The weakening U.S. economy has taken a bite
out of consumers' pockets, slowing the pace at which they dine
out. Yet restaurant construction and renovation appears
unfazed, for now anyway, sparking additional growth in the use
of stainless steel for restaurant kitchens.
"The out-of-home market has slid a bit,"
Keith Gellman, president of
Restaurantchains.net, an Irvington, N.Y.,
market research firm, said. "People are not going out at the
frenetic pace as they were."
Yet no matter how bad the economy gets,
individual appetites remain voracious, so people continue to
dine outside their homes, he said.
"I believe it's a blip," Gellman said.
"People have to eat and they'll continue to eat out. They don't
just stop. It's not bad news, just slower news."
End-market growth in the restaurant industry
is driven by disposable income and lifestyles that have become
distinguished by the regular consumption of take-out and
restaurant meals, according to Eli Lustgarten, senior research
analyst at Longbow Research, Independence, Ohio.
So despite the reduction in disposable income
resulting from higher prices people are paying for gasoline and
other necessities, Lustgarten said statistics indicate the
food-service industry is still growing.
Projections by the National Restaurant
Association, Washington, indicate 2008 will be the 17th
consecutive year of growth in restaurant industry sales, which
are expected to total $558 billion, up 4.4 percent from $535
billion in 2007. Sales in 2007 were up 4.6 percent from
Restaurant sales have declined only three
times in the past 36 years-in 1974, 1980 and 1991-each time
occurring during an economic recession, Lustgarten said.
Even if 2008 becomes an anemic year for
restaurant sales, he said stainless steel sales could still
benefit because the competitive strength of the food equipment
market is that replacement and renovation accounts for the bulk
This year, 27 percent of food-service
operators plan to renovate their kitchens, 24 percent plan to
begin new restaurant construction and 14 percent plan to
replace their entire kitchens, Foodservice Equipment &
Supplies(FES) magazine said in its 2008 E&S
The FES forecast also indicated that
53 percent of food-service operators plan to purchase equipment
in 2008 as replacement for existing gear. Other equipment
purchases will come as a result of renovations (18 percent) and
new construction (14 percent), it said.
The restaurants most affected by the downturn
are the casual dining entities like Max & Erma's,
Applebee's and Ruby Tuesday, where customer traffic is off
between 2 and 5 percent from last year, Robin Ashton, president
and publisher of Foodservice Equipment Reports
magazine, said. But such quick-service eateries as McDonald's
have seen positive traffic and sales numbers through most of
the past year, Ashton said.
However, "down" is a relative term since
there's still positive growth.
Restaurant traffic rose 0.7 percent in 2007,
its slowest level in recent years, according to NPD Group Inc.,
a Port Washington, N.Y.-based market research company that
tracks restaurant sales and traffic. In recent memory, the
slowest year was 2002, largely due to the Sept. 11, 2001,
terrorist attack that led more people to stay home, it
"Things are still going on and the outlook is
still for positive real growth," Ashton said. "It's next year
that I see a slowdown."
The slowdown in sales could, in turn,
translate into a slowdown in the purchasing of restaurant
materials, which are already facing a recent inclination toward
the substitution of traditional 300-series stainless with lower
grades and other materials.
Ashton pointed to rising stainless steel
prices as driving the move toward substitution. He cited
figures from the National Association of Food Equipment
Manufacturers, a trade group that researches sales figures,
which said last year's average price on serving counters, steam
tables and other heavy-use stainless items rose 16 percent from
the previous year.
"Since things first got stupid in 2004 with
stainless (prices), everybody in the business has done
everything they can to flee to 200 or 400 series," he said. "It
actually is beginning to have an effect."
Some restaurant implements can be made of
plastic or aluminum, but prices of those materials also are
increasing, Ashton said, adding, "the problem is you run out of
Many restaurant chains have worldwide
standards that mandate the use of Type 304 stainless, the
traditional food-service material, Ashton said.
"It's becoming a heavily negotiated activity
with field tests to get them to change specs to save themselves
some money," he said, adding that while there has been movement
toward substitution, the restaurant industry hasn't entirely
switched to 200- or 400-series product.
"There are machinability aspects, and some of
the stuff is a little more brittle," Ashton said. "And it gets
expensive to turn over the tooling. Plus, when you have actual
food contact, it's got to be 300 (series)."