2014 EQUIPMENT FORECAST: E&S Sales Growth Should Accelerate

As hard as we try, the real economy has a way of surprising forecasters, including Foodservice Equipment Reports. After the equipment and supplies market in the first quarter of 2013 posted its slowest quarterly sales growth since the market recovered in 2010, we fully expected a slow growth year. We had the payroll-tax increase, the fiscal cliff, the budget sequester and an early season gas spike. 

But after the first-quarter results, we had pleasant surprises. Both the MAFSI Business Barometer and sales of the seven publicly reporting E&S companies we track rebounded in the second and third quarters. The Barometer, maintained by the Manufacturers’ Agents Association for the Foodservice Industry, actually had a record 6.1% gain in the second quarter. Third-quarter numbers for both were in the 4.5%-4.8% range.

The National Restaurant Association’s capital-spending indicators in the Restaurant Performance Index were consistently positive all year. For all intents and purposes, they have returned to pre-recession levels. And they actually improved in the September and October surveys, in spite of the federal-government shutdown and debt-ceiling fight. 

The current FER E&S market forecast, prepared by Publisher/Research Editor Robin Ashton and John Muldowney, a marketing executive at The Boelter Cos., calls for current-dollar growth in 2013 of 3.3% and real growth of 1.5%. This compares with growth of 3.8% nominal and 1.8% real in 2012.

Given the stronger-than-expected second- and third-quarter results, we’re just not sure we should revise until we see numbers from the fourth quarter. So we’re sticking with the current numbers. 

Another significant factor in the E&S market, and a welcome one for operators, is very restrained price increases. Most material prices, including stainless and carbon steels, aluminum, copper and plastics, have shown very little upward pressure throughout 2013, though there has been a bit of movement higher in the last quarter of ’13. Data from AutoQuotes signals another year of very moderate E&S price increases in ’14.

Indicators Point Upward For 2014 

We are reasonably certain, on the other hand, that 2014 should see E&S sales growth accelerate, though moderately. As we detail in the preceding pages, operators are expected to see slightly stronger growth next year, in part because the general economy, consumer disposable income and jobs growth are forecast to improve. While operators still have concerns about the direction of the general economy, they are more optimistic about their sales prospects in the next six months and continue to plan capital spending.

“All the factors that have driven North American E&S market growth in the mature, post-recovery environment remain active,” says FER‘s Ashton. “Chains large and small, quick-service and full-service, continue to spend for renovation and equipment replacement. Independents are following suit in nearly every market in the country. Constant menu churn remains a major factor in E&S spending. And unit growth overseas is being pursued by hundreds of U.S. chains, not just the big QSRs.”

But Ashton and Muldowney also see one other important driver of faster growth for E&S next year. “The spec markets finally appear to be recovering,” Ashton says. Reps’ quotation trends and foodservice-consultant activity have reached levels not seen since before the recession, according to data from the MAFSI Business Barometer. State and local tax receipts and budgets have improved, helping the publicly funded segments. Pent-up demand in these segments is pronounced, Ashton says.

“We’ll be very surprised if E&S doesn’t see as much as a point or more of faster growth in 2014,” Ashton says. “Though remember, we’ve been surprised before.”