Presentation Transcript

1. The 2014 FERE&S Forecast AndMarket Overview

   By Robin Ashton, Publisher Foodservice Equipment Reports Nov. 14, 2013 Embassy Suites Hotel Denver
2. Forecast Overview Recovery from Great Recession now in third year for operators, fourth year for equipment and supplies market. Base and cap-ex markets slowed beginning mid-2012. Growth this year has been slower than last. But macroeconomic drivers of foodservice look to be substantially more positive for next year. Need to renovate and replace continues to drive E&S. State and local tax receipts have also improved, leading, finally, to gradual revival of publicly-funded segments. We expect a better year for E&S market in 2014.
3. The U.S. Foodservice Market The U.S. foodservice market is huge, diverseand extremely dynamic. Chicago-based research firm Technomic Inc. estimates U.S. market at end-user level at $685 billion in 2013. Technomic details 20 separate foodservice “segments.” There are more than 1.3 million foodservice kitchens in the U.S. Fewer than half are restaurants. Canadian foodservice market is C$75 billion with 164,000 units and contact points. The U.S. and Canadian markets are highly “chained.”
4. U.S. Foodservice Market By Segment
5. U.S. Restaurant Counts, NPD
6. Other Segment Unit Counts SegmentNo. of Units* Retail 196,175 Lodging/Leisure 87,039 Healthcare 81,924 Other 48,687 Education 21,168 Business 9,900 *“Contact points” undercounts actual kitchens. Source: Technomic, Inc.
7. Top 500 Chains Share of Market
8. Top 500 Chains Share of Market
9. The share of chain vs. independent restaurants varies around the world Big Markets, Low Growth Share of Visits *CREST Russia Pilot Database. Fielded during 2 weeks in Oct. 2010 Source: The NPD Group/ CREST Japan Population based on Tokyo/Osaka areas only Year ending June 2011 except Canada (Year Ending May 2011)
10. After 60 years of almost uninterrupted growth, foodservice market crashed during Great Recession. Real operator sales fell 10.3% during 2008-10 period, but sales have been positive since 2011. Technomic estimates 2012 operator sales grew1.7% real, 4.7% nominal, by far best year since 06. NPD says traffic rose 1% in 12, first gain since 07. But per capita visits still fell as population grew. Three research groups forecast a slower 2013, and history to date has proven them on track. Operator Sales Recent History
11. Reasons: Payroll tax increase, government budget cuts add to already slow income and spending growth. Unfavorable weather first quarter vs. 12 also factor. In August, Technomic lowered 13 estimate to 3% nominal, but raised to 1% real. Lower menu inflation. NPD forecasted a flat year for traffic and 1Q and preliminary 3Q indeed flat. But 2Q was better for both operator sales and traffic. NPD traffic rose slightly 2Q. October government shutdown depressed consumer and business confidence yet again, so we’ll see impact. Operator 2013 Forecasts
12. Operator Sales Slowing In 2013 Technomic Real Growth Change vs. Previous Year Source: Technomic
13. NPD Per Capita Visits: 1984-2012 Promise & Challenge Annual Commercial Foodservice Meals Per Person In the USA Source: The NPD Group/ 26th Annual Eating Patterns of America
14. Operator Unit Growth Trends While Great Foodservice Recession was very stressful, not many restaurants closed, net. Chains kept adding units right through the recession; independents lost units. Beginning in 12, unit growth has picked up again. Both NPD and Technomic have revised restaurant counts higher, from 2010 U.S. retail census. About 5% to 8% of restaurants churn each year.
15. NPD ReCount Unit Changes, 2009-11
16. Operator Unit Trends, NPD ReCount
17. Operator Unit Trends, NPD ReCount
18. Operator Unit Trends, Top 500 Chains
19. General Economic Trends While the short-term may seem squishy, income and spending growth expected to accelerate in 2014. Consumer confidence has fallen for three months. But retail sales have not fallen. Employment growth in October surprised everyone. BLS also revised growth up 60K for July and Aug. And gasoline prices have been falling, helping fuel consumer spending.
