IFMA '94-cast: slow growth, hot 'pockets.' - International Foodservice Manufacturers Association forecasts pockets of opportunity and tepid growth

LOS ANGELES -- Spotlighting rampant changes of traditional patterns -- "paradigm shifts" --that are sparking evolution through the industry, the International Foodservice Manufacturers Association unveiled 1994 forecasts calling for continued lackluster growth rates and heightened competitive challenges in most major business segments.

"We're not going to see a major rebound, as we have in the past," said David C. Bekermeier, vice president of Technomic Inc., the Chicago consulting firm whose annual analysis and projections were presented on behalf of IFMA at a Los Angeles seminar this month.

But despite Technomic's predicted 2.1-percent overall rate of real growth in industry-wide sales to $293.5 billion in 1994 -- compared with a 2.2-percent growth to $281.9 billion this year -- there remain "a lot of differing pockets of opportunity out there," Bekermeier said. The forecast assumes 2-percent food cost inflation, putting unadjusted growth for next year at 4.1 percent.

Faced with diminished consumer confidence and unabated price-hike resistance, the industry's maturing crop of restaurants and all other commercial foodservice outfits will boost their sales from this year's $207 billion by a real 2.6-percent next year, a rate that would be off 0.1-percent from their 1993 pace, Technomic reported.

For their part, non-commercial feeders will boost their overall sales by a slim 0.9 percent in 1994, to $76.8 billion, amid decreasing business and industry subsidies and vanishing "captive audience" circumstances. Those factors are forcing institutional feeders to behave more "like their commercial counterparts," said Nancy Kruse, a Technomic principal associate.

Fast food -- which accounts for more than a third of the entire commercial segment's sales -- is expected to pick up slack from elsewhere in the segment by growing at a more robust 4.5-percent rate and continuing to capitalize on value marketing and format flexibility.

The still relatively small supermarket deli category will lead all others by posting a 7-percent sales growth rate, the report for IFMA indicated. Despite a slowdown since its 11-percent peak in 1991, "the growth rates are incredible" for the $7.9 billion-in-sales market deli category, Bekermeier said.

Increasingly shifting away from a "one size fits all" mindset, restaurant chains are focusing on a cross-niche diversification and segmentation of their core concepts to address changing consumer habits.

Examples of the "outside the walls" paradigm shift cited by Technomic include the invasion of supermarket shelves by branded product from such chains as Taco Bell, White Castle, Chi-Chi's, TGI Friday's, Friendly's and Pizzeria Uno.

While concept segmentation is evident in such developments as Burger King's dinner service and KFC's ethnic marketing programs, virtually all chains are adjusting in one way or another to the trend toward increasing off-premises traffic.

Citing National Restaurant Association research, Technomic pointed out that takeout sales now are offered nearly universally, including 60 percent of $25-and-over check restaurants. In addition, most operators with checks of $8 and over do off-premises catering, while most upper-scale places offer fax ordering -- a service that is even available at 10 percent of the under-$8 establishments.

Adaptive chains are also gaining ground in the "retail host" category, Technomic said, projecting a 3.5-percent rate of real sales growth next year in the $20.1-billion segment that primarily comprises kiosks in retail settings.

Meanwhile, non-commercial operators are fighting for accelerated growth by upgrading food offerings and installing branded kiosks, carts and express units at a rate that will more than double their current presence within three to five years.

An example of one pocket of opportunity arising from a generally sluggish foodservice economy is breakfast programs in primary and secondary schools, Bekermeier said. Despite the $9.9 billion segment's predicted 1-percent rate of real sales growth for 1994, operators and suppliers able to tap the school breakfast segment would be entering a business that was "up over $21 million over the prior year," he explained.

Similarity, although prisons generate barely $1.1 billion in wholesale food and beverage purchases, their 6-percent real growth this year suggests an opportunity, albeit an unsavory one, for some businesses. "It's a sad note that that is probably the fastest-growing category" in the non-commercial field, Bekermeier said.

In the commercial segment, Technomic reported, international growth will continue to drive the expansion aspirations of the industry's 100 largest chains. Last year, for example, those players scored nearly double the rate of sales growth and nearly triple the rate of unit growth in foreign markets that they generated domestically.

On the home front, the commercial segment's "separate eating place" category -- comprising restaurants, fast food and cafeterias -- is projected to expand sales by 2.6 percent next year, to $175.4 billion -- off a slight 0.2 percentage point from their growth to $167.6 billion this year.

But restaurants--generating fully half of the separate-eating-place category's revenues -- would grow only 0.5 percent to $78.1 billion in 1994. "This has been a market that hasn't been able to absorb price increases," said Bekermeier--softening the pessimistic forecast for restaurants by predicting that the impending 50-percent cap on business meal deductibility will have "probably less of an impact than has been trumpeted."

Meanwhile, as competing chains like Old Country Buffet flourish, sales by commercial cafeterias will expand only half as fast next year as their 1-percent growth in 1993, Technomic predicted.

Another of Bekermeier's opportunity "pockets" was suggested in his discussion of the $3.9 billion "other retail host" category, including restaurant branches inside supermarkets. Despite a forecast of 0.5-percent growth in sales next

year, the market-based restaurant branches -- such as Panda Inn and Mark Pi's -- "can generate anywhere from 14 to 20 percent of total store sales," he said.

Bekermeier cited one new and promising contender in the field, Cucina Cucina, which boasts a wood-burning pizza oven in its Seattle supermarket location. Scoring annualized sales of between $400,000 and $450,000, the Italian cafe is progressing toward a $750,000 goal, he said.

Although lodging-based restaurants are projected to boost their sales by a modest 1.5 percent next year, "that's good news for hotels," which comprise "one industry that really took it on the chin in the late '80s," said Dennis J. Lombardi, executive vice president of Technomic.

Helping that segment, he said, are such factors as symbiotic alliances between hotels and high-profile chain restaurants-such as TGI Friday's and Radisson--as well as room service enhancements and attrition in the ranks of older properties, which have mitigated lackluster room demand in recent years.

   Total foodservice sales
         1990-1994
       (in billions)
1990   +1.4%(*)   $250.6
1991   +0.4%      $259.9
1992   +1.4%      $269.5
1993   +2.2%      $281.9
1994   +2.1%      $293.5
(*) real change
Source: Technomic Inc.

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