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Distributors, operators expected to grow sales in '04Industry doldrums over?

Foodservice distributors and restaurants are expected to show healthy sales growth next year, according to a report issued earlier this month by Pembroke Consulting, Philadelphia, and Economy.com for the National Association of Wholesaler-Distributors (NAW).
The study said that grocery and foodservice distributors should see a 5.3% increase in total industry revenues in 2004. Furthermore, distribution employment is expected to increase by 1.4%. Placing this in wider context, Pembroke observed that the overall revenues for distributors covering 18 industries are forecast to rise 5.6%, outpacing next year's project U.S. GDP growth of 3.8%.
Foodservice executives contacted by ID voice agreement with this bright assessment.
"Based upon anecdotal evidence I have heard over the last month, it appears that the foodservice market is expanding once again. The turnaround seems to have started in late June and is continuing," observes John Gray, president and ceo, International Foodservice Distributors Association, Falls Church, VA.
Gray suggests that the recent increase in August sales can be attributed partly to the tax refund and reduction package passed by the Congress in late June. The refunds arrived at most American homes by early August and he believes the sales increase suggests that consumers spent at least part of their refund on meals outside the home.
"As the economy rebounds during the final quarter of 2003, foodservice sales growth should continue into 2004. Needless to say, I am bullish on the foodservice market in the near future, barring some September 11th type event," says Gray.
Thomas Lankford, president and coo, Sysco Corp., Houston, the No.1 distributor in the country, also expressed a "bullish" view of foodservice growth opportunities. In addition, Lankford observes that travel and lodging are "again joining other foodservice sectors in that growth." However, he cautions that "lessons learned regarding productivity are still expected to be implemented as headcount growth is less than sales growth."
Sharon Catanzaro, president, Frank J. Catanzaro Sons & Daughters, Inc., Cincinnati, Ohio, notes that distributors and suppliers that attended a recent Progressive Group Alliance conference shared her optimism about next year's growth. "Business seems to be moving in the right direction slowly but surely," Catanzaro believes.
As for employment, Joan Ray, executive vice president, Elliot Associates, expects to see continued improvement in restaurant sales and overall growth, with consumers supporting strong players with their dollars. "Of course, as the businesses grow, they will add more jobs. Although, I expect to see employment growth at the upper and lower ends of the spectrum, with the middle-level corporate positions a little slower to rebound," Ray adds.

OTHER GROWTH HIGHLIGHTS
Pembroke Consulting noted the following major trends among operators:
* Restaurants will continue to see healthy revenue growth in 2004 but some pockets of weakness will continue to exist.
* Changing consumer finances and preferences will benefit some types of restaurants at the expense of others.
* After two years of decline, restaurants will begin increasing capital spending and add employees next year.
"Overall, commercial restaurant sales are expected to end 2003 up 3.7% over the prior year and are forecast to increase 4.3% in 2004. All types of restaurants will grow their revenues in 2004. The largest category, full-service restaurants will grow sales by 5.5%. Managed food services are also forecast to achieve a high growth of 4.9% in 2004, reflecting demand by institutional customers," the study noted.
Restaurant employment will continue to decline this year based on ongoing fears that operator sales would plunge due to the war in Iraq. However, the addition of employees next year will bring industry employment to new heights and reflect strong industry demand going forward. Employment in this category is projected to grow 2.5% to a total of 8.5 million workers.
While capital spending is expected to increase 2.1% this year, operators should boost spending by 2.6%, to $6 billion.
The recent recession and soft recovery has taken its toll on fine-dining restaurants, with consumers trading down to more affordable eateries. Meanwhile, fast food operators have been losing ground to new facilities that offer more nutritious selections as maturing consumers grow increasingly health conscious. "Unlike the saturated market for fast food, the casual dining market is still growing. These restaurants are welcoming both former customers of more upscale restaurants and former fast-food customers," the study found.
Fine dining restaurants are also expected to raise the stakes in fighting for affluent consumers while chains will attempt to retain its diners by creating fancier settings and adding new menu choices to respond to consumers' desire for a healthy dining experience.
The drivers behind this anticipated growth are consumer confidence and personal disposable income, both of which are expected to grow in 2004. Nonetheless, increased price competition and consumers avoiding higher-margin menu items will keep profits down. Coupled with this are rising insurance premiums for both workers compensation and liability insurance, which have eroded profits, particularly at smaller operators, which are less able to absorb the steep price hikes.
An interesting development has surfaced with in-flight means, which Pembroke listed as a growth opportunity for restaurant operators. Chains such as Eli's Cheesecake and T.G.I Friday's have formed alliances with Sky Chefs and Gate Gourmet, the two largest in-flight foodservice providers, to sell their restaurants' offerings to airline passengers. "Airline sales could provide the restaurant industry with new customers and high revenues. This trend could also impact the industry's suppliers, as restaurants seek distinct levels of service and support for new lines business," the consultancy states. Benefits could accrue to the chains not merely due to in-flight sales but the airborne marketing and merchandising of their brands and concepts could boost business on the ground.

Note for Sales:
The Time is Now
Bob Oros, president of MoreGrossProfit.com and a longtime contributor to ID Report, advises distributors to start oiling the wheels of their sales staffs now in anticipation of next year's growth. Responding to our question, Oros states:
"I think that a 5.3% growth is very conservative. I don't know of any vice president of sales who would be happy with less than a 10% increase. Many companies are achieving increases of 15% and even 20%.
How are they doing it?
I don't think there are any statistics on the amount of distribution companies that close each year, but based on my mailing list, the number is huge. The mail that is returned stamped 'Closed' tells the story. They waited to long to upgrade their systems, train their sales team in new and more effective selling methods, and failed to take advantage of the new technology.
"The growth above and beyond 5.3% is coming from the less aggressive competitors in their market. Everyone reading this can name a company that is no longer in their market because of the reason I just stated. There is a place for every distributor, large and small alike that does not rely on 'old' strategies to acquire 'new' business. My advice to anyone not achieving growth of more than 5.3% is to throw a grenade in the middle of the business and shake everybody up."

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