Foodservice Equipment Reports
Editorials Publisher's Viewpoint

Spec Markets Begin To Recover, Finally

While the foodservice equipment and supplies market’s recovery from the Great Recession has been remarkable in many ways, one very significant part of that market has remained mired in recession. Publicly funded noncommercial segments such as schools, healthcare, some college and university, and corrections have been starved of capital funds since early 2010. The mass layoffs in financial and manufacturing businesses also ravaged the business and industry sector. These so-called spec markets have been a drag on the overall pace of E&S market growth.

First it was state revenues that were battered by the extreme drop in income and sales taxes. Then local taxes, which fund lots of school, local healthcare and county jail projects, were hit by the drop in property valuations as the housing price collapse played out. At the depth in third quarter 2009, state revenues—as tracked by the Rockefeller Institute of Government in Albany, N.Y.—were off a remarkable 12%. Such revenues were negative for seven consecutive quarters beginning the fourth quarter ’08. Local taxes went negative in the third quarter’10 and were negative for six quarters, off nearly 5% at the bottom. (See chart.)



Not all spec markets have been negatively impacted. Student-fee funded college and university foodservice continued the renovation boom that has been going on for more than a decade. Private and specialty healthcare kept building and renovating. The lodging market bounced back with the rapid return of business travel. Cash-strapped states responded with a casino building boom.

But after a $130-million federal stimulus program for new equipment ran its course, the schools market collapsed in 2011 and ’12.  Most correctional foodservice directors could barely find money to feed their populations, let alone fund capital projects. It has been a very slow road back.

There are signs that, finally, the spec markets are beginning to revive. State-tax revenues have been positive for 11 quarters, local tax revenues for four. While the Rockefeller Institute worries that some of the gains are a “bubble,” driven by wealthier households moving dividend and other income forward late last year, the gradual improvement in employment and consumer spending and in housing values are having a positive effect.

Manufacturers’ reps have seen a significant increase in consultant activity, according to data from the MAFSI Business Barometer. In the second quarter, 48% of reps said they were seeing more consultant activity while only 9% were seeing less. That’s one of the best ratios of more to less since MAFSI began asking the question back in the second quarter 2008. Even the beleaguered B&I market is improving, reps tell us.

Anecdotally, spec-oriented manufacturers and dealers agree the market has improved the past six months, though the gains are frustratingly slow. The schools market was much better this summer, one manufacturer told us last week, but then things slowed again in September. Since it typically takes 12 to 24 months for a consultant design to turn into bids and sales, we can expect the spec-market to come back only gradually.

But with as much as 35% of the E&S market in spec segments, and with all the pent-up demand over the last three to four years, when the market does come back, it’s likely to do so with strength. That will help the overall E&S market growth rate in 2014 and’15, we believe. After all, it was three or four years of pent-up demand from the chains that led us out of the E&S market recession back in 2010.

Golf Update: By the way, for those who may be wondering, John McDonough’s Team Europe crushed Bobby Watson’s Team U.S.A. in the annual Rosati Cup two weeks ago. I won only one of my four matches, though two losses came down to the last putt. My friend and former competitor Niles Crum was the most valuable player, winning all his matches, one against me. We had a wonderful time.

Cheers,



Robin Ashton

Publisher

rashton@fermag.com

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