2016 Looks Like Another Good Year

I am often asked what factors we look at when making our forecasts of the foodservice equipment and supplies market. It’s important to remember first that operator need is what drives E&S purchases. Then, even if you have the need, you have to have the money. One of the reasons 2015 was one of the best years for E&S market growth since the Great Recession was because operators had both needs and money. And we expect this will continue into 2016. Our forecasts of E&S market growth for 2015 and 2016 are nearly mirror images: 4.8% nominal growth and 2.5% real growth last year; 4.6% nominal growth and 2.5% real growth this year.

We leave forecasting the operator markets to our good friends at Technomic Inc. and the National Restaurant Association. And observing them for nearly 40 years now, we understand what they analyze. In most cases, it really comes down to five indicators: disposable income, consumer spending, employment trends, consumer confidence and gasoline prices.

Here’s how Randell Moore, Executive Editor at Blue Chip Economic Indicators wrote about the outlook for 2016 in the December edition of the newsletter, which polls 50 leading economic forecasting groups each month: “Consumer spending is expected to remain the primary catalyst of economic growth in 2016, supported by further improvement in labor market conditions, another healthy increase in disposable personal income (DPI), and looser lending standards.”

Add in strong consumer confidence and gas prices running at levels not seen in years, and you can understand why Technomic’s current forecasts for operator sales growth are the strongest since before the Great Recession. The research firm estimates 2015 total industry sales will grow 5.2% in current dollars, 2.3% after factoring out price increases. Growth for 2016 is pegged at 4.9% nominal and 2.5% real. Technomic usually looks at its forecasts again in January, but given economic trends, we don’t expect much change. (NRA had yet to release its 2016 forecast as we went to press in mid-December.)

This strong growth is helping create the need for equipment and supplies. Combined with wholesale food prices that have fallen more than 5% in the past 12 months, this growth also is helping to generate the profits and cash flow necessary for capital formation and spending. While this situation—higher sales, lower costs—is clearly benefiting restaurant operators, it is also helping most noncommercial segments, which also benefit from higher retail sales and sales taxes and the recovery of the housing market.

The effects can be clearly seen in the NRA’s Restaurant Performance Index indicators that track capital spending activities. The marker that tracks restaurateurs who made a capital purchase in the past three months hit record highs four times in 2015. In October, a remarkable 76% of those surveyed said they made a capital buy. The indicator that tracks intentions to buy during the next six months also ran at near-record levels throughout 2015.

We can’t sustain this level of growth forever. But for now, it does indeed look like 2016 will be another very good year. Enjoy it while it lasts.