Restaurant Industry Outlook Softened in May as the Restaurant Performance Index Fell Below 100 for First Time in Six Months

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Jun 30, 2011, 12:00 ET

Restaurant operators reported softer same-store sales and traffic levels; Operators' outlook for the economy fell to a two-year low

WASHINGTON, June 30, 2011 /PRNewswire-USNewswire/ -- As a result of softer same-store sales and traffic levels and an erosion of optimism among restaurant operators, the outlook for the restaurant industry softened in May. 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 – stood at 99.9 in May, down 1.0 percent from April's level. May represented the first time in six months that the RPI stood below 100, which signifies contraction in the index of key industry indicators.

"Like the economy as a whole, the restaurant industry's recovery hit a speed bump in May, with same-store sales and traffic levels softening from recent months," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "However, the overall economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger performances in the months ahead."

The RPI 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, and index values below 100 represent a period of contraction for key industry indicators. The RPI consists of two components, the Current Situation Index and the Expectations Index.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.2 in May – down 1.1 percent from April's level of 100.3. In addition, the Current Situation Index fell below 100 for the first time in three months, which signifies contraction in the current situation indicators.

Restaurant operators reported softer same-store sales results in May. Thirty-nine percent of restaurant operators reported a same-store sales gain between May 2010 and May 2011, down from 50 percent of operators who reported higher same-store sales in April. In comparison, 40 percent of operators reported a same-store sales decline in May, up from 31 percent of operators who reported lower sales in April.

Restaurant operators also reported a net decline in customer traffic in May. Thirty-three percent of restaurant operators reported an increase in customer traffic between May 2010 and May 2011, down from 38 percent of operators who reported higher traffic in April. In comparison, 41 percent of operators reported a traffic decline in May, up from 35 percent in April.

Restaurant operators continued to report relatively steady levels of capital spending activity. Forty-four percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down slightly from 48 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 100.6 in May – down from a level of 101.5 in April. Although May represented the 10^th consecutive month above 100 for the Expectations Index, it was the fourth decline in the last five months, which illustrates a recent erosion of optimism among restaurant operators.

Restaurant operators are not as optimistic about future sales growth as they were earlier in the year. Forty-one 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 in January. In comparison, 20 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, up from just 8 percent in January.

Restaurant operators are also much less bullish about the direction of the overall economy in the months ahead. Twenty-four percent of restaurant operators said they expect economic conditions to improve in six months, down from 46 percent in January and the lowest level in more than two years. In comparison, 21 percent of operators said they expect economic conditions to worsen in the next six months, up from only 8 percent who reported similarly in January.

Although restaurant operators are less optimistic about sales growth and the economy in the coming months, they continue to plan for capital spending. Fifty percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 49 percent who reported similarly last month.

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 full report and a video summary are available online at http://www.restaurant.org/research/economy/rpi.

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

Founded in 1919, the National Restaurant Association is the leading business association for the restaurant industry, which comprises 960,000 restaurant and foodservice outlets and a work force of nearly 13 million employees. Together with the National Restaurant Association Educational Foundation, the Association works to lead America's restaurant industry into a new era of prosperity, prominence, and participation, enhancing the quality of life for all we serve. For more information, visit our Web site at www.restaurant.org.

SOURCE National Restaurant Association