The Foodservice Equipment & Supplies Market: 2018 … · 6 Foodservice Equipment Reports ©2018 11...

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1 Foodservice Equipment Reports ©2018 1 The Foodservice Equipment & Supplies Market: 2018 FER Forecast Update By Robin Ashton, Publisher Foodservice Equipment Reports Feb. 21-22, 2018 Annual California Utilities Forecast Tour San Ramon and Irwindale, Calif. Foodservice Equipment Reports ©2018 FER E&S Market Forecast Update In the following update, we’ll present our revised FER annual E&S market forecast for 2018 and beyond. We’ll take a look at the latest macroeconomic indicators, and their potential impact on the foodservice and E&S markets. We’ll do a fairly deep dive on operator sales and unit trends. Lots going on, some of it positive, after a slow period. We’ll follow with a brief look at materials price trends, which are rising, and AutoQuotes data on E&S prices changes. Then we’ll present our revised forecast for E&S sales.

Transcript of The Foodservice Equipment & Supplies Market: 2018 … · 6 Foodservice Equipment Reports ©2018 11...

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Foodservice Equipment Reports ©20181

The FoodserviceEquipment & Supplies Market:

2018 FER Forecast Update

By Robin Ashton, PublisherFoodservice Equipment Reports

Feb. 21-22, 2018Annual California Utilities Forecast Tour

San Ramon and Irwindale, Calif.

Foodservice Equipment Reports ©2018

FER E&S Market Forecast Update

• In the following update, we’ll present our revised FER annual E&S market forecast for 2018 and beyond.

• We’ll take a look at the latest macroeconomic indicators, and their potential impact on the foodservice and E&S markets.

• We’ll do a fairly deep dive on operator sales and unit trends. Lots going on, some of it positive, after a slow period.

• We’ll follow with a brief look at materials price trends, which are rising, and AutoQuotes data on E&S prices changes.

• Then we’ll present our revised forecast for E&S sales.

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Foodservice Equipment Reports ©2018 3

General Economy Overview• Most of the macroeconomic factors that drive commercial foodservice sales

are quite positive and are mostly forecast to improve in 18 but slow in 19.• The macro forecasts below are from Blue Chip Economic Indicators. • After the disruptions of hurricane season, employment growth rebounded in

Oct. & Nov. sagged in Dec., then accelerated again in Jan. • Wage growth has finally begun to rise that past two months, up 2.9%.• Disposable personal income growth deteriorated in 2017, in part because of

the storms, but is forecast to improve in 2018. • Consumer spending remains moderately strong, forecast at 2.8% real in 18.• Consumer confidence is running at high levels, but remains split• Gasoline prices remain historically low, but have ticked up in recent weeks.

Crude oil prices are on the rise, a worrisome sign.

Foodservice Equipment Reports ©2018

Real U.S. GDP 2009-2019

-3.1

2.51.6

2.21.7

2.6 2.9

1.52.3

2.82.4

-4

-3

-2

-1

0

1

2

3

4

2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Real GDP

3

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Real Disposable Personal Income2009-2019

-2.8

1.1

2.53.2

-1.4

3.64.2

1.4 1.2

2.6 2.7

-4-3-2-1012345

2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Real DPE

Real DPE

Foodservice Equipment Reports ©2018

Real Personal Consumption Spending2009-2019

-1.9

2 2.31.5 1.5

2.93.6

2.7 2.7 2.82.3

-3

-2

-1

0

1

2

3

4

2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Real PCE

4

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General Economic Environment:Jobs & Employment

• Average monthly U.S. jobs growth has remained surprisingly strong through 2017, averaging175,500 new jobs a month, better than economists expected.

• This compares to average monthly growth of 187,667 in 2016.• After a hit from hurricanes in September, jobs growth rebounded to 211,000 in

October and 252,000 in November.• The unemployment rate fell to 4.1% in Oct. and has remained there, matching

lowest rate since 2000.• Unemployment rate fell to 4.3% in California in Dec., lowest in 42 years.• Wage growth finally ticked up in Dec. and Jan., up 2.9% for past 12 months.

