Outlook for Restaurant Industry More Optimistic As Restaurant Performance Index Reached 12-Month High in March

Same-store sales and traffic levels improved sharply as expectations brightened

(Washington, DC) The outlook for the restaurant industry was decidedly more optimistic in March, as the National Restaurant Association’s comprehensive index of restaurant activity posted a solid increase. The 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 101.9 in March, up 1.1 percent from February and its strongest gain in 17 months. In addition, the RPI remained above 100 for the 47th consecutive month, which represents expansion in the Association’s composite index of eight key industry indicators.

“Growth in the Restaurant Performance Index to a 12-month high was fueled by broad-based gains in March, with seven out of eight indicators registering improvements from their February levels,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Trends in the current situation indicators were particularly encouraging, with operators reporting solid improvements over the softer performances in the first two months of the year.”

The Restaurant Performance Index is based on the responses to the National Restaurant Association’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. (Follow this link to view this month’s report:

http://www.restaurant.org/pdfs/research/index/200703.pdf).

The March increase in the Restaurant Performance Index was driven by a solid increase in the current situation component of the index. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 101.1 in March – up a strong 2.1 percent from its February level. The solid March performance came on the heels of two consecutive months below 100, which signifies contraction in the current situation indicators.

For the first time in three months, a majority of restaurant operators reported an increase in same-store sales. Fifty-five percent of restaurant operators reported a same-store sales gain between March 2006 and March 2007, up from 38 percent who reported sales gains in January and February. Twenty-eight percent of operators reported a same-store sales decline in March, down from 47 percent who reported similarly in February.

Customer traffic results also improved sharply in March. Forty-five percent of restaurant operators reported an increase in customer traffic between March 2006 and March 2007 – up from 32 percent who reported a traffic gain in February. Thirty-two percent of operators reported a traffic decline in March, down from 48 percent who reported similarly in February.

In addition to the solid sales and traffic results in March, restaurant operators maintained strong capital spending levels. Fifty-three percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the strongest level in six months.

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 102.6 in March – up 0.2 percent from February and its strongest level in 12 months.

Restaurant operators are increasingly optimistic about sales growth in the coming months. Fifty-five percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 51 percent who reported similarly last month.

Only 12 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year.

In addition to their positive sales outlook, restaurant operators continue to plan for new capital spending. Sixty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months – the strongest level in 12 months.

In contrast to the positive trends in other indicators, restaurant operators are slightly less optimistic about the direction of the overall economy. Thirty-three percent of operators expect economic conditions to improve in six months – down from 36 percent who reported similarly last month. Fifteen percent of operators said they expect economic conditions to worsen in six months, while 52 percent expect economic conditions to remain about the same.

While the RPI is consistently released on the last business day of each month, more detailed data and analysis can be found on Restaurant TrendMapper (www.restaurant.org/trendmapper), the Association’s subscription-based Web site that provides detailed analysis of restaurant industry trends.