Operators reported softer sales in April; outlook for growth remains positive

May 31, 2007
Contact: Chrissy Shott 202-331-5902, Maureen Ryan 202-331-5939

(Washington, DC) The outlook for the restaurant industry softened somewhat in April, as the National Restaurant Association’s comprehensive index of restaurant activity registered a moderate decline. The Association’s Restaurant Performance Index – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.0 in April, down 0.9 percent from its March level. Despite the decline, the RPI remained above 100 for the 48th consecutive month, which represents expansion in the Association’s composite index of eight key industry indicators.

“The fundamental trends in the Restaurant Performance Index remained solid overall, although April’s reading was down from the strong March level,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “However, operators’ six month outlook is definitely more restrained compared to the first quarter of this 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 Index consists of two components – the Current Situation Index and the Expectations Index.

The April decline in the Restaurant Performance Index was the result of drops in both the current situation and expectations components 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 100.0 in April – down 1.1 percent from its March level. 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/200704.pdf).

The drop in the Current Situation Index was due in large part to softer same-store sales in April. Forty-six percent of restaurant operators reported a same-store sales gain between April 2006 and April 2007, down from 55 percent who reported a sales gain in March. Thirty-five percent of operators reported a same-store sales decline in April, up from 28 percent who reported similarly in March.

Customer traffic results were also weaker in April. Thirty-six percent of restaurant operators reported an increase in customer traffic between April 2006 and April 2007 – down from 45 percent who reported a traffic gain in March. Forty-one percent of operators reported a traffic decline in April, up from 32 percent who reported similarly in March.

Although sales and traffic results were softer in April, restaurant operators maintained relatively solid capital spending levels. Forty-nine percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down slightly from 53 percent who reported similarly last month.

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 101.9 in April – down 0.7 percent from March and its lowest level in four months.

Restaurant operators are somewhat less optimistic about sales growth in the coming months. Forty-six percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 55 percent who reported similarly last month. However, only 13 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.

Restaurant operators are also less optimistic about the direction of the overall economy. Only 28 percent of operators expect economic conditions to improve in six months – the lowest level in eight months. Twenty-two percent of operators said they expect economic conditions to worsen in six months, while 50 percent expect economic conditions to remain about the same.

A positive sign for both the restaurant industry and the overall economy is the high proportion of restaurant operators planning to make new capital expenditures in the coming months. Sixty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months – matching the strong level posted last 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.

National Restaurant Association’s Restaurant Performance Index
Values Greater than 100 = Expansion; Values Less than 100 = Contraction

Source: National Restaurant Association