Gain spooked the stock markets with inflation worries.• Blue Chip economists have been expecting jobs growth to slow for more than a

year, as the economy has essentially reached full employment. But…

Foodservice Equipment Reports ©2018

Non-Farm Payroll Employment 2016-18

8

5

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General Economic Environment:Consumer Mood

• Consumer confidence has been running at its highest levels since 2000, according to both the U. Michigan’s Surveys of Consumers and The Conference Board.

• The UM Consumer Sentiment Index hit a cyclical high in October, declined slightly Nov. through Jan., but shot up again in mid-Feb. reading.

• The Conference Board’s Consumer Confidence Index hit a 17-year high in Nov., fell a bit in Dec. but rose again in Jan.

• There remains an income and political split with Democrats and lower-income households much less optimistic,

• Still, most of those surveyed expect job growth to continue and their personal finances to improve and stock market gyrations have had little effect to date.

• UM expects consumer spending to increase 2.9% real this year, higher than the the Blue Chip consensus forecast.

Foodservice Equipment Reports ©2018

Univ. of Mich. Consumer Sentiment 2007-Mid-Feb. 2018

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Gasoline & Energy Price Trends• Gasoline prices fell sharply following the run-up caused by the hurricanes

impact on production in September.• But that changed after the New Year with price of regular gallon rising more

than 30 cents through Feb. 5 to more than $2.61 a gallon regular.• Prices have fallen eight cents since, though decline may be short-lived.• Prices are now running 25 cents higher than 2017 and are at highest prices to

open a year since 2014.• Things are worse in Calif. per usual. Prices stood at $3.33 2-20, up only 15

cents from month ago but 43 cents vs. year ago. • OPEC’s attempts to limit production, and increased demand, have led to an

increase in crude prices. • But Americans continue to increase production, undercutting OPEC.• This leads EIA and AAA to forecast a continuation of moderate energy prices

well into 2018.

Foodservice Equipment Reports ©2018

AAA Retail Gasoline PricesAverages 2014-2017

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Foodservice Equipment Reports ©2018

AAA Retail Gasoline PricesAverages 2015-2018

Foodservice Equipment Reports ©2018

EIA Gasoline & Crude Oil Price Trends & Forecasts

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Crude Oil Price Trends, NYMEX WTI

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Tax & Labor Policy Issues• The recently passed Federal tax legislation has three provisions that could

influence foodservice sales and growth rates.• On the plus side, the law allows immediate expensing of capital expenditures,

instead of amortizing over decades.• Could lead to operators increasing capital spending.• Also a plus, maybe: The law cuts business tax rates substantially, including for

LLC and other “pass-throughs.” • On negative side: the law eliminates 50% deduction for business

entertainment. Will probably hurt fine dining, golf and other clubs.• On the labor side, DOL is considering rule change that would allow operators,

etc. to pool tips, but with no provision they distribute them.

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Operator Sales & Traffic Recent History• Commercial operator fortunes have moderately improved since summer.• NPD reported 3Q/17 traffic rose 1%, the first increase in six quarters.• Most growth was at the big quick-service and coffee chains, though traffic at

other QSRs improved to flat in the quarter.• Fast-casual concepts continue to see sales slide 3Q with 8 of 11 chains

reporting same-store sales declines, according to Technomic. • But NPD reported 8% traffic gains for segment 3Q.• Traffic and same-store sales declines continued at full-service concepts.• Noncommercial markets still show relative strength.• In mid-January, Technomic lowered its 2018 forecast to 3.6% nominal and

1.2% in May, both down 0.2 point. All the change is in restaurant segments.• Per capita visits continue to fall with flat traffic growth, growing population.

