Forecast 2011: Operators Begin To See Positive Trends

Happily, some good news: The foodservice market in the United States is, finally, beginning to recover from its worst downturn in more than half a century. But for the moment, the emphasis is on “beginning.”

Three years of declining real sales—a downturn that has sucked more than $60 billion out of the market—may be followed by a fourth this coming year. In its initial 2011forecast, released this past September, Technomic Inc. projected another slight 0.3% decline in real sales in ’11. Many noncommercial segments are expected to grow, and limited-service, the largest single segment, is forecast flat. The problem is the still struggling full-service commercial segment, which Technomic predicts will see another 1% real sales decline. And there are concerns about food and other commodity prices, the cost of healthcare changes and other challenges on the horizon.

Still, a number of markers are not just pointing up, but have passed into positive territory. If the upward trends continue, many operators will experience in ’11 their first year of growth since ’07.

Sales, Traffic Nose Into The Light

The past three years have taught everyone connected with foodservice some very hard lessons. We’ve all learned that when household wealth plummets and millions of Americans lose their jobs, people don’t eat out as often or spend as much when they do. We’ve learned new-unit construction is closely tied to housing growth and development, just like any other retail sector. And we’ve also discovered even noncommercial operators can be affected by economic downturns as tax receipts fall and federal, state and local governments’ fiscal conditions erode.

But as the charts and tables in this section clearly show, the worst is certainly over. Commercial operator markets hit their steepest contractions during the first half of ’09, and since then the slowdowns have been milder. The National Restaurant Association’s Restaurant Performance Index briefly peaked above the 100 level that separates expansion from contraction in March and April last year, before falling back again as sales softened during the summer.

But the RPI moved back across the line into growth territory for both September and October. The 100.7 reading in October was the best since September ’07. The four-component Current Situation Index hit 100 in October for the first time since August ’07, as well.

Two other key indicators—Technomic’s chain Same-Store Sales Index  and The NPD Group’s tracking of commercial operator traffic through consumer panels—also moved into positive territory midyear last year.

Unit Growth Sluggish Or Non-Existent

One traditional source of growth in  U.S. foodservice that is not contributing these days is new-unit development. While a few larger and some smaller fast-growing chains have continued to add units in the U.S. market, net commercial units have actually fallen during the past two years, according to NPD’s ReCount census.

Still, NPD reports the net decline is only about 8,000 to 10,000 during that period, which works out to just only a couple percentage points out of the 579,416 total units NPD counts. That doesn’t mean many thousands more haven’t closed, just that openings made up the difference. Of course, this also means almost as many seats are chasing a smaller customer base.

On the noncommercial side, there is still major renovation activity in baby-boom driven segments, even in the downturn. Many schools, colleges and hospitals were built in the period from the 1950s through’70s, for example. Such segments have been on a renovation binge for more than a decade, and because of the way their capital improvements are funded, they’ve been able to continue moving forward.

The prevailing dynamics will remain in place over the next few years for both noncommercial and commercial segments. On the commercial side, the tight domestic conditions will continue to spur chains to focus on offshore growth.

It All Comes Down To Employment

The long view? We’re not likely to ever again see the rapid overall growth we saw in the U.S. market during the past 60 years—it’s too big and too mature.  The shorter view? For the next few years in particular, foodservice growth will be moderate, or maybe modest is a better word, especially on the commercial side.

It all comes to jobs and income. The macroeconomists say it will take years for both to recover. The latest consensus forecasts from Blue Chip Economic Indicators has unemployment remaining above 7% until ’15. The economists don’t expect real personal income or consumer spending growth to reach 3% anytime soon.

As Joe Pawlak, v.p, at Technomic put it, while “it appears we are off the bottom, the issue is the bounce up is not what we’d like to see. It will take a long time to return to ’07 levels in terms of foodservice real sales.”

Hudson Riehle, who as senior v.p. of the Research and Knowledge Group at NRA oversees the association’s annual forecast, told FER almost exactly the same thing: “The operating environment for the restaurant industry will improve in ’11, and the positive developments we’re currently seeing will continue. Next year will be better than the last couple years, but growth will not be as robust as before the economic downturn.”

So, expect foodservice to recover slowly from the worst recession ever in modern times.


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