Restaurant industry outlook improves slightly

Restaurant industry outlook improves slightly
Tags: Food & Beverage, Trends / Statistics
November 29, 2009

The National Restaurant Association's Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98 in October, up 0.5 percent from its September level. However, the RPI still remained below 100 for the 24th consecutive month.

"Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are somewhat more optimistic about improving conditions in the months ahead," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the association. "Restaurant operators reported a positive six-month economic outlook for the fourth consecutive month, and the proportion planning for capital expenditures rose 5 percentage points."

The RPI is based on the responses to the NRA's Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The RPI consists of two components – the Current Situation Index and the Expectations Index.

The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators.

Current Situation Index

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.5 in October – up 0.4 percent from September and its first improvement in three months. However, October still represented the 26th consecutive month below 100, which signifies contraction in the current situation indicators.

Restaurant operators reported negative same-store sales for the 17th consecutive month in October, with the overall results similar to the September performance. Twenty-two percent of restaurant operators reported a same-store sales gain between October 2008 and October 2009, matching the proportion of operators who reported positive sales in September. Sixty-one percent of operators reported a same-store sales decline in October, down slightly from 65 percent who reported negative sales in September.

Customer traffic also remained soft in October, with operators reporting net negative traffic for the 26th consecutive month. Twenty-one percent of restaurant operators reported an increase in customer traffic between October 2008 and October 2009, compared to 20 percent who reported higher traffic in September. Sixty percent of operators reported a traffic decline in October, down slightly from 62 percent who reported lower traffic in September.

Although sales and traffic levels remained soft, operators reported a modest uptick in capital spending activity. Forty percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, up from 37 percent who reported similarly last month.

Expectations Index

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 99.6 in October – up 0.6 percent from September's level of 99.0. However, October represented the 23rd time in the last 24 months in which the Expectations Index stood below 100, which represents a pessimistic six-month outlook for the four industry indicators.

Restaurant operators remain mixed about sales growth in the months ahead. Results included:

Twenty-nine percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), matching the proportion who expect to have lower sales in six months.
Last month, 25 percent of restaurant operators said they expected their sales volume in six months to be higher than it was during the same period in the previous year, while 32 percent anticipated lower sales in six months.

Despite the mixed sales outlook, restaurant operators remained cautiously optimistic about the direction of the economy. Results included:

Thirty percent of restaurant operators said they expect economic conditions to improve in six months, while 20 percent expect economic conditions to worsen during the next six months.
Last month, 28 percent of operators said they expected the economy to improve in six months, while 20 percent expected economic conditions to deteriorate.

Along with a cautiously optimistic outlook for sales and the economy, restaurant operators reported an uptick in plans for capital spending in the months ahead. Forty-two percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 37 percent who reported similarly last month. The RPI is released on the last business day of each month, and more detailed data and analysis can be found on Restaurant TrendMapper, the association's subscription-based service that provides detailed analysis of restaurant industry trends.