Foodservice Equipment Reports ©2018

Technomic Operator Sales Changes

4

5.8 6 5.76.8

-3.9 -3.7

0.6

2.4

43.1 3.1

5.14.1 3.7 3.6

2.4 2.3 2.8 2.6 3

0.4

-6.9

-0.60.1

1.91.1 0.7

2.31.6 1.4 1.2

-8

-6

-4

-2

0

2

4

6

8Nom. Sales Real Sales

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Foodservice Equipment Reports ©2018

NPD Per Capita Visits: 1984-2017

167171

174177

181 180 179 181 182 183187

192 193196

202205

208 210 208204 205 205

207 208 208206

197 195 194 192 191 190 189 188

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: The NPD Group/Annual Eating Patterns of America

Annual Commercial Foodservice Meals Per Person In the USA

Promise & Challenge

Foodservice Equipment Reports ©2018

Recent Sales & Traffic Trends• After strong 2015, data from Technomic, NPD and NRA tracked a consistent

decline in sales and in most cases traffic since early 2016.• Until recently, big chain traffic has been consistently negative. Even QSR,

where all the traffic growth has been post-recession, was flat to down. • Full service continues to be particularly affected, both midscale and casual. • Fast-casual numbers were hurt by Chipotle’s dramatic problems, but

overbuilding also has affected same-store sales growth.• But some big chains saw an uptick in 3Q, led by McDonald’s.• NPD overall traffic went positive 3Q. Black Box shows improvement through

Dec. with surprise: casual, family and fast casual segments all positive 4Q.

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Foodservice Equipment Reports ©2018The NPD Group, Inc. | Proprietary and ConfidentialThe NPD Group, Inc. | Proprietary and Confidential

10%

79%

9%

JFM'15 AMJ'15 JAS'15 OND'15 JFM'16 AMJ'16 JAS'16 OND'16 JFM'17

-2% -2% -3%-6%

-3% -2% -2% -2% -3%

Source: CREST®

QSR traffic, which historically helped offset full service declines, was flat for four consecutive quarters.

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U.S. Restaurant Traffic Trends 1Q-2015 to 1Q-2017

% Change Vs. Year Ago

QSR( )

Midscale( )

Casual Dining( )

Fine Dining/Upscale Hotel( )2%

1% 1% 2% 2% 1% 0% 0% 0% 0%

0% -4% -2% -4% -4% 0% 1% 2% -1%

-1% -2%-4% -3% -4%

-2% -3% -2%-4%

(Share of Traffic JFM'17)

Foodservice Equipment Reports ©2018The NPD Group, Inc. | Proprietary and ConfidentialThe NPD Group, Inc. | Proprietary and Confidential

9%

80%

8%

JAS'15 OND'15 JFM'16 AMJ'16 JAS'16 OND'16 JFM'17 AMJ'17 JAS'17

-3% -6% -3% -2% -2% -2% -3% -4% -4%

Source: CREST®

QSR increased for the first time since Q1 ’17.

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U.S. Restaurant Traffic Trends

% Change Vs. Year Ago

QSR( )

Midscale( )

Casual Dining( )

Fine Dining/Upscale Hotel( )1%

2% 2% 1% 0% 0% 0% 1% 0% 1%

-2% -4% -4% 0% 1% 2% -1% 1% -3%

-4% -3% -4%-2% -3% -2%

-4% -3% -3%

(Share of Traffic JAS'17)

Traditional QSR 64% CTG

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Black Box Chain Trends Jan 17.-Dec.17

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Technomic Same-Store Sales Trends

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

LSR FSR LSR w/o MCD

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• % Change vs. prior year (2017 Q3)

-1.6%

2.3%

1.5%

Source: Public company reports, Technomic Inc.63 chains reporting for standardized calendar 2017 Q3. Note companies may follow varied fiscal calendars.Weighted average calculated using company sales volumes

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Recent Sales & Traffic Trends• NRA’s overall Restaurant Performance Index has remained in expansion

territory since August 2016.• But for most of 2017, it has skimmed along just above the tipping point.• Current traffic index has been remain consistently negative. It fell to 97

in October survey. Same-store sales have been above and below the line.• Federal eating & drinking place sales numbers have ticked up recently.• The RPI rebounded strongly in the December survey; tax effect?• And operator optimism about near-term is quite strong. Expectations for

sales and business conditions in six months are very positive.• The RPI’s capital spending indicators remain positive, as we’ll see later.

