Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
June 5, 2007

Regulatory Report:
Sponsored by:

Humor Police Come Down On Florida Pubs
County In Maryland Nixes Trans Fat; More Chains Switch
Illinois Legislature Says It's Time To Snuff Out Butts

Economic Report:
Sponsored by:
Manitowoc Foodservice Group

SPECIAL FOCUS: Equipment, Supplies Market On Track For Moderate Growth
NRA Performance Index Falls Back In April Surveyr
May Jobs Growth, Consumer Sentiment Stronger Than Expected
Top 500 Chains Grew Sales 6% in 2006, Says New Technomic Study

Industry Report:
Sponsored by:
Server Products
Hatco Becomes 100% Employee-Owned
TriMark Acquires S.S. Kemp
Survey Says: Companies Benefit From Having CEO
Rivera Named National Restaurant Association Head
McD's, Marriott, Starbucks Among World's Most Ethical Companies

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

Special Focus

Equipment, Supplies Market On Track For Moderate Growth
Last issue (see FER Fortnightly, May 24), we reviewed first quarter 2007 data on the foodservice equipment and supplies market, operator sales, traffic and new unit trends, as well as macroeconomic factors that affect foodservice. This issue, in addition to reporting on some late breaking information from the National Restaurant Association, the U.S Labor Department, the University of Michigan Surveys of Consumers and Technomic Inc., we analyze how the year is shaping up for those who sell and buy equipment and supplies.

Despite a pronounced slowdown in the general economy and waffling commercial operator sales and traffic growth, the foodservice equipment and supplies market appears to be performing in line with our forecast of moderate real growth in 2007. While sustained high prices for gasoline and other fuels may crimp commercial operator sales growth and spending on E&S as the year progresses, other forces are sustaining the expected growth.

Last summer and fall, we forecast '07 real growth of E&S manufacturers' sales of 1.9%. This compares with our estimate of 2.3% real growth in '06. Nominal growth is slated much higher, at 5.6%, as continuing strong increases in the price of 300 series stainless steels and other core materials drive manufacturers to raise prices aggressively. (Hard data on list price increases through April 1 are expected from AutoQuotes in the next few weeks.) The forecasts are prepared by our sister print publication Foodservice Equipment Reports and John Mudowney, principal at Clarity Marketing, Tipp City, Ohio.

At this juncture, given the data we reviewed two weeks ago and subsequent information, we see no reason to revise the forecast.

While commercial U.S. operators are worried, with good reason, about the potential impact of this year's run-up in gasoline prices, in fact there has not been a dramatic downturn in sales or traffic. As Joe Pawlak, v.p. at Technomic Inc. told FER Fortnightly in mid-May, "I don't think we are seeing as much of a slump in the overall foodservice situation due to higher gasoline prices this year as we have in the past. It appears that consumers are used to the drill and have adjusted their spending to absorb the higher gas prices AND continue to purchase food away from home. This situation will obviously change if/when we hit a certain threshold on gas prices ($4/gallon?), which will be new territory, and/or if gas levels off for a long period of time at the $3.25/gallon rate. All bets will be off at that point."

And, as far as we can see from first quarter E&S public company numbers and the Manufacturers Agents Association for the Food Service Industry's MAFSI Business Barometer, operator E&S purchasing patterns have not changed much. Final public company numbers in the first quarter had blended revenues growing 8% nominal. And the MAFSI index, while showing slower growth than during '06, was on trend in the first quarter.

We expect chains to be the leading indicator of any pronounced change. But from all appearances, the other two key segments of the E&S market, dealer-based street sales and the institutional spec market, remain healthy. The planned capital expenditure component of the National Restaurant Association's Restaurant Performance Index held up better in the April survey (see story below) than any of the seven other components and remains higher than it was late last year. Meanwhile, strong growth in Asia and Europe, including aggressive new-unit expansion, is adding very positive growth impetus to a number of internationally active QSR and hotel chains, and consequently to the American manufacturers that supply their kitchen equipment and supplies.

So again, steady as she goes for moderate E&S market growth this year.

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Robin Ashton

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