20. Real Disposable Personal Income 2005-2014
21. Real Personal Consumption Spending 2005-2014
22. Non-Farm Payroll Employment 2011-13
23. Consumer Sentiment 2007-Oct.13
24. AAA Average Gasoline Prices2012-13, Through 11/09/13
25. AAA Retail Gasoline PricesBy State, 11/09/13
26. Current Sales & Traffic Trends Data from Technomic, NPD and NRA show slowdown began to appear second half of 2012. Technomic chain same-store sales, positive since mid 10, peaked 1Q and 2Q/12, thanks in part to the mild winter. They then trended down , with bottom to date 1Q/13. QSR traffic went flat 1Q/13 after five quarters of gains. But NPD traffic in 2Q moved slightly positive, a surprise. Casual dining traffic not negative for first time in years! NPD says 3Q traffic flat again, but same-store sales numbers trending towards positive.
27. NRA Restaurant Performance IndexSeptember 2013
28. NRA Restaurant Performance IndexSeptember 2013
29. Technomic Same-Store Sales Index Weighted Avg. Change, Excluding McDonald’s
30. NPD Traffic By Segment
31. “Beyond Restaurants” Operator Trends “Spec” market segments are finally returning to relative health, but access to capital funds remains a problem. Technomic forecasts real growth for every “Beyond Restaurants” segment save transport. and nursing homes. NPD CREST Onsite has most noncommercial segments and lodging seeing increased traffic. Consultants are seeing more activity from most segments. State and local tax receipt trends are improving, though could be driven by moving income forward.
32. U.S. Hotel Occupancy Rate Trends
33. State & Local Tax Trends,Four-Quarter Moving Average
34. Lower than expected food price increases have allowed operators to maintain margins. Beef prices are nearly 7% lower for last 12 months. In fact, Technomic in August cut its forecast of menu-price inflation for 13 from 3% to 2%. Wholesale food price fell 0.5% in September. Menu price increases have outpaced grocery-store price increases for more than a year. But increases are still moderate, 1.9% for last 12 months, so differential not much of a factor. Operator Cost & Profit Trends—Food
35. Wholesale Food Prices, 1999-2013
36. Menu & Grocery Price Trends
37. The big cost concern for many operators remains the healthcare law, the Affordable Care Act. NRA and chain groups fought hard to delay implementation of employer mandate. Applies to companies with 50 or more employees. Treasury Dept. did issue a one-year delay late June. It’s widely reported that many also restricted part-time staff to fewer than 30 hours, the full-time hurdle. Very likely operators will maintain these strategies until significant change in the law. But that is very unlikely anytime soon in divided Washington. Operator Profit & Cost Trends—Healthcare
38. Very few minimum-wage increases this year. Concern about drive for unionizing quick-service workers under “living wage” banner. Mostly affecting operators in large cities. Real-estate costs have been very favorable coming out of the real-estate bust. But advantage for operators is beginning to change. Some operators report it’s becoming difficult to find good end-caps and other sites and lease rates rising. Operator Profit Trends
39. Big news in this year’s Technomic Top 500: Big chains grew slower than independents. First year that has happened in recent memory. This especially true in full service, which is still dominated by independents. Total restaurant industry grew sales 5.2% in 2012 versus Technomic Top 500 chains 4.9%. Even in big-chain dominated LSR, industry led Top 500 with 5.8% sales gain to 5.6% for Top 500. Operator Segment Trends
40. In full service, industry sales up 4.5% versus 2.9% sales gain for Top 500 full-service chains. Both Top 500 and industry grew units by 2%. But industry LSR units grew 2.5% versus 2.2% unit gain for Top 500 chains. In full service, industry increased units by 1.4%, Top 500 FSR chains only 0.7% In 11, Top 500 controlled 58.4% of sales and 40.8% of units. These numbers have been revised. Operator Segment Trends
