Foodservice Operators Project Moderate Growth Environment for 2018

Operators seem cautiously optimistic when looking ahead to 2018.

While operators express cautious optimism about 2018, that optimism varies depending on their corner of the industry.

Overall, 58 percent of foodservice operators anticipate their sales will increase in 2018, according to FE&S’ 2018 Operator Forecast Study. Among those operators projecting an increase, the average growth rate is 2.38 percent, down .3 percent from FE&S’ 2017 Forecast. In addition, 33 percent of operators project their 2018 sales will be in line with this year’s revenues and only 9 percent anticipate a decrease in sales for the coming year.

Examining the data by market sector, though, provides an interesting contrast in perspectives. For example, 65 percent of commercial operators project an increase in sales for 2018, 9 percentage points more than non-commercial operators. In contrast, 38 percent of non-commercial operators project their 2018 sales will be on par with 2017, compared to 20 percent of commercial operators.

Gross profits, a key indicator of operators’ financial health, contrast considerably, too, by market segment. Overall, 40 percent of operators project an increase in gross profits for 2018 and another 46 percent of operators project this key metric will remain the same as in 2017. Among those operators projecting an increase, the average growth rate is 1.21 percent for 2018, down .02 percent from last year.

It’s worth noting, however, that 47 percent of commercial operators project an increase in gross profits for 2018, compared to 38 percent of non-commercial operators. In contrast, 56 percent of non-commercial operators project their 2018 gross profits will remain consistent with 2017, compared to 33 percent of commercial operators who feel the same way. And 20 percent of commercial operators project a decrease in gross profits compared to only 6 percent of non-commercial operators.

While the perspectives differ by segment, both commercial and non-commercial operators cite the same labor-related issues as the top three factors affecting gross profits: wages, finding qualified help and cost of benefits. In fact, 57 percent of operators project labor costs to increase in 2018 at an average rate of 7 percent. Food costs represent another factor having a significant influence on gross profit.

In terms of 2018 foodservice equipment and supplies budgets, 38 percent of commercial operators project their expenditures will remain the same as in 2017, while 58 percent and 4 percent project their expenses to be the same and decline respectively. Looking at non-commercial operators, only 28 percent project an increase in their 2018 foodservice equipment and supplies expenditures, while 60 percent expect their budgets to remain consistent with this year. And 12 percent of non-commercial operators expect their equipment and supplies budgets will decline in 2018.

Among those operators projecting an increase in their equipment and supplies expenditures for 2018, the average growth rate is a modest 2.19 percent encompassing both the commercial and non-commercial segments.

Here’s a look at operators’ 2018 budget allocations by activity type:

  • Replacing existing equipment: 51 percent
  • Renovations: 26 percent
  • New construction: 12 percent
  • Green/sustainable initiatives: 5 percent
  • Expansion of existing sites: 4 percent
  • Additional dayparts: 2 percent

Along those lines, 63 percent of operators plan to replace an existing piece of foodservice equipment in 2018, 43 percent plan to renovate their kitchens and 32 percent plan a dining room renovation, per FE&S’ 2018 Operator Forecast Study.

Foodservice Operators Report on 2017

For the most part, 2017 has gone as expected for most foodservice operators participating in FE&S’ 2018 Operator Forecast Study. In fact, 56 percent of operators report sales meeting their expectations thus far, compared to only 10 percent who report lower than expected sales. Thirty four percent of operators report sales meeting their expectations, thus far.

Once again, commercial and non-commercial operators are split on their perceptions of the year to date. Specifically, 15 percent of commercial operators report sales did not meet their expectations thus far in 2017 compared to only 6 percent of non-commercial operators. Also, 58 percent of non-commercial operators report sales meeting their expectations, 5 percent more than commercial operators.

Interestingly, 58 percent of operators project their 2017 sales will eclipse last year’s revenue levels, while 32 percent project their sales will be flat compared to 2016. Only 10 percent of operators project a decrease. Among those operators projecting a sales increase, the average growth rate is 3.42 percent, up .08 percentage points from last year’s forecast study. The percent of operators reporting sales growth in 2017 is at its highest rate since pre-recession study numbers in 2008, per FE&S’ 2018 Operator Forecast Study.

Among those operators reporting sales growth, adding new menu items and higher customer traffic represent the two main factors fueling this success. In contrast, those operators reporting a dip in sales cite soft traffic due to consumers trading down price-wise, increased competition and slow local economy as the factors having the greatest impact.

Sixty seven percent of commercial operators project a sales increase in 2017, 11 percent higher than non-commercial operators. In addition, 38 percent of non-commercial operators project their sales will be consistent with 2016, 18 percentage points higher than non-commercial operators. And 13 percent of commercial operators project a decline in sales this year, 6 percentage points higher than non-commercial operators.

Gross profit, long an indication of a foodservice operation’s fiscal health, represents another contrast in terms of operator performance and expectations. Overall, 39 percent of operators project an increase in gross profits for 2017 and 39 percent say gross profits will remain the same as in 2016. Among the operators projecting an increase in gross profits, the average growth rate is .95 percent, a .45 percent dip from last year’s projections. All industry segments continue to focus on managing operating costs, with labor – which includes wages, benefits, hiring new people and training – and continued elevated food and beverage costs continuing to serve as the biggest challenges to increasing gross profits.

Twenty-two percent of operators project a decrease in gross profits.

Once again, operators in the commercial and non-commercial segments continue to show significant differences with respect to gross profit expectations. Fifty-three percent of commercial operators project an increase in gross profits this year, compared to only 31 percent of non-commercial operators.  Interestingly, 61 percent of non-commercial operators project their gross profit levels will remain consistent with last year, 41 percent more than commercial operators. And 27 percent of commercial operators anticipate a decline in gross profits, compared to only 8 percent of non-commercial operators.

 

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