E&S Market Update: Fourth Quarter Rebound

We often get asked about the track record of our equipment and supplies market forecasts. Honestly, John Muldowney, our forecasting partner, and I are usually pretty close, unless something unexpected happens. A couple years ago the market did better than we forecasted because gasoline and other energy prices dropped precipitously. No one expected that and it’s a big driver of foodservice sales.

During the past several weeks, we’ve received final market data on the fourth quarter and, we’re happy to report, the market experienced a bit of a rebound over a weak third quarter. John, who is Principal at Clarity Marketing, sent us his recap of 4Q/2016 public company results and as a group, the eight companies we follow posted the best quarter of growth in more than two years—a 6.2% gain. The six equipment-oriented companies saw combined sales rise 6.5% for the quarter versus the same quarter ’15.

But for ’16 as a whole, the eight companies managed combined growth of only 2.2% as woes among their big chain clients and the strong dollar’s effect on currency exchange of their international sales depressed revenues.

The Business Barometer maintained by the Manufacturers’ Agents Association for the Foodservice Industry also rebounded 4Q/16 versus 4Q/15, with the reps reporting an average 4.4% sales gain. Growth had sagged to 3.6% 3Q/16 after averaging 4.9% growth for the six prior quarters. Thanks to the weak 3Q, average growth for the four quarters of ’16 was 4.4% for the Barometer.

John and I chatted about our forecasts for ’16 and ’17 last week. We haven’t settled on a number yet, but we do know that we will revise and lower our estimate for ’16, settling somewhere in the 4.2% to 4.4% range. The MAFSI Barometer captures the U.S. and Canadian sales of the eight publicly reporting companies. And while our forecasts are based on market numbers from NAFEM’s “Size & Shape of the Industry,” which do include imports, the publics have factories offshore that are not captured in the numbers. So our estimate will be closer to MAFSI’s ’16 average.

We’ll come up with a final number when we revise the complete forecast including that for ’17 and beyond. We decided we don’t have any information that leads us to doubt our current ’17 forecast of 4.1% E&S market growth in current dollars and 1.8% real growth. The macroeconomic factors are still positive. Both Technomic Inc. and the National Restaurant Association are forecasting operator sales growth of more than 4% this year. And while the capital spending indicators in the NRA’s Restaurant Performance Index have trended downward the past two months, it’s too early to call it a trend. On the other hand, restaurant traffic and same-store sales are running negative for January and February. We’ll look again after we see first quarter E&S numbers.

One thing you all can expect is higher prices for equipment and supplies. Metals and plastic resin prices are running between 10% and 50% higher than at this time last year. Manufacturers are almost certain to be more aggressive with price increases this year.