Restaurant Industry Outlook Remains Positive Despite Modest Decline In Restaurant Performance Index

Same-store sales remained positive; Operators are more optimistic about the overall economy

(Washington, DC) The outlook for the restaurant industry remains optimistic going into 2007, despite a modest decline in the National Restaurant Association’s comprehensive index of restaurant activity. 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 101.1 in November, down 0.1 percent from its October level. However, the RPI remained above 100 for the 43rd consecutive month, a level that represents expansion in the Association’s composite index of eight key industry indicators.

“The Restaurant Performance Index remains in a positive position heading into the new year,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators are optimistic about sales and economic growth in the coming months, as well as prospects for new capital spending.”

The RPI is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide about 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. (Follow this link to view this month’s Index report: http://www.restaurant.org/pdfs/research/index/200611.pdf).

Both components of the RPI held relatively steady in November. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), edged down 0.2 percent to a level of 100.2 in November.

Restaurant operators reported an overall net positive same-store sales performance for the 40th consecutive month in November. Forty-seven percent of restaurant operators reported a same-store sales gain between November 2005 and November 2006, down from 49 percent who reported a sales gain in October. Thirty-four percent of operators reported a same-store sales decline in November, down from 37 percent who reported similarly in October.

Customer traffic was relatively flat in November. Thirty-five percent of restaurant operators reported an increase in customer traffic between November 2005 and November 2006, matching the proportion of operators who reported a traffic decline. Thirty percent of operators said traffic in November 2006 was about the same as it was in November 2005.

Restaurant operators continued to report positive levels of capital expenditure activity. Fifty-one percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, matching the proportion 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 102.0 in November – unchanged from its October level.

Forty-seven percent of restaurant operators expect their sales volume in six months to be higher than it was during the same period in the previous year, down slightly from the 49 percent who reported similarly last month. Fourteen percent of operators expect to have lower sales in six months compared to the same period in the previous year, while 39 percent of operators expect their sales to remain about the same.

In addition to a positive sales outlook, restaurant operators remain more optimistic about the direction of the overall economy. Thirty-three percent of operators expect economic conditions to improve in six months, up from 30 percent who reported similarly last month. Fourteen percent of operators expect economic conditions to worsen in six months, while 53 percent of operators expect economic conditions to remain about the same.

Restaurant operators reported that they plan to expand staffing levels in the coming months. Twenty-five percent of operators said they plan to employ more workers in six months than they did during the same period in the pervious year, while 15 percent said they plan to reduce staffing levels. Sixty percent of operators expect staffing levels to remain about the same.

Restaurant operators are continuing to ramp up plans for capital expenditures in the coming months. Fifty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months – matching the solid level posted 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.