I want to be perfectly honest here: When I look at the general economic indicators and forecasts, the foodservice industry forecast and trends, Baird’s 1Q-25 survey and the initial public company reports, and think about what I hear from friends in the industry, I see mostly gloom—if not outright doom. It’s why my E&S Market Indicator remains red and pointing down this month, for the fourth month in a row.
Hey, you pay John Muldowney and me $99 a year and attend our annual forecasts (set this year for Sept. 9, as it says above) to make these calls. I’m struggling here not to sound too much like Chicken Little, but from my point of view, the outlook for the E&S market for the remainder of 2025 looks dire. I give John his say below.
The past few months I’ve taken you through all the various indicators from the macroeconomic forecasters such as the economists polled by Blue Chip Economic Indicators (they cut the real GDP, DPI and PCE forecasts for 2025 by 0.6 point in the early April survey) and the Wall Street Journal (they had cut their 1Q-25 forecast for GDP growth from 2.1% in January to 0.4% in April, and then the advance number from BEA came in at -0.3%).
We’ve detailed the severe plunges in consumer confidence and expectations from both the University of Michigan and The Conference Board (approaching historic lows), and consumers’ rising inflation expectations (up to 6.5% for next year from the UM survey). We now know that Technomic cut its forecast for 2025 sharply and moved to a “scenario” scheme, since so much depends on what happens with tariffs, and their impact on prices and consumer spending patterns. NRA cut its assumptions of growth for GDP, DPI, and consumer spending.
When it comes to the E&S market, revenue results from the quarterly R.W. Baird survey 1Q-25 came in soft, slightly negative at -0.2% compared to a decline 1Q-24. Survey respondents, or at least two thirds of them, believe the tariffs (the steel and aluminum 25% global tariff had already been announced) will force them to raise prices. Prices already rose 1Q-25, before the tariffs were known; the average selling price rose 1.2%, following three straight quarters with average selling price below 1% last year. The consensus is now that prices will rise 4.5% for all of 2025. This will likely dampen operator demand.
I could go on. John estimates ITW/Food Equipment Group’s North American equipment sales were flat 1Q-25. McDonald’s just reported the largest quarterly drop in same-store sales 1Q-25 since the pandemic, not only from lower-income households, as they’ve detailed before, but now from middle-income households. You probably saw Chipotle surprised folks with a 1Q-25 drop in same-store sales.
But what worries me the most is what happens when the 145% tariffs on China, which essentially amount to an embargo, begin to severely affect availability of products and components. When I speak with smallwares folks, they tell me they have no idea how they are going to serve their customers. They can’t take a chance on shipping anything from China, since they can’t afford to pay tariffs which they cannot recoup. No one can afford to pay nearly one-and-a-half times more for what are mostly relatively low-value products.
And according to these suppliers, there aren’t many other options for many of these products. As one told me, “We’ll bring in what we have to in order to keep our commitments to our chain customers and try not to lose too much money on them. And then we’ll strip down our offerings to what we can source from lower-tariff countries and try to hold on until the situation is resolved, if it is.” This is not the prescription for robust industry growth, or any growth at all.
This is just the smallwares and tabletop side of the business, and I realize, even after adding furniture, this is only about 20% of the business. Many of the ovens, fryers, ranges, and other heavy cooking equipment purchased in the US market are substantially made in the US, though they contain metals and components from outside the country. More refrigeration comes from offshore, a lot of it from China. But the reach-ins and undercounters made here often have substantial content from outside the US. We saw a notice from a domestic refrigeration supplier of a 7% rate increase this summer, and the company mentioned the 25% tariffs on non-US steel and aluminum. My point here is that prices for nearly everything are more than likely to begin rising again. And this will further dampen operator demand.
And I’m not sure we need to dampen demand any more than it’s already dampened. Smaller mom-and-pop operators have been holding back for more than a year because most aren’t making money and are just trying to hold on. Many manufacturers were counting on the big chains in 2025 ramping up their building and equipping of the new units they’ve had in the plans since the pandemic. But do we really think these very soft sales-comp and traffic numbers from the big chains aren’t going to have a negative effect on those plans?
