Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
July 14, 2009

Regulatory Report:
Sponsored by:
Manitowoc Ice>
Proposed Pennsylvania Law Could Inhibit Dealers, Consultants
New Food-Safety Deputy Post At FDA
GGRA Petitions U.S. Supreme Court
Californians Start Counting Calories
Arizona Ponders Guns In Restaurants
Florida Town Douses Two-Year-Old Fire Code

Industry Report:
Sponsored by:
Server Products
Tim Hortons Opening More Co-Brand Sites, Refiling Corporate
Wendy's/Arby's To Launch Big Middle East Expansion
Dunkin' Donuts Moves Into Lodging Segment
Quiznos Promotes MacDonald To Top Post
FF&L To Acquire Church's Chicken

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In This Section:
Why Another Slew Of Bad News?
Job Losses Increase, Surprising Some Economists
Consumer Confidence For June? One Up, One Down
NRA's Performance Index Dips After Five Months Of Gains
Only Three Weeks Until FER President's Preview Forecast Seminar

This issue's Regulatory ReportSponsor: Manitowoc Ice Inc.
Industry ReportSponsor: Server Products
Economic Report FER E&S Market Forecast Meetings

By Robin Ashton

Why Another Slew Of Bad News?

As this issue's stories detail, a number of the leading foodservice indicators turned south again in May and June. These negative numbers come after things had been looking up recently. "How come?" you may well ask.

As a new report from Technomic Inc.'s consulting economist points out, and those forecasting the operator market have long said, few factors are more important to foodservice's prospects than employment trends and the resulting consumer mood and attitude. And, of course, those factors translate into operators' confidence, expectations and willingness to invest in equipment, supplies and décor.

We'll look at the chain of woe in logical order below, but first remember that one month's numbers do not a trend make. All three of the major market drivers we detail below had been nosing up for two or three months before the recent dip. This waffling pattern is typical of times of change in the trend, either at the top or the bottom of economic cycles. So with luck, the dips may be temporary.


Section sponsored by FER E&S Market Forecast Meetings

Job Losses Increase, Surprising Some Economists
The United States lost an additional 467,000 non-farm jobs in June, according to the U.S. Department of Labor's Bureau of Labor Statistics. The numbers reverse a trend of smaller but still significant payroll cuts since the economy shed nearly three quarters of a million jobs in January, a one-month record. The increased losses in June surprised many economists, according to news services including Dow Jones and Reuters.

The expectation was for a slower rate of losses following May's 322,000 and April's 519,000 cuts. Both figures were revised, May downward and April upward. The unemployment rate increased to 9.5% from May's 9.4%, the highest national rate since August 1983. Overall, the economy has shed 6.5 million jobs since the recession began in late '07.

Almost all major employment sectors lost jobs in June, including retail trade and leisure and hospitality. Only education and health services gained. Even government laid off 52,000 workers. The BLS also reported that real wages were flat in June, while the average work week fell to 33 hours.

The importance of the employment situation to foodservice was made clear by a new report from Technomic Inc.'s contributing economist, Arjun Chakravarti. A research associate at the University of Chicago's Booth School of Business, Chakravarti noted that prolonged recessions have a number of negative impacts on the employed as well as the unemployed. These include the erosion of real wages, hourly wage reductions and the difficulty of finding employment for those laid off and/or just entering the labor market. In addition, the lack of flexibility in finding employment and the reductions in benefits and retirement options—many firms have cut their 401(k) contributions in this downturn, for example—inhibit consumer spending and increase precautionary savings. All this negatively affects "discretionary" consumer spending, such as that for foodservice, Chakravarti, said.

For information on Technomic research and products, go to

Section sponsored by FER E&S Market Forecast Meetings

Consumer Confidence For June? One Up, One Down
As mentioned above, economic indicators tend to move sideways—the so-called waffling effect—before changing direction at either the top or the bottom of cycles. A good example is in the two major consumer confidence indexes. In the final readings for June, one, The Conference Board's Consumer Confidence Index, was down. The other, the Reuters/University of Michigan Surveys of Consumer Sentiment Index, was up. These conflicting readings came following several months of increasing confidence, though both measures remain at historically low levels.

