Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
November 16, 2006

Regulatory Report:
Sponsored by:
Franke Foodservice Systems
PG&E Offers Big Winter Gas Savings
Dallas Might Join Doggie Dining Trend
Another Chicago Suburb Passes Patchwork Smoking Ban

Industry Report:
Sponsored by:
Server Products
Life Cycle Costing Made Easier With New NAFEM Online Tool
Ten Equipment Winners Heralded At Equip'Hotel's APRIA Competition
Chains Ditch Trans Fat In Face Of Pending Laws, Lawsuits
NAFEM Show Registration Opens Online
Aga Foodservice Proposes Merger With Enodis; Enodis Board Rejects Approach

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In This Section:
Soaring Materials Costs Drive New Equipment Price Hikes
Restaurant Index Rebounds As Gasoline Prices Slide
Third Quarter GDP Number Comes In Low; Blue Chip Drops Forecasts Again
You Still Need To Know The Outlook For Next Year; Foodservice Equipment Reports Has The Crystal Ball

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

Soaring Materials Costs Drive New Equipment Price Hikes
It used to be that equipment and supplies price hikes came just once a year. Then a couple years ago, rising materials costs caused a growing number of manufacturers to look at twice-annual adjustments. This year, abnormal raw-materials issues have caused an unusual third-quarter surge in price increases.

In fact, third-quarter price increases in E&S have more than tripled compared to years past, according to exclusive data from AutoQuotes, the industry software-service provider that lists prices and other product data for more than 350 E&S manufacturers.

Forty-four manufacturers put through third-quarter increases, said AutoQuotes Pres. Kent Motes. An additional 13 brands put through increases on Nov. 1, Motes told FER Fortnightly last week.

To put the increases in perspective, from 2003 through '05, an average of fewer than 10 companies raised prices during the third quarter, with a high of 13 in third-quarter '04.

This year's second-quarter activity also was historically high, Motes said. Forty-seven companies raised prices during that period, compared with only 29 during the same period last year.

For many of these companies, it is the second round of increases this year, as they attempt to keep ahead of soaring cost increases for core materials, including stainless steels, aluminum and copper. Prices for all three materials are running at historical highs, and the forecast is for continued increases into at least the first quarter of '07.

Manufacturers may also be trying to get ahead of the curve, signaling to their major customers the need for increases early in '07.

List prices for like products in the entire AutoQuotes database, covering more than 223,000 items, rose an average 4.5% in the year ended March '05.


Section sponsored by Electrolux Professional

Restaurant Index Rebounds As Gasoline Prices Slide
Operator traffic, sales and purchasing of equipment and supplies improved dramatically as gasoline prices dropped during September, according to the National Restaurant Association's Restaurant Performance Index survey. And while current business improved during the month, operator optimism about the future also rebounded.

Both the Current Situation and Expectations Indexes recorded strong gains in the September survey. The overall Index rose 0.8 point to 101.5. The Index marks 100 as the no-change point; above is growth, below is contraction.

With current indicators as they are, the question becomes whether this rebound is a one-month response to falling gas prices, or a more sustained return to moderate operator sales and traffic growth.

"Trends in the expectations indicators were particularly encouraging," said Hudson Riehle, NRA's senior v.p. of research and information services. High expectations for the coming six months point toward continued industry growth, he said.

Joe Pawlak, senior v.p. at Technomic Inc., was a bit more cautious, noting that "it's still too early to tell [whether] this turnaround is sustainable, or a one-month blip. In terms of how the big chains are doing, it seems that they have rebounded a bit. Both limited-service and full-service chains as a total showed faster growth in September compared to August and July."

This view is confirmed by operator segment details from the NRA survey. But quick service and quick casual concepts still outperformed the three full-service segments tracked by the organization. Full-service concepts had been most negatively impacted by high gas prices.

Pawlak suggested keeping a close eye on gasoline price trends. "It is pretty safe to say that if fuel prices increase again, this will negatively impact full service.'"

The RPI Current Situation Index rose 0.7 point on strong gains in traffic and capital expenditures. The latter, after falling in August below the 100-value tipping point NRA uses to show expansion vs. contraction, jumped 1.4 points to 101.

Section sponsored by Electrolux Professional

Third Quarter GDP Number Comes In Low; Blue Chip Drops Forecasts Again
Reacting to a surprisingly weak preliminary estimate of third quarter 2006 real growth in U.S. gross domestic product, the Blue Chip Economic Indicators panel of more than 50 economists has again cut its consensus forecasts of real GDP growth for both '06 and '07 in the latest survey, conducted in early November.

The preliminary third quarter growth estimate, a meager 1.6%, was a full point lower than what many economists predicted just a couple months ago.

In response, the Blue Chip panel cut its consensus forecast for annual real GDP growth in '06 to 3.3%, down another 0.1 point from last month's forecast. Similarly, the economists again lowered their '07 forecast by 0.1 point, to 2.5%. This compares with real GDP growth of 3.2% in '05, a rate that was undercut by post-hurricane issues, and 3.9% in '04.

But while the overall economy is definitely slowing, indicators more crucial to foodservice are not necessarily following the trend. Disposable income, a key foodservice indicator, is actually forecast to improve in '07 compared to this year.

The Blue Chip consensus now forecasts real disposable personal income will grow 3.3% in '07 versus a forecast of 3.1% in '06 and a paltry 1.2% in '05. Personal consumption expenditures are expected to grow at a slower rate next year, 2.8%, compared with 3.2% this year and 3.5% in '05. But some of the decline is expected to result from fewer big ticket purchases such as autos and major appliances and may not affect foodservice significantly.

With fuel prices appearing to stabilize, at least for now, the economists are more optimistic about the inflationary outlook and expect the Federal Reserve Bank to begin cutting interest rates next year.

Section sponsored by Electrolux Professional

You Still Need To Know The Outlook For Next Year; Foodservice Equipment Reports Has The Crystal Ball
The complete Foodservice Equipment Reports 2007 E&S Market Forecast presentation is available for purchase from FER for $249. It includes detailed trends analysis and forecasts of general economic indicators that affect foodservice; of operator sales and unit growth; materials pricing; detailed analysis of historical list price increases from AutoQuotes, overall and by product category; as well as forecasts of growth and price change forecasts for individual E&S product categories and the industry as a whole. The presentations are available in both print and electronic formats. For information, e-mail Jessica Scurlock at or call 800/986-9616.

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