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January 2010

E&S Industry: Dealing With The New Reality

Last year was the toughest year for the E&S market in decades. This year won't be nearly as bad, and growth will return in 2011.

By Robin Ashton

Sometimes the news just isn't very good, and there's no point in sugar-coating it. The precipitous drop in sales of foodservice equipment, supplies and furnishings, both here and abroad, during 2009 was unprecedented. It was almost certainly the worst single year for the E&S market in our lifetimes.

We at FER forecast the market decline will continue in '10, the third consecutive year of nominal and real sales declines, though at a much more moderate rate. We do predict the E&S market will begin to grow again in '11 and continue to grow through at least '13.

By our latest estimate, revised in early November, total industry sales at the manufacturers level, including exports, fell nearly 16% in current dollars. That's more than $1.4 billion fewer dollars spent by operators on fryers, ovens, ice machines, refrigerators, mixers, ventilation hoods, ladles, spoons. tabletop and other foodservice products. The real decline, an indication of unit-shipment trends, was less bad, at 13.5%, as the soft market led to declining prices on the street, averaging 2.3% by our estimate.

The Good Thing
The only good thing about this estimate is that it's better than we originally feared. In our July revision, we forecast the total E&S market would decline more than 21% in '09. But as the numbers graphed on these pages show, from the Business Barometer maintained by the Manufacturers' Agents Association for the Foodservice Industry and those of public E&S companies compiled by John Muldowney, principal at Clarity Marketing, Tipp City, Ohio, the sales declines of '09, while dreadful, were not quite that bad.

On the other hand, we've revised our forecasts for '10 downward from our preliminary numbers in July. The reasons are simple. It now appears that operator sales and traffic won't improve substantially until at least mid-year '10, when the jobs picture and consumer spending in North America begin to improve. And it will take six months to a year after that before operators substantially change their capital equipment and supplies buying behavior.

The lag this time will most likely be even longer than usual. The chains, as opposed to independents and noncommercials, usually are the first to move toward expansion after a foodservice downturn. But the cycle has been skewed this time by two factors. First, quick-service chains held up longest during the recession, as consumers fled to value. QSR has only recently begun to feel the pain of substantial traffic and same-store sales declines, hence its recovery will most likely be delayed as well. Second, many multiunit operators have down-sized their facilities, construction, engineering and purchasing departments, as they drastically cut back unit expansion and capital spending. It will take time to re-staff these functions.

Public Funding Drying Up
Adding to the continued decline in spending for E&S next year will be a substantial downturn for publicly-funded operators and activities among the so-called “spec” segments in general. According to survey data from the MAFSI Barometer, 50% of reps are seeing fewer design projects come out of their consultant customers, versus only 10% seeing increasing jobs.

The Nelson A. Rockefeller Institute of Government reported state and local tax receipts fell a record 16.6% in the second quarter of '09 compared to year-earlier levels. And that drop surpassed what had been a record decline in the first quarter. All but one state in 50 saw revenues decline, and 36 had double-digit declines.

This means many publicly funded foodservice operators, from county hospitals to state and community colleges, from local jails to public school districts, will be starved of resources, especially for capital improvements. Add to this scenario the battered condition of other key spec segments such as business and industry, lodging and recreation, and it's our estimate the condition of the spec markets will suppress E&S overall spending well into '11.

But not forever. For the first time, FER has extended its forecast three years beyond the coming year. And as the overall E&S market graph shows, we expect a return to growth in '11, extending out at least until '13.

Everything that goes down, even as severely as the current E&S market, eventually comes back. We expect that process to begin toward the end of '10. And in fact, given the depth and severity of this downturn, it most likely will be quite a robust recovery, at least initially. Many operators have been holding off renovating, replacing and upgrading aging equipment. When they get some spare cash, they are likely to go on a bit of a buying spree.

The Deep-Drill E&S Forecast
If you're interested in purchasing the complete, deep-drill forecast, which includes detailed data and analysis of general economic factors, operator trends, and materials and E&S pricing, plus hard-number forecasts of E&S market growth for nine categories of equipment and supplies, call us at 800/986-9616, or e-mail Chris Palmer at

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