Heard In The Aisles At NRA
We finished up the National Restaurant Association Show last week. It was a good show. A great show for FER because we have a number of cool new initiatives which our customers found enticing. Attendance was decent—for E&S exhibitors it’s usually slower in a NAFEM Show year as many of the dealers/distributors and consultants were in Orlando—but several exhibitors told us the number of chain buyers they saw and the regional attendance was better than they expected.
But our main topic of discussion with manufacturers was around a question many asked us: Are we seeing a slowing of growth in E&S sales since the beginning of the year? A number of suppliers noted that while sales were lackluster the first three months, the slowing has accelerated in April and so far in May. What is most surprising is that a number of these manufacturers are more spec-market oriented. They say customers just appear hesitant to pull the trigger on pending projects.
We’ve known for some time that E&S sales to large chain customers have slowed. Our quarterly tracking of chain-oriented public companies such as Welbilt, Middleby and Standex have shown that. Big chain same-store sales and traffic trends have been negative since February 2016, according to “snap-shot” tracking services such as Black Box Intelligence and Miller Pulse and the public E&S companies have reported this drag on sales.
But independent full-service operators have been doing better than their chain competitors and as a result, overall restaurant traffic was flat, not negative, for 2016 as a whole, according to NPD Group data. And these independent folks, who rely very much on dealers for capital goods, have helped sustain the NRA’s two capital spending indicators in its Restaurant Performance Index. While the numbers sagged late last year and early in 2017, they never fell below the tipping point between expansion and contraction. And they rebounded in March.
We do now have hard numbers on the first quarter from both the publicly reporting E&S companies and MAFSI. They do register a slowdown in the rate of growth from the fourth quarter, but not a dramatic change from the quarterly growth rates of 2016. Growth of combined revenues of the eight publicly reporting E&S companies was only 0.6% versus the first quarter in 2016, but except for a surge in the fourth quarter, very much in line with most of 2016.
The MAFSI Barometer had rep sales of like lines growing 3.3% versus the same quarter in 2016, slower than the fourth quarter’s 4.4% but not that different than the 3.6% of the third quarter last year. The four-quarter moving average fell to 4.1% from 4.4% in the fourth quarter 2016, but we’ve been expecting a gradual slowing, and that seems reasonable.
But the anecdotal information on a slowdown in sales by spec-oriented suppliers is, frankly, flummoxing. MAFSI tracks quotation and consultant activity. The differentials between those reporting stronger and weaker activity are very positive. They fell a bit in the first quarter MAFSI data from the fourth quarter, but both indicators remain more than 24 points positive. Consultants tell us they are crazy busy. And the spec market is the last mover in the E&S market triumvirate: chains, street, spec. So we just don’t get it and neither do the spec-oriented manufacturers we spoke with.
The macroeconomic factors still seem to favor restaurant and commercial foodservice growth. Several chain-oriented suppliers told us at NRA they are beginning to see signs of life. So we will just have to wait a couple more months to see if the slowdown in E&S market growth, especially in spec markets, is a blip or a trend. As we told you a few weeks ago, “be careful out there.” But honestly, we lean toward the blip.