E&S Sales Growth Rolls Along In 2016

The foodservice equipment and supplies market has experienced quite a remarkable run since 2010. Foodservice Equipment Reports forecasts that the market will achieve its seventh consecutive year of nominal and real growth in 2016, with our current estimate pegged at 4.6% nominal dollar growth and 2.5% real growth, after factoring out price increases. This is very much in line with our estimate for 2015 growth at 4.8% nominal and 2.5% real.

What’s behind this performance, especially given that the U.S. foodservice market is the most mature on the planet and is adding almost no net new units? In a way, that maturity is working to E&S suppliers’ advantage. To survive in this mature environment, operators must keep facilities fresh, constantly innovate their menu offerings and find ways to increase speed of service and labor efficiency. The solution to those needs often is equipment and supplies.

An Improved Operator Environment
Thanks to the drop in gasoline prices and strong employment growth the past two years, operators, especially restaurateurs, are seeing the best traffic and sales environment since the end of the Great Recession. The NPD Group, Port Washington, N.Y., expects overall restaurant traffic to grow 1% in 2015; it’s only the second year traffic has grown since the end of the recession. Even long-beleaguered full-service restaurant operators are benefiting. And these macroeconomic trends are expected to continue into 2016.

In addition, wholesale food prices have gone down about 5% during the past year, boosting margins even as operators contend with rising labor costs. The improved cash flow and margins clearly have translated into capital spending. The Washington, D.C.-based National Restaurant Association’s Restaurant Performance Index indicator, which tracks capital spending in prior-three-month spans, hit record levels in April, May, July and October.

Technomic Inc., Chicago, expects this favorable macroeconomic environment to continue to grow operator sales this year. Technomic’s current forecast for 2016 is for industry-wide sales growth of 4.9% nominal and 2.5% real. This is down slightly from 5.2% nominal in 2015, but up on the real side from 2.3% as menu-price increases are expected to slow.

One arena in which one might expect foodservice and E&S growth to be slowing is global markets outside the U.S. But while several of the big U.S. chains have cut unit growth in some markets—China and Russia particularly—foodservice growth on the consumer side was quite positive through the first half of 2015.

According to the latest publically available traffic data from The NPD Group, seven of the 11 foodservice markets tracked by the company saw customer counts rise in the second quarter. Traffic in China jumped 4% and, with check-average increases, spending increased 7.2%. Only Canada and Russia saw traffic declines in the quarter.

E&S Sales Indicators Very Positive
The improved operator environment has operators buying equipment and supplies at rates that might be termed “moderately robust.” The Business Barometer fielded by the Atlanta-based Manufacturers’ Agents Association for the Foodservice Industry has seen its best three-quarter run since its inception in 2002. Reps report sales increases in 2015 for like lines at 4.7% in the first quarter, 5.1% in the second quarter and 5% in the third quarter. While the Barometer has seen better one-quarter gains, it has never experienced two consecutive quarters when sales increased 5% or better.

The big public equipment-oriented companies also are doing quite well. According to data compiled by our forecasting partner John Muldowney, Principal at Clarity Marketing, Milwaukee, the six publicly reporting equipment companies have seen sales increase 4.2% in the first nine months of 2015. But this more moderate gain is somewhat misleading. Pull out Manitowoc Foodservice, which has been affected by corporate restructuring and a sharp slowdown in purchases from big chain clients such as McDonald’s, and the remaining five companies are up 8.2% in the first nine months.

The real strength of the E&S market is that all three major segments—chains, street and spec—are seeing consistently good growth. The chains, except for a few big QSRs, continue to buy, especially for new menu-rollouts and to increase speed and flexibility. The dealer-oriented “street” market also is doing well as cash-flush operators upgrade facilities and replace equipment. And the consultant spec-oriented segments, from lodging and recreation to schools, colleges and business and industry accounts continue on a renovation-and-replacement binge. Quotation and consultant activity markers in the MAFSI Business Barometer have been very strong throughout 2015.

Given the favorable general economic and operator environments, we at FER see no obvious reason the E&S market won’t be nearly or just as strong in 2016 as it was in 2015.

FER‘s complete 2016 forecast of the E&S market includes detailed data and analysis of general economic factors, operator trends, and materials and E&S pricing, rankings of top E&S manufacturers and distributors, plus hard-number forecasts of E&S market growth for nine categories of equipment and supplies out through 2019.

To purchase the forecast, call the FER office at 800/986-9616, or e-mail Chris Palmer at cpalmer@fermag.com.