Sales growth to slow in ’08, with pressure on profits, IFMA says

CHICAGO Despite a general economic slowdown, foodservice sales are expected to continue to grow during 2008, albeit at a slower pace than in recent years, according the International Foodservice Manufacturers Association and Technomic Inc.

But, their forecast indicates, the higher costs of fuel, commodities and labor will likely put increasing pressure on margins.

In the industry’s first peek into next year, the IFMA/Technomic Forecast & Outlook predicts that total foodservice sales will grow at an inflation-adjusted or “real” rate of 1.1 percent in 2008. That compares with the projected rate of 1.3 percent, to $631.81 billion, for the current year.

The nominal or unadjusted sales increases for both years would be significantly higher because of inflation, which IFMA and Technomic pegged at 4 percent for both 2007 and 2008.

Total sales at restaurants and bars, which make up the majority of the foodservice industry's coffers, are forecast to grow at a real rate of 1.4 percent in 2008, compared with 2007’s projected 1.9-percent increase, to $426.12 billion.

The forecast shows that 2008 is expected to be the fourth consecutive year of declining real growth rates for the foodservice industry as a whole, following the 2.3-percent real growth rate clocked for the trade in 2004.  

Technomic presented data highlighting today's volatile economic state, including the credit crunch, which has already been addressed by the Federal Reserve’s half-point cut in interest rates on Tuesday. In a positive sign, at least two major banks floated billions in notes in the two days following the rate cut, as markets became more receptive.

Still, there are signs of weakening overall job growth, soft consumer confidence and increased home foreclosures, which have intensified a broad housing downturn.

Predictions of a pending recession have increased, though they have been muted by the Fed's decision to lower interest rates. But those presenting this year's IFMA forecast expect the foodservice sector to continue to grow regardless of whether the economy turns further south.

"Given all this, there is nothing to suggest any decline or contraction in the industry," said Joseph Pawlak, one of the researchers at Technomic. "This does suggest that foodservice enjoys some insulation even in soft economic times."

According to the forecast, limited-service restaurants are expected to post a 1.9-percent real growth rate in 2008 and a 2.5-percent gain for 2007. The increases forecast for full-service restaurants in 2008 and 2007 are 0.8 percent and 1.2 percent, respectively. Both sectors are running at two-plus consecutive years of declining growth rates.

Noncommercial, or the on-site restaurant market, is anticipated to post the fourth consecutive year of flat or negative growth, with a projected real dip of 0.9 percent in 2008, compared with a 1-percent decline in 2007.

Technomic presented a survey of 734 restaurant operators, of which 65 percent said they expect to see growth in sales this year. But only 50 percent of the respondents said they expect to record profit growth. While the percentage of participants who expect sales growth has held steady from prior years, the proportion who expect to see profit growth declined from 53 percent in 2006 and 56 percent in 2005. The results underscore the cost pressures that operators are likely to feel, with the challenge heightened by slowing sales, Technomic said.

In a recorded video presentation from Cameron Mitchell, the Columbus, Ohio-based independent-group operator said that fuel prices are his largest concern.

"It causes less people to come in the front door and it's more expensive at the back door," he said.