While stainless steel suppliers generally are at least cautiously optimistic that the commercial and institutional food service industry is on an upswing, they are still concerned about certain factors, including continued weakness in the commercial construction market, tightness in the financial markets and costs associated with new federal food safety regulations.
"There is a lot of stainless steel used when fast-food and full-service restaurants, supermarkets, warehouse clubs, etc., are built," a spokesman for Pittsburgh-based Allegheny Technologies Inc. said. But right now, such construction is at a slower rate than many would like.
Some of the largest consumers of stainless are fast-food and full-service restaurants, and there has been a big pullback in construction there, said John Zemon, vice president of stainless sales and marketing at Atlas Steel Products Co., Twinsburg, Ohio.
Brad Hite, general manager of Stainless Sales Corp., Chicago, said some restaurants not only use stainless in their food preparation areas but even in their walls and bathrooms.
There also has been a pullback in other food service related construction, including hotels, golf courses, municipal buildings, schools and hospitals, Zemon said. Much of this has been attributed to the continued weakness of the housing market. Commercial construction, including food service related commercial construction, generally lags the residential construction market by about 12 to 18 months.
There also was considerable overbuilding of commercial buildings, including food service buildings, between 2005 and 2008, according to Luke Folta, research analyst at Longbow Research, Cleveland.
However, that has been exacerbated by a continued lack of credit availability. While it has become a little easier to get financing for certain relatively smaller items, such as cars, banks still dont want to take the risk of lending to the commercial and institutional real estate markets, Zemon said. And with many states experiencing financial crises of their own, they are cutting back on expansion programs as well.
Hite noted that there also is fear that the new Food Safety Modernization Actwhich, among other things, gives the federal Food and Drug Administration additional regulatory powers and mandates in order to improve food safetywill raise the cost of compliance and enforcement. "Some believe that this could dry up money for capital investment in the food service industry," he said. But it also could have a positive effect for the stainless industry, as stainless steels properties are ideal to meet stricter food safety standards.
Another potential positive is the fact that Congress has extended provisions in the U.S. tax code that increase the depreciation of capital expenditures, Hite said, which could encourage additional purchases of food service equipment. "Everyone had big plans for investments before the economic downturn, but many companies have since put them on hold. Now many are revisiting some of those plans," he said.