Now there is always countervailing data and information. Jobs growth came in stronger than expected again in April. A couple of the early reporting public E&S companies had positive North American growth 1Q-25. John may have more. But I’m sorry, I’m still very worried 2025 is going to be a much tougher year for the E&S market than we thought just a few months ago.
Now, here’s what John thinks. As you might expect, he and I are on very different sides of this. He is much more upbeat:
“If I were the CEO of a large foodservice E&S player, I would consider just what we need to accomplish as we shlep through this ‘trough of change’ whilst the economy integrates a stronger energy policy that this Administration is implementing. This change is national policy will favor the US. I see so many ‘things’ going on that are obscured by the Media’s hysteria concerning a market power shift:
- “Transitioning to a more encouraging energy policy will both fuel and lubricate the general economy. We will also become a net exporter of LNG and oil, which bolsters our position as we level the field of global commerce. This is truly a national security issue, but also a tremendous emerging opportunity. Market Power
- “The over $2 Trillion (and counting?) in corporate investment from overseas and US companies coming back to the US in a major re-shoring of manufacturing that means robust jobs and income growth, which drives foodservice. Why are all these companies and investors coming back with substantial plans for dwelling in the US if it is unfavorable? Because the policies (deregulation) that will be implemented favorably across many spectrums. Market Power
- “Tariffs are not a tax per se. As we all know since April 15, taxes apply to all of us regardless, with limited choices of response like ‘what happens when you don’t pay your taxes’. Tariffs are negotiable, flexible and can be fine-tuned. It is a well-known competitive technique our global competitors use to block US goods from their home markets, like automobiles, agriculture, and consumer products. Then we have more choices in the global market to level the playing field with other countries that use dubious labor sources, or are subsidized by their governments, or apply other taxes such as VAT to hinder us. ‘Lower your tariffs and we’ll lower ours.’ Fair trade, not free trade, because NO country wants a free trade pact with the US; we would overwhelm them. Unlike taxes, consumers can choose what they want to spend on in terms of imported vs. US-made items. Market Power.
- “1Q GDP was down slightly, but the core GDP (like business investment) was pretty solid. GDP was impacted by a surge in imports by US companies that front-loaded orders to get them on site prior to the application of tariffs, which Trump has been talking about for decades. Tariffs are merely a tool for fine-tuning trade and our supply chains. Market Power
- “Immigration must be brought under control, our borders must be secured, because over 10-15 million low-skilled bodies don’t really contribute much to the economy (TdA, MS-13, drug entrepreneurs, great folks, eh?) but really burden the welfare capabilities of our country with enormous costs to Medicare and Medicaid, education resources, legal encumbrances, etc. A meritorious immigration policy brings selected skills-heavy talent to our country which drives better jobs, investment, and consumption not driven by welfare recipients. If the US is such a terrible place, why do all these people try to come here, sometimes 2x or 3x? Market Power
- “The inflation situation will not be resolved quickly, because the drivers behind it took so long to feed it.
- “Inflation will not be addressed after only 1Q. Our energy policy opportunities will pass through the economy slowly, but nonetheless stable. Our economy is still incredibly strong. The trade deficits created recently will take time to correct. Market Power.
“All this bodes well for the drivers of the foodservice market: employment, income growth, stable prices. Foodservice will hiccup for a few months, but it is a prominent part of our culture that will not go away. Ask “what can we do to position our foodservice-related company for impending growth?
“Plain and simple, this restructuring of our economy and national policies will hurt before it gets better. But the economic and trade policies being implemented now will make our nation stronger, in terms of national security via a robust energy policy, in leveling a truly unbalanced trade deficit, and in a cost-containment of social welfare costs that a sane immigration program will alleviate. We are the strongest economy on earth, and we are simply recovering that which we gave away.
“And that is Market Power.”
As I said, John and I have different perspectives. But no matter what happens in our market, friends, we hope your business does well. And be well. Have fun. Do good.
Cheers,
Robin
