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
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.