41. Chain & Segment Trends
42. In addition to renewed moderate unit expansion, many chains and independents continue remodeling. The redos drive significant same-store sales gains and many units still not refreshed since recession. Big mature QSR chains still catching up with McD’s. And as we saw earlier, there continues to be strong interest in international expansion. Market witnessing spate of mergers & acquisitions. And several chains have floated successful IPOs, including Noodles & Co. Operator Segment Trends
43. Restaurant operator spending on equipment and supplies is back to pre-recession levels. Many chains have been spending for renovation and replacement for more than two years. Improved sales have helped smaller and independent operators start to spend for E&S too. And spec markets are, as we’ve said, reviving. In spite of loss of operator confidence in September, capital spending measures rebounded. Operator Capital Expenditure Outlook
44. NRA Index of OperatorsMaking Capital Expenditure PurchasePast Three Months, 09/2013
45. NRA Index of OperatorsPlanning Capital Expenditure PurchaseNext Six Months, 09/2013
46. The Great Foodservice Recession wasn’t the only hard time the market has faced. It fact, it wasn’t the worst. The worst previous E&S downturns were 1980-82, off about 25%, and 90-91, down 12-15%. Real growth in late 90s averaged 3-4% annually. This boom period followed by downturn 00-03, aggravated by 9/11. Market declined 7-9% real overall. E&S expansion began late 03, averaged 2+% real growth through 07. Peak: second half 06. E&S growth staggered into 08. Then the market crashed. Some E&S Market History
47. The E&S Market—2001-2014 Real and nominal percentage changes in E&S market growth 2001-2014. 2013 and 2014 numbers are forecasts. All numbers FER estimates.
48. The E&S Market—2008-2010 To recap E&S market during the three years of the recession: Year Nominal Prices Real Growth Growth 2008 -2.6% 1.5% -4.1% 2009 -13.8% -2.3% -11.5% 2010 1.4% 0.2% 1.2% So recession had E&S market down 16.4% nominal and 15.6% real, before growth returned in 10.
49. The foodservice equipment and supplies market is in the fourth year of recovery from the recession. Recovery began 2Q/10 (public companies) to 4Q/10 (MAFSI Business Barometer, reflecting broader market.) But the market’s rate of growth has slowed appreciably since 1Q/12, and slowed again 1Q/13. For 2012, seven public E&S companies managed only 2.2% revenue growth; equipment only 1.9%! Top 100 manufacturers did better than big conglomerates. MAFSI four-quarter average 2012 3.9%, vs. 4.7% in 11. And MAFSI four-quarter average fell to 3.5% in 1Q/13. E&S Market & Forecast Overview
50. Top 100 Mfrs., Change vs. Prior Year
51. The E&S Market—2013 Very slow start for the first quarter of the year. The uncertainty around the fiscal and tax standoff hurt both late 2012 and first half 13 chain spending. This was compounded by early year gas-price run-ups and a payroll-tax increase that undercut operator sales. MAFSI Barometer had smallest gain since recovery, up only 2.4%. Equipment was up only 2.3%. Publics managed only 1.8% gain, as equipment was up meager 2.7% and supplies were 3.2% negative.
52. The E&S Market—2013 But 2Q E&S sales rebounded sharply. Public equipment cos. grew sales 4.5%. Two supplies companies were up nearly a point. MAFSI 2Q Barometer had record 6.1% gain. And reps forecast strong 3Q at 6% sales growth. Stronger trend appears to be continuing into 3Q. Five public equipment companies reported 4.8% gain. Supplies companies posted a decline, but supplies trend may be skewed by Libbey and Carlisle structural issues.