Foodservice Equipment Reports ©2018 26

NRA Restaurant Performance IndexDecember 2017

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NRA Restaurant Performance IndexDecember 2017

Foodservice Equipment Reports ©2018

Operator Unit Trends Recent History• Slow sales growth continues to have a profound impact on unit growth.• It’s a very mature, highly competitive market with thousands of operations going out

of business each year.• The number of restaurant units in the U.S. fell from 662,315 Fall 2015 to 647,288

Fall 2017, according to revised the NPD’s ReCount census.• That’s a loss of 2.3% of the total restaurants in America.• All the loss has been among independents throughout the period. Chains continue to

add units.• While so-called micro-chains (3-19 units), also called Local Leverage Operators in

urban areas, have been growing, Pentallect says even they saw high-profile closures in second half of 2017.

• Reasons: High rents, higher labor costs, saturation and “me-too”ism.

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Foodservice Equipment Reports ©2018

Restaurant Unit Trends, NPD ReCount 2008-2017

615,319

623,970629,368

633,713

644,802

656,520 659,674 662,315657,258

647,288

590,000

600,000

610,000

620,000

630,000

640,000

650,000

660,000

670,000

Fall 2008 Fall 2009 Fall 2010 Fall 2011 Fall 2012 Fall 2013 Fall 2014 Fall 2015 Fall 2016 Fall 2017

NPD ReCount Total Net Restaurants Units, Revised Fall 2017

Foodservice Equipment Reports ©2018

NPD ReCount Unit TrendsChains Vs. Independents

System TypeSpring 2013

Spring 2014

Spring 2015

Spring 2016

Spring 2017 PCYA

Total Restaurants 632,487 639,125 633,509 626,227 617,317 -1.4%

Chains 281,436 287,171 292,925 295,911 296,924 0.3%

Independents (1-2 Units) 351,051 351,954 340,584 330,316 320,393 -3.0%

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Foodservice Equipment Reports ©2018

Operator Unit Trends, Top 500 Chains

Foodservice Equipment Reports ©2018

NPD Restaurant Calif. Unit Counts 2016-17

State System Type Fall 2016 Fall 2017California TOTAL 83263 82104California CHAIN 36816 36847California INDEPENDENT 46447 45257

System Type Fall 2016 Fall 2017

SAN FRANCISCO-OAKLAND-SAN JOSE, TOTAL 17771 17627

SAN FRANCISCO-OAKLAND-SAN JOSE, CHAIN 6590 6550

SAN FRANCISCO-OAKLAND-SAN JOSE INDEPENDENT 11181 11077

System Type Fall 2016 Fall 2017LOS ANGELES TOTAL 39447 38772LOS ANGELES CHAIN 18181 18202LOS ANGELES INDEPENDENT 21266 20570

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Foodservice Equipment Reports ©2018

Operator Segment Trends—Restaurants• Among the restaurant segments, fast-casual continues to post the strongest

growth. But the bloom is off the rose.• Unit growth was down to 4% fall 2016 to Fall 17, per NPD’s ReCount. And

the total unit count is still just over 25,000, out of nearly 650K restaurants.• Traditional QSR—fast food!—is doing better thanks to McDonald’s.• Full service, in all forms, continue to struggle.• Family dining continues in structural decline, causal dining, other than

“polished,” struggles and even fine dining has been off recently.• Still, Technomic forecasts all restaurant segments will show positive real

growth in 2018, other than midscale/family dining.

Foodservice Equipment Reports ©2018

Restaurants & Bars Segments Outlook

7.5

3.92.4

3.6

5.24.2

10.1

3.21.9 2.5

4.6

2.5

7.5

3.5

1.82.7

4.3

2.7

Fast Casual QSR/Fast Food FSR/Midscale FSR/Casual FSR/Fine Dining Bars

Nominal Sales Growth Estimates & ForecastsTechnomic Inc.2016 2017 2018

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Foodservice Equipment Reports ©2018

Top 500 Chain Segment Trends

1.1

1.3

4.9

3.7

8.0

3.2

3.5

5.9

4.4

11.5

Family Dining

Casual Dining

Polished Casual

Quick Service

Fast Casual

Sales Growth Rates By Service Type Technomic Top 500, 2016

2015 Growth2016 Growth

Foodservice Equipment Reports ©2018

Beyond Restaurants Operator Trends• Technomic has not revised “beyond restaurants” forecasts since May 2017.• Technomic forecast for slowing growth in retail segments seems to be coming

true. NPD reported retail only QSR sub-segment saw traffic decline 3Q.• C-stores continue to invest in foodservice, but sales growth is just average.• Noncommercial segments show more varied growth rates.• Hospitals and senior living continue to see the strongest growth.• But schools, B&I, colleges/universities and long-term care are all experiencing

below-trend growth rates.• NPD Onsite had traffic up in noncommercial for third consecutive year 2016.• State tax receipts are beginning to recover while local tax growth slowing.

