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SPECIAL REPORT: Headwinds Slow E&S Sales Growth

The words for 2013 are uncertainty and opportunity. Forecasting the foodservice equipment and supplies market is especially difficult right now. As we write in early December, the federal government’s ability to resolve budget and deficit issues before the end of the year—the so-called fiscal cliff—is completely in doubt. And that uncertainty, combined with the certainty of increased costs next year, has led many foodservice operators to delay purchases of equipment, supplies and other capital goods.

Some things are clear. E&S sales growth in ’12 slowed somewhat as the year wore on. Two separate bouts of gasoline price increases and the severe drought in much of the U.S. combined with the uncertainties about the outcome of the election and the looming fiscal issues, undercut operators’ rush to renovate worn facilities and replace aging equipment and supplies.

Because of the slowdown, as marked by reports from publicly reporting E&S companies and the Business Barometer maintained by the Manufacturers’ Agents Association for the Foodservice Industry (MAFSI), Foodservice Equipment Reports has cut its estimate for E&S sales growth in ’12 at the manufacturer level by a full point, compared to the forecast released in July last year. FER now estimates sales rose 3.7% in current dollars and 1.6% with price increases factored out.

“The 2012 slowdown is a bit deceiving,” said FER Publisher Robin Ashton, who prepares the forecasts with John Muldowney, v.p.- marketing at Alto-Shaam. “The big public companies were severely affected by the recessions in many European economies in the second and third quarters. This dragged down their overall results, which remained reasonably positive in the U.S., as the third quarter MAFSI Barometer shows,” he said. E&S market-size estimates from the North American Association of Food Equipment Manufacturers include export sales. Thus, FER’s forecasts factor in those off-shore sales.

Modest E&S Growth Predicted In 2013

Three major concerns color the outlook for this year: Increased taxes, rising food costs and the cost implications of the new healthcare legislation.

Disposable income and consumer spending, including for foodservice, will almost certainly fall as the Obama administration and Congress work out budgets and taxes. No matter what happens with the Bush-era tax cuts, most economists expect an end to the cut in payroll taxes at the beginning of this year. This will affect all Americans who depend on wages and salaries.

The severe drought that dramatically reduced the corn and soybean crops last year will be felt for years. Prices for all proteins—dairy, poultry, pork and beef—are forecast to increase 15% to 20% as feed costs rise. The run-ups will negatively affect operating margins.

What also is certain, now that President Obama has been re-elected and Democrats increased their majority in the Senate, is that healthcare costs will rise for some operators. On the other hand, smaller operators who already provide health insurance for their employees may see a reduction in healthcare costs.

In spite of the cost challenges, FER expects this year to show moderate growth in E&S sales. The revised forecast calls for nominal dollar growth of 3.6% and real growth of 2.0% in ’13

“The fundamentals, beyond costs, point toward a continuation of the expansion in sales,” Ashton said. “Operators in North America are doing reasonably well, in spite of the challenges. And the need to renovate kitchens and dining rooms and replace equipment remains strong. There are hundreds of thousands of foodservice kitchens wearing out. And unit growth in the rest of the world is booming nearly everywhere. We expect the trend of moderate growth to continue out through 2016.”

FER’s complete 2013 forecast of the E&S market includes detailed data and analysis of general economic factors, operator trends, and materials and E&S pricing, rankings of top E&S manufacturers and distributors, plus hard-number forecasts of E&S market growth for nine categories of equipment and supplies out through 2016. To purchase the forecast, call the FER office at 800/986-9616, or e-mail Christine Palmer at

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