53. MAFSI Barometer History, 2Q/13
54. Public E&S Company Blended Sales, Quarterly % Changes Vs. Year Prior
55. MAFSI Barometer—2Q/13
56. Nom. Real $$$ Growth Growth Millions Total Equipment 3.2% 1.4% $7,915 Total Supplies 3.9 1.8 $1,688 Total Industry 3.3 1.5 $9,603 Rounding affects totals FER E&S Market Forecast—2013(Base market numbers, NAFEM, 2011)
57. Nom. Real $$$ Growth Growth Millions Primary Cooking 3.3% 1.4% $1,945 Refrigeration & Ice 3.7 1.7 $2,203 Storage & Handling 2.1 1.1 $ 672 Serving Equipment 3.0 1.4 $1,221 FER E&S Forecast—2013
58. Nom. Real $$$ Growth Growth Millions Prep. Equipment 3.0% 1.6% $ 420 Warewash & Ventil. 3.1 1.3 $ 840 Furn. & Custom Fab. 2.7 1.0 $ 614 Smallwares 3.9 2.0 $ 624 Tabletop & Serv. 3.9 1.7 $1,112 FER E&S Forecast—2013
59. Without political dysfunction and brinkmanship in Congress, we’d be confidently predicting good 2014. Consumer and operator confidence are at post-recession highs, as are operator capital-spending intentions. The spec markets, a third to 40% of total E&S market, beginning finally to recover as tax receipts slowly build. All the macroeconomic forecasts are much better. Still plenty of headwinds in Europe and Asia, but U.S. and other global chains continue unit building race. We forecast, expecting Washington nonsense, a better 14. Consumers and businesses likely to just ignore the circus and worry about their personal economies. FER E&S Forecast—2014
60. Nom. Prices Real Growth Growth Total Equipment 4.0% 2.0% 2.0% Total Supplies 4.5 2.4 2.1 Total Industry 4.1 2.0 2.1 Rounding affects totals FER E&S Forecast—2014
61. Nom. Prices Real Growth Growth Primary Cooking 4.4% 2.2% 2.2% Refrigeration & Ice 4.3 2.1 2.2 Storage & Handling 3.3 1.5 1.8 Serving Equipment 3.8 1.8 2.0 FER E&S Forecast—2014
62. Nom. Prices Real Growth Growth Prep. Equipment 3.6% 1.6% 2.0% Warewash & Ventil. 4.0 2.0 2.0 Furn. & Custom Fab. 3.0 1.7 1.3 Smallwares 4.5 2.3 2.2 Tabletop & Serv. 4.5 2.4 2.1 FER E&S Forecast—2014
63. The E&S Market—2010-2014 Real and nominal percentage changes in E&S market growth 2001-2014. 2013 and 2014 numbers are forecasts. All numbers FER estimates.
64. We’re actually quite optimistic about the E&S market, next year and over the next five to 10 years. Mature U.S. market will remain driven by the four “R”s: renovation, replacement, (menu) roll-outs and repair. There’s a huge need for refreshing and re-equipping hundreds of thousand of existing units and facilities. Add to that the race to build units everywhere worldwide. U.S. chain brands (and their suppliers) are ever more dominant in the global race. Expect to see a flurry of consolidation through all levels and channels. And remember, it’s a very dynamic market. The FER E&S Forecast—2014Final Thoughts
65. Growth of the E&S market should accelerate slightly over the period, as operators renovate and re-equip. We also expect prices to rise, but moderately. Our forecast is for real growth to peak at 2.3% in 15, then fall slightly to 2.2% in 16 and 2% in 17 Lots will happen between now and then. We continue to see foodservice E&S as a very dynamic market with great opportunities. Have as much fun and do as much good as you can. FER E&S Forecast—2015-2017
66. FER E&S Market ForecastEstimates & Forecasts, 2001-2017 Real and nominal percentage changes in E&S market growth 2001-2017. 2013 through 2017 numbers are forecasts. All numbers FER estimates.
67. FER E&S Market Forecasts2013-2017 Real and nominal percentage changes in E&S market growth 2013-2017. All numbers are FER forecasts.
68. The Top U.S.Equipment & SuppliesDealers 2012
69. Top Dealers—Overview & Trends Another very impressive year for leading U.S. dealers. In the third year of FER’s Top Dealer Report, 46 dealers had 2012 sales of $4.396 billion, up 11.4% Data verified by CPA or independent acct.’s signature. In 2011, 44 posted $3.866 billion in sales, up 10.3%. In our first year, based on 2010 sales, 31 reporting dealers were up only 1.4% and only 16 had increases. Of the 46 dealers, only six were down and one was flat. (We realize those with declines less likely to report.) No Top 30 Dealer was negative; all but one grew.
