Foodservice Equipment Reports

SPECIAL REPORT: E&S Market Bounces Back In 2011

The recovery of the foodservice equipment and supplies market from the Great Foodservice Recession in the United States can only be called surprising and unusual. It is surprising in its strength. It is unusual in how early it began.

The hard numbers don’t lie. Beginning in the second quarter of 2010, E&S sales for some manufacturers started to rebound. By the fourth quarter of ’10, most, though not all, of the industry was gaining traction. And E&S sales have grown consistently ever since, through the third quarter of ’11.

Though the fragile general economic environment creates significant risks, Foodservice Equipment Reports forecasts the market will continue to grow in ’12 and beyond. Our current forecast, revised only slightly from our original projections in July of ‘11, calls for current-dollar growth of 4.6% in’12 with real growth of 2.6%.

Strong But Uneven Recovery

Consistently strong sales gains have been posted by most of the five big equipment-oriented conglomerates we follow: ITW Food Equipment, Manitowoc Foodservice, Middleby Corp., Rational North America and the Standex Food Service Equipment Group. Blended sales for the five (we do our best to scrub out the effects of acquisitions and non-foodservice equipment revenues) grew 7.6% in the second quarter of ’10 over the year-earlier period and have averaged quarterly gains of 8.1% to 11.2% since. For third-quarter ’11, the five reported a 9% blended increase.

The two supplies-oriented companies, Carlisle Food Service Products and Libbey Foodservice, have also posted blended sales gains. They went positive in the third quarter of ’10 and have also reported increases every quarter through third-quarter ’11. But the numbers have been much smaller on these supplies-side companies, ranging from 0.7% in first-quarter ’11 to 4.8% in the quarter immediately before that. More recently, third-quarter ’11 growth was 1.7%.

The Business Barometer maintained by the Manufacturers’ Agents Association for the Foodservice Industry tells a similar tale. After 11 consecutive quarters of declining overall sales versus year prior, the reps reported a 5% increase in fourth-quarter ’10 and have posted gains of 4% to 5.7% through the first three quarters of ’11.

Rep data supports the public-company figures: Reps report bigger gains in equipment sales than in supplies and tabletop.

But the aggregate numbers mask two clear and curious splits in the E&S market. First, companies that are most oriented to the big restaurant chains, especially certain quick-service giants, are growing much faster than those with products oriented toward noncommercial and other spec segments. A number of big chains are on renovation and menu-initiative tears, and their suppliers are benefitting mightily.

Second, the slower but still clearly positive growth rates for supplies hint at another unusual aspect of the current E&S market. Durable supplies and tabletop sales are typically closely tied to operator sales trends. And the reality is foodservice operator sales aren’t growing very quickly, if at all. So what gives? Why is the E&S market growing so much more quickly than the base foodservice market?

Renovation Drives Pent-Up Demand

The only possible explanation for the strong gains in the E&S market and the chain-orientation of those increases is pent-up demand. If commercial operators want to stay competitive, they just can’t hold off renovating their facilities and replacing worn-out equipment.

Recent gains in tabletop, though not as pronounced as in equipment, also are a positive sign. For many casual dining and other full-service operators, the downturn began as early as ’06. Through the depths of the Great Foodservice Recession in ’08 and ’09, they couldn’t afford to buy much or keep their dining rooms fresh. When they finally got a whiff that things were improving in ’10, they began to move. Add in the spate of menu rollouts from the quick-service side as operators try to drive traffic and same-store sales, and international unit growth by the big chains, and the numbers begin to make some sense.

What About 2012?

One key question for the year ahead: Will pent-up demand continue to push sales? The structural reality of the U.S. market suggests yes. Hundreds of thousands of restaurants and facilities are aging. They need to be renovated and re-equipped during the next decade. This aspect alone will likely drive significant demand for years to come.

So that leaves one more question: Will the spec markets, which have been flat at best, begin to share in the recovery?

The spec-market answer is less clear. Many operators in these segments are publicly funded, and public funds are tight. We see a split E&S market again in ’12, but overall a positive one.

Note: FER’s complete E&S market forecast is available for purchase. It 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, as well as the overall market. The package also includes rankings of top E&S manufacturers and dealers. To purchase, call the FER office at 800/986-9616, or e-mail Chris Palmer at  cpalmer@fermag.com.

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