Food And Beverage Sales Data Still Very Weak, But Possibly Starting To Turn Slowly For The Better

BY JOHN LOOS - AUGUST 18, 2014

The release of June Food and Beverage retail stats, for the Restaurant and Catering Sector, points to ongoing growth weakness, a situation which has prevailed since mid-2013, according to John Loos, Household and Property Sector Strategist at FNB.

He said that this reflects the weakness in the economy and in purchasing power growth.

“However, a slight uptick in nominal sales growth may just point to a move towards stabilization in this sector, after a very poor 1st half of 2014, where sales declined when measured in real terms.

“For the month of June, the total value of Food and Beverages sales by restaurants and coffee shops, fast food and take-away outlets, and by caterers, was estimated to have grown by 4.2% year-on-year, down from the previous month’s 7.3%. However, monthly data can be volatile, and for this reason we prefer to smooth with a 3-month moving average. Using this average, the year-on-year increase for the 3-months up until June was a faster 5.9%, which represents a mild rise on the prior month,” Loos said.

He said that it would still appear that this sales growth is more due to price inflation than to any real growth. The Consumer Price Index (CPI) year-on-year inflation rate for Hotels and Restaurants has been gradually ticking higher, from a low of 5.8% as at May 2013 to 7.8% as at June 2014, Using this CPI index to deflate food and beverage sales to real terms, the real rate of change in Food and Beverage sales was negative to the tune of -3.3% year-on-year in June, and still negative at -1.7% using a 3-month moving average.

“Breaking the income streams from this sector up into its components, it still remains the more ‘luxurious’ food and beverage areas that are under greater pressure.

“Examining the 3-month moving averages for the 3 sub-sectors, i.e. ‘Restaurants and Coffee Shops’, ‘Fast Food and Take-Away Outlets’, and ‘Caterers’, it is in the area of what is arguably the least affordable category, namely Caterers, where the weakness remains most pronounced. This category declined by -1.9% year-on-year for the 3 months to June,” Loos described.

“By comparison, the more affordable “Take Away and Fast Food” sector income continued to grow the fastest at 10.8%, while Restaurant and Coffee Shop income was a slower 5.2%. Only the Take-Away and Fast Foods category of sales is likely to be positive when measured in real terms.

“We further compare the 2 main categories of sales within the Restaurant and catering sub-sectors, i.e. Restaurant and Bar Income, and the more cyclical “bar bill” continues to experience greater pressure in this financially constrained period, although showing signs of moving towards stabilizing after some decline.”

He  said for the 3 months to June 2014, Income from Bar sales in the food and catering sector experienced a +0.9% year-on-year rise in value, just recently emerging from negative growth although the growth remains insignificant in magnitude. By comparison, Restaurant Sales (Food) were growing positively by 6.7% year-on-year for the 3 months to June.

Bar income has a tendency to be far more cyclical than food sales, and the recessionary conditions during the 1st half of 2014 have arguably been reflected in this sales category’s numbers. The last time we saw a noticeable decline in the value of bar sales, prior to the late-2013/early-2014 dip was in and around the 2008/9 recession. The nominal decline in Bar Income places this category of sales firmly in negative territory in real terms, given that the CPI for Beer showed 5.3% inflation for June, the CPI for Wine 4.3%, and the CPI for Non-Alcoholic Beverages 4.7% year-on-year. Even income from restaurant sales, at 6.7% was probably mildly negative in real terms given Restaurant and Hotel inflation of 7.8% in June.

“Food and Beverage sales figures for the Restaurant and Catering Sector are highly sensitive to economic conditions, and are thus one of the good cyclical indicators to monitor. In recent times, they have continued to point to a very weak consumer situation, but may be starting to indicate a gradual turn for the better looming.

“Aggregating the sales on a quarterly basis, and using the Restaurant and Catering CPI to convert into real terms, the 2nd quarter of 2014 was the 3rd consecutive quarter of real year-on-year decline in sales. However, from -2.6% and -2.3% real declines for the prior 2 quarters, the 2nd quarter 2014 decline had receded to -1.7%, suggesting that we may be slowly turning the corner.

Nevertheless, the 2nd quarter figures complete the picture for what was still a very weak overall retail situation,” Loos said.

“Last week’s release of “mainstream” retail sales stats for June showed real retail sales growth of 1.5% year-on-year for the 2nd quarter (zero percent year-on-year for June alone), down from 3.1% in the 1st quarter of 2014 and certainly not turning the corner for the better yet. On a quarter-on-quarter seasonally-adjusted basis, there was a -0.1% decline in the 2nd quarter, pointing to real retail sales still losing growth momentum in the 2nd quarter.

“Worse still was the highly cyclical vehicle retail sales figure. The real value of vehicle retail sales (new and 2nd hand vehicles), declined year-on-year by -8.92% in the 2nd quarter, a deterioration on the -4.3% decline in the 1st quarter.”

He said that broadly tracking this slower, and thus mildly supportive of the evidence of a deterioration in the household income and consumption growth situation in the 2nd quarter, was the year-on-year growth rate in the FNB Estate Agent Survey’s Residential Activity Rating, which slowed from a positive +2.9% in the 1st quarter of 2014 to zero percent growth in the 2nd quarter.

“Therefore, the Restaurant and Catering Sector statistics may be slowly beginning to point to approaching stabilization and thereafter improvements in sales in the near term, if the gradually diminishing rate of decline in real sales can be used as an early hint,” Loos noted.

“However, the fact that the more affordable fast foods and take-aways category is the fastest growth sub-segment of food and beverage sales continues to point to constrained household financial situation. In addition, examining 2nd quarter statistics for the other areas of the retail sector, it is likely that real  household consumption growth as a whole was slower in the 2nd quarter compared to the 2.1% year-on-year rate of the 1st quarter.

“Our Real Household Consumption Expenditure forecast for 2014 is 1.9%, down from 2013’s 2.6%, which would be the 3rd consecutive year of growth slowdown. But to achieve even 1.9% for this year, it is crucial that we begin to see more concrete signs of a turn for the better in retail sales growth. This, in turn, is significantly dependent on economic output returning to “normal”, after severe strike-related disruptions in certain key industries in the 1st half of the year and the possibility that the economy was in a recession.”