Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
June 27, 2006

Regulatory Report:
Sponsored by:
Franke Foodservice Systems
San Antonio Holds Off On Chain Ban
Chicago Proposes Dog-Friendly Restaurants
Annapolis Considers Mandatory Food Safety Certification
IRS Explains Energy Efficiency Deductions
OSHA Rules On Hexavalent Chromium Effective Soon

Industry Report:
Sponsored by:
Server Products
New Dunkin' Prototype Signals Growth Plans
Papa John's Takes A Passage To India
FEDA Sets New Standards For Incoming Members
Hurricane-Damaged Convention Center Restored

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In This Section:
Sign Up For FER's 2007 E&S Market Forecast President's Preview July 27
Leading Economists Trim Forecasts For U.S. Growth
More Signs Of A Slowdown In Operator Sales
McDonald's Growth Continues To Hum Along

This issue's Regulatory ReportSponsor: Franke Foodservice Systems Industry Report
Sponsor: Server Products

Economic Report FER E&S Economic Forecast Meetings

Sign Up For FER's 2007 E&S Market Forecast President's Preview July 27
It's only a month until Foodservice Equipment Report's new equipment and supplies industry forecast meeting for senior executives. If you're thinking about attending—and we think you should be—time's running out.

Featuring FER's exclusive hard number forecasts of the growth of the E&S market, an open forum with five prominent operators, forecasts for materials costs and E&S price increases, the newly created meeting will provide attendees with extensive material they can use in their own planning and budgeting processes for 2007.

For more information, click on the link through the ad at the top of the Economic Report section.


Leading Economists Trim Forecasts For U.S. Growth
The softening of consumer confidence and spending, driven by high energy prices, rising interest rates and slowing job growth, has convinced many economists that the U.S. economy is poised for a slowdown.

The more than 50 prominent economic forecasting groups polled monthly by Blue Chip Economic Indicators have downgraded their consensus forecasts for real growth of gross domestic product in the United States. The consensus group dropped its forecast for growth in the second quarter of 2006 a dramatic 0.6 point to 2.9%, compared to the forecast a month ago. And the economists expect quarterly growth to chock down 0.1 point per quarter through the rest of the year. While the forecast for this year remains at 3.4% year over year, the group reduced its forecast to 2.9% growth for '07. Under 3% is considered "below trend" by most economists.

The reasons for the downgrade are clear. Consumer spending, charted by such numbers as growth of personal income, disposable income and personal consumption expenditures, has not been as robust as many economists expected. Consumers are paying more for gasoline and other energy products and dealing with higher interest rates on adjustable mortgages and credit cards. And these factors are leading to lower than expected retail sales gains, including those for restaurant meals.

Several tracking services are reporting slowdowns in operator sales and traffic growth (see story below). But so far, most operators appear to be going ahead with their '06 equipment and supplies purchase plans. It is too early to tell how quickly the slowing will affect such purchases, as there is typically a lag between a slowdown in operator sales and one in E&S sales.

Section sponsored by FER E&S Economic Forecast Meetings

More Signs Of A Slowdown In Operator Sales
The evidence is beginning to build that operator sales are slowing as consumers try to deal with high energy costs and interest rates.

As we reported last issue (June 13), same-store sales and traffic components of the National Restaurant Association's Restaurant Performance Index had dropped substantially. Now Technomic Inc. reports that its average of chain same-store sales gains, significantly excluding McDonald's, fell below 2% in the group's preliminary April reading. Given average menu price increases above 3%, this indicates many chains are seeing negative traffic and real sales trends. Technomic also reported a drop to 4.2% in April from 4.4% in March of its 12-month moving average of foodservice and drinking place real sales.

Many leading casual dining chains have reported drops in same-store sales in April and May, as consumers apparently trade down and/or cut back in menu extras such as desserts and alcoholic beverages. Quick service trends have generally remained in positive territory, led by McDonald's (see story below).

The "Advance" eating and drinking place sales numbers for May, released as part of retail sales figures last week, do not indicate a broad industry decline, however. Seasonally adjusted sales rose 8.1% in nominal dollars.

Section sponsored by FER E&S Economic Forecast Meetings

McDonald's Growth Continues To Hum Along
McDonald's nearly three-year-old trend of rising same-store sales, both worldwide and U.S., continued in May, as the system posted a gain of 5.5% in constant currencies, 6.2% without the adjustment. The numbers demonstrate that the world's largest foodservice entity continues to outperform nearly everyone worldwide.

Comparable sales in the United States rose 3.4%, while many quick-service and casual competitors posted flat or negative same-store sales gains. Europe, until recently a problem region for McDonald's, saw sales rise 4.9%. The Middle East and Latin America performed very strongly, reporting double-digit comparable sales gains.

McDonald's CEO Jim Skinner attributed the performance to the company's customer-focused strategy. "We are attracting customers to our restaurants around the world with expanded menu choice and variety, quality food, greater customer conveniences and relevant marketing," he said.

Given McDonald's big impact on U.S. foodservice numbers, the company's sales growth is a large part of why overall foodservice sales continue to grow amid signs of slowdown from many operators.

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