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Foodservice Equipment Reports ©2018

Other Commercial Foodservice Segments Outlook

8.9

3.94.8 5.3

7.86.5

3.7 4.25.1 5

6.8

3.8 4.34.9 5

Supermarkets C-Stores Recreation Lodging Caterers

Nominal Sales Growth Estimates & ForecastsTechnomic Inc.2016 2017 2018

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Foodservice Equipment Reports ©2018

Noncommercial Foodservice Segments Outlook

3.3

1.8

3.3

4.8

3.1

7.9

2.51.7

3.64.5

3.2

8.1

2 1.9

3.4

4.6

3.2

8.3

Bus. & Ind. Schools College/Univ. Hospitals Long-Term Care Sr. Living

Nominal “Sales” Growth Estimates & ForecastsTechnomic Inc. (Commercial Equivalents)

2016 2017 2018

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Foodservice Equipment Reports ©2018

State & Local Tax Trends,Four-Quarter Moving Average

Foodservice Equipment Reports ©2018 40

Operator Cost & Profit Trends—Food• Operator margins benefited greatly from nearly two years of wholesale food

price declines during 2015 and 16, with prices down 4% 15 and 2%• The party ended November 2016; food prices rose 2.8% in 2017, putting more

pressure on operator margins.• But some recent good news: Average wholesale food prices fell 0.5% in both

Dec. and Jan., following gains in both October and November.• And USDA food price forecasts for 2018 have most proteins falling slightly,

with fruits and vegetables significantly lower. • Operators continue to raise menu prices in the 2.5% range, mostly to cover

labor cost increases. Menu price gains spiked in Jan. CPI.• Current gap between 12-month food-at-home and away-from-home increases

is 1% retail, 2.5% foodservice, much lower than a couple years ago.

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Foodservice Equipment Reports ©2018

Wholesale Food Prices, 2004-Dec. 2017

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USDA Wholesale Food Price Forecast

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Foodservice Equipment Reports ©2018

Menu & Grocery Price Trends 2004-Dec. 2017

Foodservice Equipment Reports ©2018

Consumer Price 12-Month Changes, Jan. 2018

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Foodservice Equipment Reports ©2018 45

Operator Cost Trends—Labor• The pressure on operator labor costs remains intense.• Minimum-wage hikes continue throughout the country, even in

traditionally low-wage states. But that’s not the whole story.• With the economy near full employment and restaurants adding

employees at a robust pace, operators are competing for workers.• And the Trump Administration’s crackdown on undocumented workers

has shrunk the pool of available labor, especially back of the house.• The administration has put on hold an Obama-era rule raising the salary

limits on “managers” excluded from overtime pay to $47,476 a year. • And “new” NLRB axed push to hold franchisors “jointly responsible”

for franchisees’ labor practices.

Foodservice Equipment Reports ©2018

Average Hourly Foodservice Wage Trends

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Foodservice Equipment Reports ©2018

Some Strange Days For Commodities & Metals• All of the key metals used in foodservice continue to move higher.• Stainless steel prices, which had lagged the other industrial metals, have

spiked the past few months as nickel prices have surged.• And Metal Miner sees more upward pressure on the metal.• Aluminum prices particularly have moved higher, hit five-year high in

November; copper prices also continue to rise.• Raw steel prices, after leading surge, paused, but are on the rise again.• Trump Administration has now recommended tariffs on steel and

aluminum imports, creating lots of uncertainty, as have NAFTA talks.• And rising crude oil prices tend to effect all commodity trends.

