2015 OPERATOR FORECAST: Market’s Good, Not Easy

Two steps forward, one step back. It has been a kind of Arthur Murray dance-lesson exercise for foodservice operators the past few years. Progress mostly has moved forward, but it hasn’t always been graceful. 

Ops overall had reason to celebrate in ’12, finally breaking free of the Great Recession with 4% nominal and 1.9% real sales growth, according to data from Technomic Inc., Chicago. The fiscal-cliff government showdown late that year took some of the oomph out of the numbers, but they were still good. Then big snow in early 2013 made for a slow start to the new year. But ’13 improved, finishing at 3.1% nominal and 1.1% real foodservice sales growth. Again, a good year.

Last year saw a similar stutter-step, with a harsh winter making for a subdued first quarter. But then foodservice picked up. Second and third quarters saw significant improvement, as you can see in the charts at right from the National Restaurant Association and Technomic. As the fourth quarter progressed toward the elections, sales growth stayed positive, although expectations were beginning to wane as they often do heading into winter. Even after the tough start, at press time it looked as though ’14 would finish with 3.3% nominal growth—mainly menu price increases and a small-but-positive real growth of 0.1%. Technomic figures the first-quarter weather cost 1.5 points in real growth. 

Better Ahead

Ordinarily, 0.1% real growth would be nothing to post on Facebook. But the aspect that might be more significant is this: At deadline time, the NRA’s Restaurant Performance Index had stayed in positive-growth territory for 19 straight months, and the year ahead looks like it has some muscle. Technomic is projecting ’15 will come in at 3.1% nominal growth and 1.2% real. That means significantly slower menu price increases and more real growth ahead. 

Where’s the strength? You can see the segment breakdowns in the table at right. But thinking about the drivers is useful, too. GDP has been gathering strength since the big splat—it was at 4.2% in Q2 ’14, and 3.5% in Q3. That trend looks to continue into ’15 barring big geopolitical unforeseeable events. Disposable income, consumer spending and employment have been rising and are expected to continue to do so. Gasoline prices have dropped. All are good things for foodservice demand and spending.

Picking Your Dance 

Some demographics and foodservice segments will do better than others, of course. Employment is improving, but wages, generally speaking, are not. Minimum wages may or may not be rising in some regions. Some data indicate younger workers are seeing some improvement in entry salaries. But the great majority of middle-class earners are seeing no wage improvement, and many are seeing declines. This will keep pressure on midpriced/casual/full-service segments.

Which brings us to a clear demographic trend that’s been in effect for more than a decade: Even apart from the Great Recession and other factors, all of the population growth continues to be in the lower-income ranges. It is no surprise, then, that lower price points and limited-service concepts continue to outperform the rest of the market. 

Population growth creates some raw demand, but research firm The NPD Group, Port Washington, N.Y., notes per-capita foodservice visits, after peaking in ’01 at 210 annual visits per capita, continue to decline. In ’13 they stood at 192—roughly where they were in the mid-1990s. Further, NPD reports traffic was flat in ’13. It rose 1% last year, but visits remained flat.

So the market ahead definitely shows improved strength. But, as always, your dance partners—the market you’re trying to attract—will make a difference.