Foodservice Equipment Reports Fortnightly
www.fermag.com

Welcome to FER Fortnightly Online Newsletter
December 2, 2008








Regulatory Report:
Sponsored by:
Manitowoc Foodservice
New Grease-Duct Code Soon To Take Effect
NSF Rewrites Food-Shield Standards
Toronto Coffee-Cup Cops Compromise
San Diego Tightens Water Restrictions...
...While Desert Area Just Begins

Industry Report:
Sponsored by:
The NAFEM Show '09
BioHitech, Rubbermaid Earn Editors’ Choice Awards
NSF Calls For Nominations
Chipotle, Dunkin’ Open Green Stores



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In This Section:
MAFSI Barometer Logs Record Decline In Q3
Public E&S Companies See Slight Organic Growth In Q3
Searching For Mr. Good News, We Found Some
In Times LikeThese, You Need A Guide Like The FER Forecast for 2008 and ’09

This issue's Regulatory ReportSponsor: Manitowoc Foodservice
Industry ReportSponsor: The NAFEM Show '09
Economic Report Hotelex Shanghai

By Robin Ashton

MAFSI Barometer Logs Record Decline In Q3

We knew things were getting tough in the equipment and supplies business, but now we have more data. The quarterly Business Barometer fielded and maintained by the Manufacturers’ Agents Association for the Foodservice Industry fell 2.8% in the third quarter, compared to the year-earlier quarterly level. It was the largest drop since the association began the Barometer in late 2002. The previous record decline was first-quarter ’03’s 2.1% drop.

All MAFSI numbers are in current dollars, so do not factor out price increases. This means the real declines are larger than the percentages reflect.

The third-quarter ’08 number marks the third consecutive quarter the Barometer has been in negative territory. The indicator fell 1.2% in the first quarter and was down 0.3% in the second. The Barometer also fell for three consecutive quarters in the ’03 downturn.

But that record will almost certainly be erased in the current quarter: The reps’ forecast for the fourth quarter is also a record -4.7%. In the commentary accompanying the Business Barometer report, rep Michael Posternak wrote, “Of particular concern is the fact that 66% of MAFSI reps report a decline in volume of quotations, while only 11% report an increase.”

Index values for all product categories declined. Equipment was off most at -3.1%; supplies were off least at -0.8%. All five geographic regions were negative. The South and West, most impacted by the housing crisis, reported the biggest declines, scoring -4.6% and -3.6% growth respectively. Sales in the Midwest came in at -2.8%, and those in the Northeast -2.2%. As has been true throughout this downturn, Canada was off least, -0.6%.

 

Section sponsored by Hotelex Shanghai

Public E&S Companies See Slight Organic Growth In Q3
The large publicly held equipment and supplies enterprises once again outperformed the general market in third-quarter 2008. Estimated organic sales for nine such companies tracked by John Muldowney, principal at Clarity Marketing, Tipp City, Ohio, rose a mere 0.4%, but still a positive number in current dollars. Among them, the seven equipment-focused companies saw sales increase 0.7% in the quarter on an organic basis, while the two supplies-oriented publics were off -0.3%. With acquisitions figured in, all nine companies saw revenues grow 7.4% for the quarter.

The public companies have been in positive-current dollar territory all year, though way off the substantial growth they saw throughout ’07. Organic revenue growth was an estimated 0.3% in the first quarter of ’08 and 2.9% in the second quarter.

For the year, the public companies are up 2% on an organic basis and 10% with acquisitions for the nine months year-to date.


 Section sponsored by
Hotelex Shanghai

Searching For Mr. Good News, We Found Some
After last issue’s FER Fortnightly Economic Report, our partner and Chief Editor Brian Ward asked, “Doesn’t it wear you down to write all this constantly negative economic news?” In a word, yes.

So we went looking for good news. We asked some of our close friends and colleagues on the forecasting front, and they were a bit of help. We queried Hudson Riehle, senior v.p of research at the National Restaurant Association on what he is seeing, as we know the association is finishing up its forecast for 2009. He admitted NRA would forecast declining real sales in ’09, the first annual decline since ’91. But he went on to add, "While the outlook for ’09 is rather bleak, there are some bright spots to watch. With moderating energy prices and pent-up demand for foodservice options, our industry is poised for sales growth to improve when consumer confidence and cash-on-hand increase.”

Okay, great. Energy prices are coming down, and that really is a good thing. According to the Federal government’s Energy Information Administration, the average price of a gallon of regular gas was $1.89 on Nov. 24, $1.21 less than a year ago and way off the $4-plus we saw in July. Forgive us for not citing the source, but we heard somewhere last week that the drop in gasoline and other energy prices from July to now has boosted disposable income for the “average” family of four by 4%.

And Mr. Riehle mentioned pent-up demand for foodservice. We don’t have hard data on current traffic other than NRA’s Restaurant Performance Index, which has been quite negative recently, but through August, overall traffic as tracked by NPD Group’s CREST studies was actually positive for the year. We’re sure traffic levels for most places, other than McDonald’s, were dicey the past couple months. But people do want to eat out.

And we’ll throw out a few other pieces of good news, too:

  • Wholesale food prices came down in October and have fallen for two months now. While they will still end up significantly higher for the year, we like the more recent trend, especially as it affects operator profitability.
  • Materials prices are also “deflating.” We’ll give you more details in the next Fortnightly, but the slowing demand is bringing down the prices of most steels and other metals and plastics used in foodservice E&S products.
One other big thing: Technomic said its research on menu changes at chains, published in the firm’s MenuMonitor, is showing a record number of new items and “limited time offers.” Manufacturers we’ve spoken with also have noted a lot of menu development and “LTO” activity. It’s not surprising. When operators see traffic and same-store sales soften or drop, they get creative, trying to drive people into their stores. This is important because menu changes are a big driver of equipment and supplies purchases in all segments.

That’s enough for now. We don’t want to appear Pollyannish. Things are squirrelly. But just remember, we’d be facing bigger issues if we were selling cars or financial products.


 Section sponsored by
Hotelex Shanghai

In Times Like These, You Need A Guide Like The FER Forecast for 2008 and ’09
Uncertain about what’s going to happen in the equipment and supplies market next year? Well, so are we, but it’s one of our jobs to make an informed estimate, so we have. And it can help you understand not only the trends, but the background on what’s driving the market.

The complete Foodservice Equipment Reports forecast, featuring detailed data and analysis of general economic, operator and materials trends, data on E&S pricing trends from AutoQuotes, as well as an analysis of performance of the Top 150 E&S manufacturers from John Muldowney at Clarity Marketing, Tipp City, Ohio, is available for $349. For information on the forecast, contact Jessica Scurlock at jscurlock@fermag.com or by calling 800/986-9616.



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