As the foodservice industry enters 2007, hiring is on an uptick, consumer spending is growing at about 2.8 percent, and fuel prices are moderating. Interest rates will likely remain stable and inflation numbers have moderated.

Altogether, not a bad environment in which to operate, although one that does suggest somewhat slower economic growth than we've had in recent years (Fig.3). Still, several noncommercial segments are forecast to have significantly higher growth rates in 2007 than even the benchmark full service restaurant segment. These include colleges, hospitals, K-12 education and CCRCs (Fig. 1).

We'll take a closer look at issues significant to specific noncommercial segments later in this article. But first, here's an overview of some of the macro trends affecting almost all noncommercial operators.

Financial constraints are tighter than ever. Customer demand for increased value, administration demands for increased "contribution" and declining subsidies are all putting pressure on operators.

"The largest issue for noncommercial operators is the challenge of making money in a tough P&L environment," says Joe Pawlak, vice president of Chicago-based Technomic, Inc. To compensate, operators are looking to operate and buy smarter, manage labor costs more tightly and promote and merchandise offerings more effectively.

Another result: contract management companies are increasingly targeting segments like education and healthcare where they have more penetration potential. "These segments are where contractors will look for new business—after that it is a market share game," says Pawlak.

Wholesale food prices are looking mixed. They increased about one percent more than was forecast last year but are predicted to rise less than that this year (Fig.4). Prices for pork and turkey should decline, with beef and chicken remaining stable or slightly increasing (Fig. 5). Milk and cheese prices are likely to rise and coffee prices are already climbing, a result of increasing global demand and poor crop projections in Brazil. The freeze in California will likely play havoc with prices of produce items ranging from oranges to avocados, in some cases lasting well into 2008.

Procurement sophistication is increasing. Group purchasing organizations (GPOs), which until recently had a significant presence primarily in healthcare, have made significant inroads into higher education. Some are also predicting that GPOs will soon target K-12 schools, partly in response to new government procurement record-keeping regulations (more on this later).

Health and wellness concerns are having a real impact, reflected not only in broad new local wellness policies governing K-12 foodservice but also across the board. Efforts to remove trans fats from food have taken on tsunami-like proportions in schools and colleges, a trend that is rapidly spreading to other segments like B&I.

This has implications beyond the menu, says Technomic's Pawlak. "If a B&I client tells its contract service provider it wants all products to be trans fat free, the contractor has to be ready to deliver that—and quickly determine which products have to be replaced and what impact that may have on the menus and recipes managers use at those sites. It is better to be proactive than reactive, because this is coming."

Sustainability and other "green" initiatives are becoming mainstream. Products and menu items that reflect what Technomic tags as "social consciousness" are on a growth spurt. Large grocery chains have noted the success and higher margins of retailers like Whole Foods and Wild Oats and are jumping on the bandwagon, raising consumer consciousness of the category.

U.S. organic food sales are now a $14 billion business, with sales quadrupling between 1997 and 2006. The decision by Wal-Mart to begin offering organics in most stores will significantly up the ante. Although the premium paid for some organics, like leaf lettuce, has declined because of these higher volumes, increasing demand could well outstrip supply for many other items, keeping prices high.

Some of the biggest implications may face manufacturers, "who are not really set up to offer organic, hormone- and antibiotic-free, locally sourced, free trade and other socially-conscious products," says Technomic's Pawlak. "While they can't suddenly become ‘the local farmer,' many will find ways to develop sub brands in various parts of the country to satisfy these customer demands."

Redefining ‘all natural.' Thousands of ‘all-natural' products, a less strictly regulated term, have become available in recent years. USDA's Food Safety & Inspection Service now has hearings underway to redefine that term, which had its last significant revision in 1982. The sugar and other industries have a huge stake in any such change and lobbying interests are geared up for major battles in the coming year.

The Farm Bill as Lightning Rod. The massive Farm Bill now in Congress will pit—as always—many interests against one other—farmer price supports vs. global trade proponents; grain growers vs. fruit and vegetable farmers; the sugar lobby vs. the ethanol industry; and, let's not forget, subsidy-weary taxpayers against special-interest largesse.

One focus of attention is corn prices, nearly double what they were a year ago due to demand from ethanol producers. That is putting pressure on feed prices (and thus chicken, pork and beef prices) and is discouraging some farmers from growing soybean varieties that are in demand to replace trans fat oils.

Toss in the shift of Congressional power to a new majority, concerns about excessive commodity index funds trading and the possibility that new Farm Bill riders could address everything from competitive foods in schools to food safety. As they say, stay tuned to this station.

Finally, food safety issues will more aggressively drive public policy. Recurring food contamination incidents like those that made headlines in 2006 could cause Congress to revisit legislation like the never-passed Safe Food Act of 2005. It would have looked to consolidate the food safety responsibilities now shared by more than a dozen federal agencies.