Restaurant Performance Index Registered First Gain in Five Months in January

Operators continued to report negative same-store sales and traffic, while future expectations improve

(Washington, D.C.)  Restaurant industry performance edged up slightly in January, as the National Restaurant Association’s comprehensive index of restaurant activity registered a modest gain.  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 98.9 in January, up from December’s level of 98.7. 

“The January uptick in the Restaurant Performance Index was the result of a moderate gain in the expectations indicators,” said Hudson Riehle, senior vice president of Research and Information Services for the Association.  “Although restaurant operators’ outlook for the economy remains uncertain, they are somewhat more optimistic about sales and staffing gains in the months ahead.”

“Despite the improvement in the forward-looking indicators, the current situation indicators still reflected a challenging period for restaurants,” Riehle added.

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 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/200801.pdf ).

The Restaurant Performance Index 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 under 100 represent a period of contraction for key industry indicators. 

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 97.9 in January – down 0.2 percent from December and its third consecutive monthly decline.  In addition, January marked the fifth consecutive month below 100, which signifies contraction in the current situation indicators. 

Restaurant operators reported negative same-store sales for the third consecutive month in January.  Thirty-six percent of restaurant operators reported a same-store sales gain between January 2007 and January 2008, up slightly from 33 percent who reported a sales gain in December.  Forty-nine percent of operators reported a same-store sales decline in January, matching the proportion who reported similarly in December.
  
Restaurant operators also continued to report negative customer traffic levels in January – the fifth consecutive month of declines.  Twenty-seven percent of restaurant operators reported an increase in customer traffic between January 2007 and January 2008, up from 25 percent who reported similarly in December.  Fifty-four percent of operators reported a traffic decline in January, up slightly from 53 percent who reported similarly in December.

In addition to downward trends in sales and traffic, restaurant operators reported a pullback in capital spending.  Forty-one percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the lowest level in the history of the Restaurant Performance Index.

Although the Expectations Index registered a moderate gain in January, it remained below 100 for the third consecutive 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 99.7 in January – up 0.5 percent from its December level. 

Restaurant operators’ uncertain outlook for the economy continues to be the primary cause of the weakness in the Expectations Index.  Twenty-one percent of operators expect economic conditions to improve in six months, up from 16 percent who reported similarly last month.  Thirty-seven percent of operators said they expect economic conditions to worsen in six months, down from 44 percent who reported similarly last month and the highest level on record. 

Restaurant operators also have a tentative outlook for sales growth in coming months.  Thirty-two percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 31 percent who reported similarly last month.  Thirty-one 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, compared to 30 percent who reported similarly last month.

Restaurant operators also appear to be holding back on plans for capital spending.  Fifty percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 51 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.