The worst is well over for the foodservice equipment and supplies market in North America. The brutal downturn of E&S sales that began three years ago has bottomed out. And while the cumulative decline approaches 20%, Foodservice Equipment Reports forecasts the market will begin to grow moderately in 2011.
It has not been an easy time. Hundreds of people at every level of the industry, from chain development, construction and purchasing to dealer sales and factory workers have lost jobs. Some segments, most notably the spec segments, haven’t even begun to recover yet. And it is unlikely the market in North America will ever reach the levels experienced at its height in ’06 and ’07. But the data clearly chart a slowing rate of decline and show some market segments are growing again.
We at FER predict these positive trends will lead to real growth of 1% this year, with current-dollar growth, including price increases of 2.1%. We also forecast moderate growth, in both real and nominal terms, for the three years following, though ’14.
2010 Was Less Bad Than Expected
Quarter-on-quarter-year-prior sales trends from publicly-traded equipment and supplies companies and the Business Barometer fielded quarterly by the Manufacturers’ Agents Association for the Foodservice Industry indicate the E&S market reached its steepest rate of decline during the second half of ’09. The seven public companies we follow experienced four quarters of double-digit declines in blended sales, hitting bottom at -18.9% during the third quarter of ’09. Since then, sales have rebounded, led by the more chain-oriented companies. Blended sales for the seven leaped into positive territory in the second quarter last year and were on the up side again third quarter.
The MAFSI Barometer shows a similar, if somewhat less volatile, pattern. The reps reported sales of like-lines declined 12.8% in both the second and fourth quarters of ’09. But the declines moderated through last year, falling just 1.5% overall in the third quarter.
And there were bright spots: Sales actually were up 1.6% in the South, the first gain there in more than two years. And Canada, which has consistently outperformed regions in the U.S., once again posted positive sales. Rep Michael Posternak of New York’s PBAC & Associates, who analyzes the data for MAFSI, at press time expected the Barometer would go positive in fourth-quarter ’10 or this year’s first quarter.
The upward trend, particularly from mid-’10 onward, was stronger than we expected. For this reason, we’ve revised upward our estimate for the E&S market to -2.4% real, from our original -5% forecast.
Upward Pressure On Materials, E&S Prices
While sales are beginning to rebound, so are materials prices and, thus, E&S prices. Most metals widely used in foodservice E&S products have seen price increases in the 25% to 35% range since they bottomed out in late spring ’09.
Many stainless-steel grades, including the heavily nickel-based 304 preferred by many users, are averaging in the range of $3600 to $4000 a ton, about midway between its high in ’08 of $5600-plus and its low in ’09 of $2200. Carbon steels also have moved higher, as have aluminum and copper. And beyond metals, other prices are rising too. Plastics, motors, other components, packaging and healthcare costs, among others, are all pressuring E&S manufacturers.
And the pressure is likely to increase, according to most forecasters of commodities prices. “The North American metals marketplace is changing in fundamental ways with a combination of improved demand from some capital-goods manufacturing sectors, slightly reduced domestic supply and higher costs for raw materials,” says Tom Stundza, senior purchasing analyst at IHS Global Insight, FER.
He figures overall steel prices will increase about 20% in ’11. But he points out the increases will tend to be erratic because of inconsistent growth in demand in key markets, among other factors.
All of which means operators are already seeing list-price increases. A number of major manufacturers have told FER they intend to ask for moderate increases in the first quarter. The question will be how much buyers push back, given a still very soft market.
Up Is Better Than Down
While the changes of the past three years have been painful and wrenching for the E&S market, the outlook for the next three to four years is moderately positive. The North American market is already recovering, and even the dealer-based street market is now starting to move higher. Spec markets, too, are expected to revive within the next six to 12 months. International markets are promising too, especially in Asia, eastern Europe and the Middle East. The industry has weathered the storm. It’s time for consistent rowing forward.
FER‘s complete 2011 forecast of the E&S market includes detailed data and analysis of general economic factors, operator trends, and materials and E&S pricing, plus hard-number forecasts of E&S market growth for nine categories of equipment and supplies, as well as the market as a whole. To purchase the forecast, call the FER office at 800/986-9616, or e-mail Chris Palmer at email@example.com.
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