Foodservice Equipment Reports
Publisher's Viewpoint

Have We Burned Through The Pent-Up Demand?

As we’ve written often during the past few months, the general economy and operator fortunes currently are as good as they’ve been in years. We’re not the only ones seeing things that way. In May, Technomic Inc. dramatically boosted its operator forecast for 2015. The research firm took up total industry nominal growth more than a full point—fueled in part by menu price increases—to 5.2% from 3.9% in the January 2015 revision. Real growth jumped from 0.7% in January to 2.3% in May. The growth prediction for restaurants and bars jumped to 5.3% nominal and 2.3% real from 2.9% nominal and 0.4% real in January. The “beyond restaurants” numbers also improved by more than a point. And just so everyone is clear, Technomic sees another good year in 2016 with nominal growth of 4.9% and real growth of 2.5%. 

What lies behind this improvement? Jobs growth and gasoline price drops. Interestingly, Technomic finds and federal retail sales data shows that while consumers, particularly those at lower income levels, are using the gas-drop bonus to pay off debts or put some away for a rainy day, foodservice is the one segment they are splurging on somewhat. Even during the worst of the winter weather in February, same-store sales continued to rise. There were a lot of delivery orders!

Pent-up demand among consumers is one thing. Pent-up demand for equipment and supplies is another. Our biggest question as we look at the rest of 2015 and into the coming years is, “Have we exhausted the pent-up demand for equipment and supplies?” 

I believe we’re seeing some sign of it. The capital-spending numbers from the National Restaurant Association—those that track restaurant operator spending on equipment and facilities—have been waffling for the past six months. They seem to have peaked, with about 60% of those surveyed typically having bought equipment or are planning to do so. These numbers got a bit higher during the boom of 2005-2007, but not much.

Capital spending in the noncommercial markets also has improved. MAFSI Business Barometer tracking of RFP and consultant activity has been running at record or near record highs for almost a year. Key markets, such as K-12 schools, began improving a couple of years ago. While the spec markets are always the lagging third of the E&S market, it appears they have finally fully recovered. 

All of this data makes me think we’re probably at the E&S market peak right now. The other key factor is operator margins are improving, thanks to strong sales, falling food prices and still-rising menu prices. Many operators are as cash-flush as they are going to be.

That doesn’t mean the market will fall apart in 2016 and beyond. Our long-term forecasts call for just slightly slower growth in 2016 and a gradual decline in the three years following. It sure beats 2009!

Related Articles

The E&S Market In 2017: Up Or Down?

The Numbers Don’t Lie

Walking Among Giants