Foodservice Equipment Reports Fortnightly
www.fermag.com

Welcome to FER Fortnightly Online Newsletter
July 15, 2008








Regulatory Report:
Sponsored by:
Lincoln Foodservice Products/Enodis
EPA Might Reduce Bio-Fuels Mandate
City To Rethink Drive-Through Noise Limits
DOJ Seeks Comment On ADA Changes
Seattle Mayor Wants More Sidewalk Seating
Boston Ops Might Get Cheaper Energy

Industry Report:
Sponsored by:
FER E&S Market Forecast Meeting
Doobies To Play NAFEM All-Industry Gala
Starbucks Nips 'N Tucks—Sign Of Times?
Arby's Development Deals Mean 35 New Stores
El Pollo Loco Honored For Energy Efficiency



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In This Section:
Almost-Last-Chance To Register For FER's President's Preview Forecast Seminar
In A Soft Economy, Shouldn't Materials Prices Soften?
NRA Performance Index Creeps Back, But Expectations Hit New Low
Macro Forecasts Push Pain Well Out Into 2009

This issue's Regulatory ReportSponsor: Lincoln Foodservice Products/Enodis
Industry ReportSponsor: FER E&S Market Forecast Meeting
Economic Report Manitowoc Foodservice Group

Almost-Last-Chance To Register For FER's President's Preview Forecast Seminar
Yes, this just in from our print sister-publication's Shameless Self-Promotion Department: If you want to know just how good, or bad, the equipment and supplies market will be the rest of this year and next, you'd better act right now. It's only two weeks until Foodservice Equipment Reports' annual President's Preview Equipment & Supplies Market Forecast meeting. The seminar will be held at the Eaglewood Resort and Spa in Itasca, Ill., on July 30.

The meeting will feature the magazine's (and the world's only) hard-number forecasts for E&S market growth in '08 and '09, and includes a wealth of data on general economic, operator, materials and E&S price trends.

Presenters will include Robin Ashton, FER Publisher; John Muldowney, principal at Clarity Marketing, and Kent Motes, president of AutoQuotes Inc. And while nothing is ever certain in a forecast, Fearless Publisher Ashton humbly suggests no one is better able than this team to arm you with the data and analysis you need in this environment.

Kicking off the seminar will be an open forum with a panel of leading operators including Martin Cowley from Disney, Rob Foraker from Steak 'n Shake, Kevin Golden from Au Bon Pain, Kent Kelso from P.F. Chang's and Bernard Morauw from McDonald's. The group will be discussing drivers affecting their businesses and their organizations' capital spending plans.

The meeting program is just a single day, with a mid-morning start, so that most attendees can fly in and out the day of the meeting. A limited number of hotel rooms at Eaglewood is also available for July 29, but you'd better hurry. The seminar fee is $945.

Information on registration and the hotel is available at www.fermag.com/events/index.htm or by calling Jessica Scurlock or Robin Ashton at 800/986-9616. Get on the stick.

 

Section sponsored by Manitowoc Foodservice Group

In A Soft Economy, Shouldn't Materials Prices Soften?
Everyone once in a while, we see a number that crystallizes everything that's going on. In the commentary accompanying Purchasing magazine's latest commodity transaction price data and forecasts, Executive Editor Tom Stundza cites Mark Zandi of Moody's Economy.com. Zandi says annual consumer spending on energy will top $700 billion this year. In 2002, when oil cost $25 a barrel, that number was $300 billion. And that's just the consumer side.

But the difference is a number that adds up to slightly less than two-thirds of total spending on foodservice. That's big.

What is happening with oil prices is only an example—though a far-reaching, critical one—of what has happened to nearly all commodities and materials used by industry and construction during that past five years. And unfortunately, Purchasing forecasts prices for most core materials used for foodservice equipment and supplies won't be getting better any time soon.

The magazine says its market basket of 109 raw materials is on pace to increase 14% this year. That's better than '07's 18% but right in line with the annual growth in prices in '05 and '06. It appears '08 will certainly be the sixth consecutive year of commodity price increases. And the forecasts, now extended out through the second quarter of '10, offer no relief.

While the price of 304 stainless steel has moderated from the record levels of the second and third quarter of '07, it actually crept back up in the second quarter ended June 30 to an average of $4,365 a ton with surcharges. This is a 5.8% increase over the first quarter '08 average and 10.2% ahead of the fourth quarter '07. But the real story is prices of other steels used by foodservice—such as cold-rolled sheet and electro-galvanized sheet. They've nearly doubled from prices seen a mere six months ago.

The price of copper sheet, used to make tubing for refrigeration, is also headed back up. Prices of the material more than tripled in '05 and '06 and never significantly moderated. The second-quarter '08 price was 19% ahead of fourth quarter '07, and the magazine forecasts only slight moderation later this year. Aluminum sheet has also maintained high price levels and is expected to increase 9.5% in the third quarter over the second quarter price.

Another key input for both operators and suppliers, natural gas, has also headed higher. The average cost per thousand cubic feet was $11.14 in the second quarter, up from $8.94 in the first quarter and $7.50 in the fourth quarter '07.

As Stundza concludes, quoting another well-known analyst, "What's scary about this summer's industrial economy to Norbert Ore, chairman of the manufacturing business survey committee at the Institute of Supply Management, is that 'manufacturers are experiencing higher prices for their inputs while demand for their products is slowing.'" He could have been writing about the foodservice equipment and supplies industry this summer.


Section sponsored by Manitowoc Foodservice Group

NRA Performance Index Creeps Back, But Expectations Hit New Low
The good news in the National Restaurant Association's monthly survey of restaurant operators during May was that same-store sales, same-store traffic and capital expenditures made during the past three months all improved. The bad news was that operators expect things to get worse, not better.

The NRA's overall Restaurant Performance Index crept 0.2 point higher in May, the second upward move in a row. But that left the overall Index still at 98.6, signaling contraction. The 100-point mark delineates contraction versus expansion. It was the seventh consecutive month the overall index has been below 100.

The Expectations-Index half of the overall score actually dropped again, heading lower by 0.6 point, including a nearly full-point drop for expected capital expenditures during the next six months. Net result: The Expectations Index fell to 98.3, its lowest reading since NRA launched the survey in late spring 2002.

All the components of the Expectations Index fell, with anticipated cap-ex spending off 0.9 point. Expected business condition over the next six months also fell half a point to another record low of 96.7.

Among rays of light: Both same-store sales and customer traffic rebounded in May, by 1.6 point and 1.9 point respectively. But the final component readings mean same-store sales remain flat and traffic is still in negative territory. The component for capital expenditures made during the past three months also remained below 100 at 98.8, in spite of a 0.2 point gain.

The signal of the May survey is things will have to improve substantially before operators feel confident we're on the upswing.


Section sponsored by Manitowoc Foodservice Group

Macro Forecasts Push Pain Well Out Into 2009
Given all the cheery news above, we hesitate to review macro-economic forecasts, but hey, it's our job. The key consensus 2008 forecasts for real growth in gross domestic product, disposable personal income and personal consumption expenditures by the more than 50 leading economists polled monthly by Blue Chip Economic Indicators actually improved 0.1 point each in the June survey. The GDP forecast rises to 1.6.%, DPI to 2.2% and PCE to 1.6%.

Unfortunately, that adjustment just means the economists think the pain will extend well out into 09. The forecast for next year of 0.2 point for GDP to 1.7%, 0.4 point for DPI to 1.4% and 0.3 point for PCE to a meager 1.3%.



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