Foodservice Equipment Reports ©2018

All Foodservice Metals See Higher Prices

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Foodservice Equipment Reports ©2018

AQ List Price Change Trends• In spite of increasing commodities prices, manufacturers were restrained with list

price increases in 2017.• After increasing average prices nearly 4% in 2016, increased moderated to 2.7%, the

lowest annual increase since 2013.• The median price increase was 3%, compared to 3.8% in 2016. (Note that AQ

changed some product categories this year, changing previously published price changes.)

• And average price increases for the big cooking and refrigeration categories was very restrained at 0.6% and 0.3% respectively.

• Warewashing prices rose 3.5%, storage and handling products were up 3.3% and tabletop producers boosted prices 3.2%.

Foodservice Equipment Reports ©2018

AQ Yearly List Price Increases

0123456789

10

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

Median 4.4 6.9 5.3 3.8 2.8 0.3 3 2.4 2.9 2 3.8 3Average 4.5 9.6 6.1 3.4 3.1 2.7 2.2 2.1 3.1 3.3 4 2.7

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Foodservice Equipment Reports ©2018

E&S Market Indicators• The NRA Restaurant Performance Index capital spending indicators have

mostly continued to track at very high historical levels.• Both indicators rose sharply in the October survey, fell sharply in Nov., then

rebounded strongly in Dec.• That kind of extreme “waffling” usually indicates a change in trend.• The big publicly reporting E&S companies continue to post weak results.• Combined sales were barely positive in the 3Q/17, compared to an equally

weak prior year.• Slow chains sales and currency effects of strong dollar, plus structural issues,

are the main reasons.• But there is some sign of improvement between the cracks.

Foodservice Equipment Reports ©2018

NRA Performance Index Capital Spending Indicators Thru Dec. 2017

96979899

100101102103104105106

Aug

. 06

Dec

-06

May

-07

Oct

-07

Mar

-08

Aug

-08

Dec

-08

May

-09

Sep-

09Ja

n-10

May

-10

Sep-

10Ja

n-11

May

-11

Sep-

11Ja

n-12

May

-12

Sep-

12Ja

n-13

May

-13

Sep-

13Ja

n-14

May

-14

Sep-

14Ja

n-15

May

-15

Sep-

15Ja

n-16

May

-16

Sep-

16Ja

n-17

May

-17

Sep-

17

Past 3 Months Next 6 Months

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9.58.4

7.4

3.3

2.8

4.55.2

0.51.3 1

-0.4

6.5

0.5 -0.90.5

-2.5-1.4

3.7

0.4 0.5-0.8 -0.9

7.4 7.6

3.4 3.6

0.90.7

-2.4

7.46.6

6.7

2.92.5

3.64.3

1.52.2 1.3

-0.5

6.2

0.6-0.7 0.2

-4

-2

0

2

4

6

8

10

12

1Q/14 2Q/14 3Q/14 4Q/14 1Q/15 2Q/15 3Q/15 4Q/15 1Q/16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17

Equipment

Supplies

Total

Public E&S Company Blended Sales,Quarterly % Changes Vs. Year Prior, 3Q/17

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Foodservice Equipment Reports ©2018

E&S Market Indicators• The 3Q/17 MAFSI Barometer came in at a weak 2.6% sales increase, and rose

only 2.8% 4Q/17, following a 3.3% gain in the 1Q and 3.5% increase 2Q.• Average increase for the four quarters of 2017 is 3%, compared to 4.4%

average in 2016 and 4.9% 2015, so definitely a slowing trend.• On a category basis, 4Q equipment sales rose 2.9 %, while supplies came in at

3.1%, tabletop sales 2.1% and furnishing 2.9%., all better than 3Q.• Sales in the West region have been running even slower., with 4Q gain of only

1.7%, driven in part by very weak 1.9% equipment increase.• Sales in the West have been lagging total market for several quarters.• They were only 0.7% higher 3Q/17 as equipment sales fell 0.4% • More dramatic was fall in positive trends for quotation and consultant activity.• After more than a year of running at positive differentials of 25 to 25 points,

both indicators crashed in the 3Q.

