Restaurant Industry Outlook Remains Positive Despite Decline in the Restaurant Performance Index

Expectations Index registered solid gain; sales and traffic indicators softened

(Washington, DC)  Restaurant operators are more optimistic about the direction of the restaurant industry and the overall economy, according to the latest results of 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.  Despite a 0.4 percent decline, the RPI stood at 100.7 in September, its 53rd consecutive month above 100, which represents expansion in the Association’s index of eight key industry indicators. 

The Expectations component of the Index reached its highest level in three months, as restaurant operators were optimistic about sales, staffing levels, capital expenditures, and the overall economy.  However, the solid gain in the Expectations component was offset by a larger decline in the Current Situation component, which resulted in a 0.4 percent decline in the Restaurant Performance Index.

“The Current Situation component declined as a result of weaker same-store sales and traffic results in September,” said Hudson Riehle, senior vice president of Research and Information Services for the Association.  “However, the Expectations component registered its strongest increase in 12 months, which points toward growth in sales, employees and capital expenditures during the next several months.”

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: www.restaurant.org/pdfs/research/index/200709.pdf).

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.9 in September – down 1.3 percent from August and its sharpest decline in eight months.  In addition, the index reading below 100 signifies contraction in the current situation indicators. 

The drop in the Current Situation Index was due in large part to softer same-store sales in September.  Forty-five percent of restaurant operators reported a same-store sales gain between September 2006 and September 2007, down from 54 percent who reported a sales gain in August.  Thirty-nine percent of operators reported a same-store sales decline in September, up from 29 percent who reported similarly in August.   

Restaurant operators also reported softer customer traffic levels in September.  Thirty-five percent of restaurant operators reported an increase in customer traffic between September 2006 and September 2007, down from 44 percent who reported similarly in August.  Forty-two percent of operators reported a traffic decline in September, while 23 percent said their customer traffic levels were about the same as they were in September 2006.

In addition to the softer sales and traffic results, capital expenditure activity dropped off somewhat in September.  Fifty-four percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down from 58 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 101.4 in September – up 0.5 percent from August and its strongest level in three months. 

Restaurant operators are more optimistic about sales growth in the coming months.  Forty-seven percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 44 percent who reported similarly last month.  Sixteen 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 slightly more optimistic about the direction of the overall economy.  Twenty-six percent of operators expect economic conditions to improve in six months, up from 24 percent who reported similarly last month.  Twenty-one percent of operators said they expect economic conditions to worsen in six months, down from 27 percent who reported similarly last month. 

Restaurant operators also reported a modest increase in plans for capital spending.  Fifty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 56 percent who reported similarly last month. 

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.