Technomic Trims Expectations for This Year but Forecasts a Brighter 2014

Technomic projects foodservice industry revenues to increase 3.8 percent in 2013 and 4.1 percent in 2014. Leading next year’s growth spurt will be a variety of non-commercial foodservice operators. 

Technomic, the highly respected Chicago-based market research firm, made modest downward adjustments to its 2013 foodservice industry forecast. Nominal growth, or dollar growth, was reduced to 3.8 percent from the 3.9 percent that Technomic projected in January this year. Likewise, real growth, or growth adjusted for inflation, was scaled back to 0.9 percent from January’s 1 percent.

Restaurant and bar sales growth, which account for roughly two thirds of the industry volume, were reduced to 3.8 percent from 4.0 nominal growth and to+0.8 percent from 1.0 percent real growth.

As for 2014, Technomic projects 4.1 percent nominal growth for the industry and 1.1 percent real growth. Technomic anticipates foodservice revenues at colleges and universities, hospitals, senior living, lodging and supermarket foodservice to grow faster than bars and restaurant sales.

It is interesting to note that Technomic expects full-service restaurants to grow just 0.5 percent in real terms next year. It should also be noted that Technomic tends to be conservative in its estimates.

Economic News This Week:

  • Initial jobless claims dropped to 340,000, down 23,000 from the previous week. On average, new claims are still hanging in the 350,000 range as they have been for a good part of the year.
  • The housing market continues to make gains. The National Association of Realtors projected April existing home sales increased 0.6 percent compared to March, with a projected annualized rate of 4.97 million — the highest rate since November 2006. The realtors believe there is pent-up demand for homes that is being frustrated by tight credit and low inventory. The association notes that median home prices are up 11 percent over April last year and that 18 percent of the homes sold fell into the “distressed” category which is the lowest rate of distressed sales since they started collecting the data in 2008. The U.S. Department of Commerce reported new home sales increased 2.3 percent in April over March to an annual rate of 454,000. This the second best rate since the recession began and a 29 percent increase over April 2012. The Commerce Department acknowledges there is a large margin of error in their statistics but said the overall trend is definitely positive.
  • Durable goods orders increased 3.3 percent in April after declining 5.9 percent in March. The increase was driven in large part by big orders for Boeing and by defense spending. The latter increase was somewhat surprising given the federal government’s sequester. “Core capital goods” orders, meaning those goods used to manufacture other goods, increased 1.2 percent.
  • The National Federation of Independent Businesses’ Small Business Optimism Index rose to 92.1 in April, the highest level since October 2012. The respondents were more optimistic about overall business conditions, sales and hiring.
  • Gallup’s U.S. Economic Confidence Index reached a 5-year high rising to minus 5 from minus 11 the previous week. This beats the minus 8 score from 2 weeks back. The Index is based on Americans’ assessment of whether the economy is getting better or worse. (Since the study began in 2008 the index has never been in positive territory.)

Foodservice News This Week:

  • Restaurant stocks continue to shine, according Joe Buckley, restaurant market analyst for Bank of America Merrill Lynch. Mr. Buckley’s BofAML 35 stock restaurant index is up more than 25 percent this year with small to mid-cap stocks performing the best. He notes that all but one of the stocks is up and all but 10 have outperformed the S&P 500. But Mr. Buckley thinks that industry fundamentals are not great with soft sales in both fast-food and full-serve chains. Never the less, he believes the outlook for the rest of the year is better than it appeared at the beginning with both food costs and the Affordable Care Act appearing to be less of a problem than originally projected.
  • Beef prices are hitting record highs according to the Wall Street Journal but observers are unsure what to expect in the future. The article quotes the USDA forecast that beef prices will be up 3 percent to 4 percent this year, significantly less than the 6.4 percent increase last year and the 10 percent increase in 2011.
  • Internet-based restaurant take out firms GrubHub and Seamless announced they are merging. The two firms process 90,000 orders a day. While both companies have a national presence, Seamless is big in New York and GrubHub is big in Chicago. The company plans on keeping the brands separate.
  • New-style food courts are the next big thing, according the Commercial Observer. Chain operations like Orange Julius are out and upscale independents and artisanal booths are in with some food courts offering pop up foodservice places.
  • McDonald’s will pursue Millennials and the $247 billion they spend annually in restaurants, according to Bruce Horowitz, long-time restaurant industry observer at USA Today. But, as pointed out in this space recently, Millennials have been hit hard by the recession and have been reducing their restaurant spending. Mr. Horowitz also acknowledges that Millennials “interests and habits can be difficult to understand.
  • The world’s largest pizza delivery occurred in July 2012 when 30,000 ready-bake pizzas were delivered to our troops in Afghanistan from the DHL hub in Cincinnati courtesy of a non-profit organization called Pizzas 4 Patriots. The shipment weighed 23 tons including 11 tons of dry ice. The shipment was acknowledged by the Guinness Book of Worlds Records as the biggest pizza delivery ever. Pizza 4 Patriots and DHL have delivered more than 120,000 pizzas to Iraq and Afghanistan.
  • Growth Chains: Seattle’s Best Coffee opened 10 drive-in window operations in the Dallas/Ft. Worth area. Smashburger plans on growing from their current 200 locations to 500 units in the next 2 years. Red Robin has announced they will open 20 new restaurants this year. Los Angeles based Pizza Studio has signed a deal for 12 new units in New England and is working to expand into San Francisco and Riverside, Calif.
  • Comparable Store Sales Reports: Pizza Inn (Franchised down 8.1 percent) and Red Robin (up 2.2 percent).

For details and same store sales of other chains, please click here for the Green Sheet.

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