70. Top Dealers—Overview & Trends 100 FE&S Dealer Giants grew 2012 sales a similar 11.2%, to $5.94 billion. Volume of dealers with $20 million+ in sales who reported, but did not verify or which we estimate, had volume of $1.334 billion and were up est. 5.8%. Biggest dealers not verifying: Duray/Baring, Concept Services, QualServ, Instawares, East Bay. Dealers of all orientations showed increases; many spec-oriented/bid dealers finally recovered, some dramatically.
71. Top Dealers—Overview & Trends First 15 dealers increased sales the same 11.4% as the combined 46 Top Dealers. Clark up an amazing 50.5%! But the second 15 outpaced the group, up 15.1% driven by Internet dealers Ka-Tom and Tundra, bid house Johnson-Lancaster, Alack Refrigeration and Sam Tell. Final 16 were up 3.6% and included all six (brave) Top Dealers that saw sales fall in 2012. Half the Top Dealers, 23, had double-digit gains in 2012. For complete analysis of FER Top Dealers, see www.fermag.com/media-library/research.html.
72. FE&S Top 100: Buying Group Share, 2011
73. All but 1 dealer in NexGen and IFED are ABC affiliates ABC Group, $2,266
74. FE&S Top 100 Dealers: $5.4B Total E&S Market: $9.3B Share: 58%
75. $7.1B Market Power $1.6B $600MM
76. Consolidation, Other Issues Dealer merger and acquisition activity has been quite robust in the past two years. Private equity still very active in the space. But market seeing significant strategic buying, as smaller, more established dealers sell to larger cos. While the big get bigger (TriMark/Strategic), lot of up and comers and mid-tier growth. The spec-oriented dealers finally seem to be coming back after very tough five years (Duray, J-L, etc.).
77. Consolidation, Other Issues Deals in10: AllPoints bought Tundra Specialties; AllPoints moved to KRG Capital; Duray/J.F. Duncan Inds. bought Baring from Electrolux Prof. N.A. Deals in 11: Hockenbergs bought Global KES from Sub-Technologies; Tundra picked up Centex Supply; Singer Equipment acquired assets of M. Tucker; LoneStar Restaurant Supply bought CPAPC Restaurant Design & Supply. And because they are a form of distributor, The Jordan Co. bought Heritage Food Service Equipment.
78. Consolidation, Other Issues Deals in 12: Premium Supply bought Tassone Equipment; Alliance Paper & Foodservice bought Schweppe; Gordon Food Service bought United Restaurant Supply (Toronto) and Perkins; The United Foodservice Purchasing Co-Op (Yum!), Franke Foodservice and Wasserstrom bought different parts of PrimeSource Foodservice Equipment; Direct South merged with Citisco Food Service Equipment; Tundra (KRG Capital) bought Superior Comm. Kitchens; H. Weiss bought BRC Comm. Kitchens…
79. Consolidation, Other Issues Deals in 12 (cont.): TriMark USA bought Century Concepts and Federighi Design; Mission Restaurant Supply bought Metroplex Rest. Equip.; Chef’s Toys bought Star Restaurant E&S; Kittredge Equip. bought Northeast Food Service E&S. Dealers so far in 13: Hillcrest Capital invested in Premier Rest. Equip.; TriMark USA bought Strategic Equipment & Supply. On parts and service side, Heritage Food Service Group bought R.G. Henderson & Sons in Canada.
80. 2013 Dealer Outlook Anecdotally, most dealers are having a decent 13. But there has been some slowing at the chain capital-spending level first half, given market uncertainties. Still plenty of pent-up demand for renovation and replacement at the chain level. Independents and small chains, especially in casual dining, have become quite active, helping many dealers. Spec and bid markets are gradually coming to life. Internet having a very significant impact, both from pure Internet plays and traditional dealerships.
81. Thank you. For further information on the foodservice equipment and supplies market, and/or to purchase the full FER Annual E&S Market Forecast, contact Robin Ashton at rashton@fermag.com, or Christine Palmer at cpalmer@fermag.com. 800-986-9616 For electronic copy of this presentation, e-mail Robin.