Dealer Takeaways From The New FER Forecast

As we report above, we released our latest E&S market forecast at the annual President’s Preview forecast meeting August 9. For a whole host of reasons, we expect 2017 to witness another year of decent sales growth at the manufacturers’ level, 4.1% nominal and 1.8% real. But be aware this is a slowing trend from 2015’s 4.8% nominal and 2.5% real growth, and from our revised 2016 forecast of 4.6% nominal and 2.1% real growth.

We have been saying for some time that we think the peak of the current market cycle was 2015. What John Muldowney, our forecasting partner and principal at Clarity Marketing, and I want to signal is that we expect market growth to continue to slow as we head out toward 2020. But at the moment, we see nothing to suggest an actual contraction of the market anytime in the foreseeable future.

Here are some other takeaways from the forecast for dealers:

• As you were probably aware before we saw the latest data from AutoQuotes, manufacturers have been more aggressive with price increases in the past year than at any time since the commodities inflation that drove big increases pre-recession in 2007-08. The average price increase was 3.98% and average increases were more than 3% for all 13 product categories of E&S, as AQ details for us. And you can probably expect manufacturers to continue boosting prices more than we’ve become used to. Most of these increases pre-date a strong run-up in prices of carbon steels, aluminum, and in the past few months, nickel and stainless. Whether any of you can actually get the increases, especially from big customers, is another matter, of course.

• Most foodservice segments, other than big chains, continue to post good growth numbers. Same-store sales and customer traffic for big chains have been falling every month since February. By one chain research survey, both have been in negative territory for three consecutive months through July. This is worrisome since chains tend to be the leading indicator for foodservice sales trends. One stock analysts has predicted a “restaurant recession” by the end of the year. But folks who watch stocks often forget that chains are not all of foodservice. The rest of the market—smaller chains and independents on the restaurant side, other retail such as supermarkets and lodging and the classic noncommercial segments—continues to do very well, according to Technomic, the NPD Group and others.

• A big topic at the forecast meeting was the spate of big dealer mergers in June and July this year and the very obvious consolidation occurring in the distribution channel, not just among companies, but within the buying groups. Consolidation also continues to happen at the manufacturer level, but not nearly with so much impact. While big dealers have been growing rapidly through acquisition and organic growth—their growth has been exceeding broad E&S market growth by a factor of two or three times since 2010—the big conglomerates, both public and private, have seen growth rates fall. This is partly because of issues at individual companies, but also because all the biggies have more exposure to the big chains and their current slowdown, and international markets. The jump in the value of the dollar in the past year has hurt exports but more importantly, reduced the value in dollars of sales offshore.

We think most of you can expect another decent year in 2017. Not that this business is ever easy. Good luck and keep your eyes open.

Cheers,

Robin Ashton

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