The Conference Board's overall Index fell to 49.3 from 54.8 in May. This followed several months of gains for the measure, which hit a record low just above 25 in February. The research organization's Current Situation and Expectations Indexes also fell. The organization reported that consumers' assessments of both business conditions and the labor market deteriorated in the June survey.

The Reuters/U. Mich. Consumer Sentiment Index, on the other hand, rose to 70.8 in June from 68.7 in May, its fifth straight gain since bottoming at 55.3 in November 2008 and 56.3 this past February. What's perhaps more important, Surveys Director Richard Curtin noted the index has gained 28% over the November low and also stands significantly above last June's 56.4 reading. The organization's Expectations Index fell minimally while the Current Economic Conditions Index rose.

But Curtain also noted most consumers are still quite financially stressed, saw their financial situations decline in June and have low buying plans for durables and houses. In other words, most Americans expect continuing pain and a slow recovery.

Section sponsored by FER E&S Market Forecast Meetings

NRA's Performance Index Dips After Five Months Of Gains
Another waffler: The National Restaurant Association's Restaurant Performance Index fell slightly in May, as foodservice operators' diminished expectations for future sales and capital expenditures pulled down the Expectations Index half a point. The Current Situation Index fell a minimal 0.1 point. The overall Index dropped 0.3 point, to 98.3. This decline came on the heels of five months of gains since the Index hit bottom at 96.4 in December 2008.

While traffic was flat, and same-store sales were down only 0.1 point in May, those surveyed were clearly less optimistic about the market improving rapidly. The Expectations score for same-store sales in six months fell 0.7 point while the measure of respondents planning a capital expenditure during the next six months fell almost a full point. The Expectations Index dipped back below the 100 tipping point signaling contraction versus expansion. The April peek above the line was the first for the Expectations Index since early fall '07. The component for capital expenditures made during the past three months also fell 0.4 point.

Still, these up and down motions are typical when the trend of a market is changing. And as we wrote at the beginning of this issue's report, a little less-dire employment news could perk up consumers' mood. Many economists expect the job losses to continue well into '10, but at more moderate rates.

Section sponsored by FER E&S Market Forecast Meetings

Only Three Weeks Until FER President's Preview Forecast Seminar
In times such as these, you must be decisive. You also must be informed. Fortunately, we have something for you, but time's ticking.

Foodservice Equipment Reports's President's Preview Forecast Seminar is only three weeks away. And that's why you can't afford not to register right now.

The meeting is slated for 9:45 a.m. to 4 p.m. Wed., Aug. 5, at the Hotel Orrington, in Evanston, Ill. Timing is tailored so many of you in the East and Midwest can fly in and out the same day.

The program will offer a complete overview of the equipment and supplies market that can be used for planning and budgeting 2010 and beyond. It kicks off with an open forum of leading multiunit operators discussing the challenges facing their businesses. The panel includes Duane Clark from Aramark, Bob Chuhak from Darden and Brandon Melton from Chipotle.

Then, John Muldowney, principal at Clarity Marketing, Tipp City, Ohio, will join FER Publisher Robin Ashton in analyzing general economic, operator and materials-price data. Muldowney will also update his listing of the top 150 E&S manufacturers and review their '08 performance. Another session will feature David Greene, president of European operations for AutoQuotes Inc., presenting exclusive information on E&S manufacturer pricing trends.

The meeting will close with Ashton and Muldowney offering hard-number forecasts of the E&S market in '10.

The registration fee, which includes all data in both print and electronic formats, is $945. The hotel is $159 a night. For agenda, hotel and registration information, go to or call Chris Palmer at 847/336-2049.

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