By Robin Ashton

Technomic Forecasts Another Down Year For Foodservice
As Technomic Inc.'s V.P. Joe Pawlak put it as he kicked off the firm's annual Forecast & Outlook Seminar last Wednesday in Chicago, "The bad news is it will be another down year for foodservice; the good news is it won't be as down as much as the past two." The day-long seminar was sponsored for the 38th year by the International Foodservice Manufacturers Association. The seminar was also staged in Newark, N.J., Sept. 17 and Millbrae, Calif., Sept. 25.

The research firm predicts total foodservice-operator sales will shrink another 0.8% in 2010 in current dollars, and with forecast food-away-from home inflation of 1.5%, show a 2.3% real decline. This compares with a brutal estimated nominal decline of 3.8% in current dollars and 6.1% real this year. It's clearly been the worst year for foodservice in most of our lifetimes, Pawlak noted. And next year's predicted numbers are not as bad as '08, which saw an estimated real decline of 3.6%. The firm estimates that by the end of '10, foodservice will have lost a combined 11% of its total real value.

Among Technomic's biggest concerns for the next two years: the employment outlook and the frugality the recession has prompted in consumer behavior, even among higher-income households. Pawlak noted that underemployment, which when added to the current 9.7% unemployment combines to 16.8%, is having a major effect on foodservice spending. A whopping 84% of consumer polled by Technomic indicated they are trying to spend less at restaurants.

The "new climate of frugality" is also worrisome because it may be becoming engrained. The percentage of disposable income going to savings soared to 5.2% in the second quarter this year, pulling growth from consumer spending. Technomic suggests this trend to frugality may be long-term, given the pain the recession has caused so many consumers.

Foodservice is so huge, however, that there are always bright spots. Operators are benefiting from the decline in food costs. With those reductions and other cost-cutting measures, some operators have been able to hold or grow profits despite slumping sales. Unfortunately for suppliers, many are cutting costs by postponing capital expenditures. In the forecast operator survey, 38% of operators reported such cutbacks, compared with 31% last year and only 17% in '07.

A handful of segments are forecast to show positive real growth next year, including colleges and universities (1.5%), schools (0.5%), senior living (2%), military foodservice (2%) and supermarkets (2%). Quick-service restaurants, hospitals and nursing homes and convenience stores are forecast as flat in real terms, which will give them a bit of nominal growth.

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