hand, we're recapping here—briefly—the relevant numbers for the equipment and supplies market, operator indicators and the general economy. We'll discuss what the numbers all mean in greater detail in the next issue of FER Fortnightly.


Section sponsored by Manitowoc Foodservice Group

Big Public E&S Companies Report Another Decent Quarter
Somewhat to our surprise—anecdotal reports had suggested more slowing—the large public equipment and supplies companies are reporting first quarter 2007 continued a pattern of healthy revenue growth. The numbers are tracked and blended by John Muldowney, principal of Clarity Marketing.

Eight companies reported blended revenue increased 6.7% during the quarter, led by the six equipment-oriented companies, which saw sales rise 7.9%. The two supplies companies both said sales rose 3% in the quarter. The overall increase is quite a bit lower than the very robust 11.6% growth reported by these same eight companies in fourth quarter '06 but is in line with overall annual growth last year of 8%.

This compares to the previously reported rise of 2.3% in the first quarter MAFSI Barometer, which also represented a pronounced slowdown versus fourth quarter '06 growth, but close to the annual trends.

Section sponsored by Manitowoc Foodservice Group

Operator Sales Growth Slows But Doesn't Tank
The first two months of the new year were slow for many commercial operators, as real winter weather, hard comparisons versus '06 and a surprisingly early run-up in gasoline prices cut into sales and traffic. But the National Restaurant Association's Restaurant Performance Index popped back up in March, and three of the four biggest Quick Service Restaurant companies reported decent same-store sales growth for the quarter and for April.

The NRA's RPI jumped a substantial 1.1 point in March, its strongest gain in 17 months, led by strong gains in same-store sales and customer traffic. Expectations also rose, if at a slower 0.2 point rate.

The blended same-store sales data maintained by Technomic Inc., which excludes McDonald's results, rose 1.2% in the first quarter, which is ahead of both the third and fourth quarter '06 data.

The NPD Group's CREST data had sales rising 2% and traffic off 1% in January. It has not publicly reported sales or traffic for later in the quarter.

And the Restaurant Incubator Index maintained by rose two of the three months of the quarter, February and March. While it fell slightly in April to 1022.37, it stands nearly a point higher than it did in December. The index tracks the net new unit activity of 3,246 chains and chain organizations with between three and 200 units.

Section sponsored by Manitowoc Foodservice Group

First Quarter GDP Tanks; Blue Chip Cuts Forecasts, But Consumer Mood Improves
The leading economists polled by Blue Chip Economic Indicators had been racing to cut their forecasts for 2007 general economic growth since the beginning of the year anyway. And then preliminary data came in putting first quarter gross domestic product growth at an unexpectedly paltry 1.3%.

The result? Blue Chip dropped its consensus forecasts of real growth of gross domestic product again, to 2.2% in the May survey. It was the third cut in the forecast in as many months.

So with GDP growth remarkably unremarkable and gas prices unexpectedly soaring to new highs early in the year, why would consumer sentiment, as tracked by the University of Michigan's Survey of Consumers, be rising? And why are the equity markets setting records?

According to Richard Curtin, director of the surveys, given the history of the past three years, "it's hardly surprising that $3 (per gallon) gas has lost its shock value." That coupled with the positive sense of household wealth, thanks to rising stocks markets, seems to be the source of American consumers' rising moods. The University of Michigan's mid-month preliminary Expectations Index showed an even larger jump than the Sentiment Index, surging to 79 from 75.9 at the end of May.

And while the Blue Chip folks have been cutting the GDP forecasts, primarily because of the continuing housing slump, consumer spending has held mostly steady. The May forecasts for real disposable personal income and person consumption expenditures remain reasonably positive at 3.1% and 2.7% respectively, only a bit lower than forecast in January.

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