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Foodservice Equipment Reports ©2018

MAFSI Barometer History

Foodservice Equipment Reports ©2018

MAFSI Barometer Sales By Product, 4Q/2017

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Foodservice Equipment Reports ©2018

MAFSI Barometer Sales 4Q/17 West Region

Foodservice Equipment Reports ©2018

E&S Market Indicators• One of the most dramatic trends in the MAFSI data was sharp fall in positive

trends for quotation and consultant activity 3Q• After more than a year of running at positive differentials of 25 to 25 points,

both indicators crashed, with positive for quotation activity down to 4.• Fortunately, both indicators rebounded 4Q, with positive differential now 26

for quotation activity and 22 for consultant activity.• The reps forecast continued sluggish growth for the 1Q/18: 2.7%.• But their forecast for all 2018 is a stronger 3.7%• One other key aspect of E&S market trends in the rapid consolidation and

nationalization of E&S distribution.• Internet E&S sales continue to grow, with most customers smaller operators.

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Foodservice Equipment Reports ©2018

MAFSI Barometer Quotation and Rep Activity

0

10

20

30

40

50

2Q-14 3Q-14 4Q-14 1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17

Diff

eren

ce o

f Mor

e vs

. Les

s

MAFSI Rep Quotation and Consultant Activity Trends

Quote Activity Consultant Activity

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FER Top Dealer Growth Rates Vs. E&S Market 2010-2016

2010 2011 20122013

20142015

2016

1.4%

10.3% 11.4%16.1%

10.6%13.5% 15.7%

1.4% 4.7%3.8% 4.5% 4.4% 4.8%

4.3%

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Foodservice Equipment Reports ©2018

FER E&S Market Estimate—2017• With four quarters of hard data on 2017, it is very clear growth of the E&S market

has slowed substantially. • Both the MAFSI Barometer and public company numbers plot the slowdown.• But it still doesn’t make sense. Macro fundamentals are positive, and NRA cap-ex

indicators are quite positive.• Operator forecasts remain moderately positive though Technomic revised 2018

forecast for restaurant sales down slightly.• We understand the slowdown in chain buying, but the slowdown in the spec markets

was particularly flummoxing.• But at the end of the day, one has to go with the hard numbers.• So, we have cut the nominal estimate for 2017 to 3% nominal (from 3.5% in August),

but increased real growth to 1.1% with lower price increases.

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FER E&S Forecast—2018• Given the top line trend, we have also revised down our forecast for 2018 to 3.4%

nominal (from 3.6% in August) and 1.2% real.• In our earlier revision in April it stood at 4.0% nominal and 1.6% real.• Still, we just can’t see the market slowing even more than 2017’s rate.• Fundamentals remain strong across all macroeconomic and many industry indicators. • Big chain sales appear to be recovering and traffic slide has ended. • Noncommercial trends are moderately positive across the segments.• Uncertainty seems to be a major factor; folks just aren’t pulling trigger on projects.• But we do believe 2018 will be slightly stronger than 2017. Let’s hope.• We believe we can all expect real growth during the next few years, but the growth

rates will be quite moderate.• It’s a market of renovation, replacement, and repair, not new construction.

62

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FER E&S Market ForecastEstimates & Forecasts, 2015-2022

Real and nominal percentage changes in E&S market growth 2015-2022. 2017 through 2022 numbersare forecasts. All numbers FER estimates.

2.51.9

1.1 1.2 1.1 1 1 1.2

4.84.3

33.4 3.4

3.1 3.23.5

0

1

2

3

4

5

6

2015 2016 2017 2018 2019 2020 2021 2022

Real ChangeNom. Change

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Foodservice Equipment Reports ©2018

A Note On FER’s E&S Market Forecasts • Foodservice Equipment Reports stages its annual President’s Preview E&S

Market Forecast in early August each year.• The full forecast is presented in a series of webinars and includes multiple

PowerPoint decks and other data.• It includes detailed information and forecasts on macroeconomic, operator,

international operator and material price trends, E&S price trends data from AutoQuotes Inc., rankings of Top Manufacturers and Dealers and our hard-number forecasts of the E&S market

• We also present quarterly updates, also by webinar. The next one tentatively scheduled for Mar. 20, 2018

• For prices and other information, contact Robin Ashton: [email protected].

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Questions?

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