What’s to come in 2007? If you’re looking for boom or bust, you’ve come to the wrong place. On the macro side, some indicators are good, others are less so, but none stray far from a hazy center point.
So the smart money’s on slightly slower growth all around, assuming geopolitics and energy prices don’t get any crazier than they’ve been. The Blue Chip Economic Indicators panel, which tweaked its projections downward in small increments several times in 2006, in November dropped its consensus projection to 3.3% real growth for ’06 and 2.5% for ’07.
Against that backdrop, foodservice operator sales again look set for steady-as-she-goes growth, at a projected 1% real—almost exactly the same as last year’s 1.1%—according to Technomic Inc., Chicago.
Slower Growth, But Likely Very Solid
How’s it all translate into capital expenditures? Not surprisingly, the forecast is for moderate, slightly slower growth. FER Publisher Robin Ashton, working with John Muldowney of Clarity Marketing, Tipp City, Ohio, puts the official FER ’07 projection at 1.9% real growth on top of price increases of 3.8%.
The key: Underlying demand should remain fairly good. Data from the National Restaurant Association’s Restaurant Performance Index indicate a larger-than-usual percentage of survey respondents plan to make capital purchases during the first half of this year.
And the Manufacturers’ Agents for the Food Service Industry’s Business Barometer has shown eight straight quarters of growth, with the largest gain in the most recent (3Q) quarter. Meanwhile, data compiled by Clarity Marketing on public-company E&S sales have been strong, reaching double-digit nominal growth in the third quarter last year, including price increases.
Where’s the demand coming from? New-unit expansion will continue on the commercial side, particularly in quick-service and quick-casual segments, but the overall rate will likely cool. Noncommercial spec markets, on the other hand, appear to retain some strength.
But the real driver will again be replacement business. The huge base of existing installations, roughly 1.2 million kitchens now, just gets bigger every year, creating bigger, and more stable, replacement markets. And then there’s the energy issue. Rising energy prices, the number one concern of NRA survey respondents last year, have become a driver unto themselves.
Downside forces? One is casual dining. The segment started to stumble during the second quarter of last year. At first, rising gasoline prices appeared to be the culprit. And no doubt they contributed. But now analysts wonder whether the segment has priced itself beyond its service level.
Another damper is weaker job creation. Forecasts are for slower non-farm job growth next year, on the order of 145,000 jobs per month vs. last year’s 165,000 average, according to the Blue Chip panel. That’s a decline of about 12%, and that can create a drag on consumer sentiment, let alone pocketbooks. Throw in well-publicized weaknesses in the auto and housing sectors, and even operators with good traffic and good profits might be slow to loosen the purse strings.
Still, the underpinnings really are sturdy, and it’s a big, broad market.
Materials Prices Peaking?
And as a final note: For manufacturers and operators alike, the forecast for price increases might offer a bit of relief. According to Tom Stundza, chief editor at Purchasing magazine, pricing might be peaking, or peaking soon. Not that any big reductions are on the way. But at least the increases might be easing.
After more than two years of rapidly rising, many key materials prices are forecast to peak within the next few months, then level off or fall back somewhat. And the frosting on the cake, perhaps, might be that nickel, a big part of the stainless nightmare over the past few years, will return to more normal prices.