Uncertainty Over Future Business Conditions Dampens Restaurant Performance Index

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Aug 31, 2012, 11:11 ET

Same-store sales remained positive for the 14th consecutive month; Restaurant operators' outlook for the economy continued to slide

WASHINGTON, Aug. 31, 2012 /PRNewswire-USNewswire/ -- As a result of softer customer traffic and a dampened outlook among restaurant operators, the National Restaurant Association's Restaurant Performance Index (RPI) fell to its lowest level in nine months. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.2 in July, down 1.1 percent from June and the lowest mark since a reading of 100.0 in October. However, July still represented the ninth consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators.

"Although restaurant operators reported positive same-store sales for the 14^th consecutive month in July, their economic outlook for the months ahead continued to soften," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "Only 22 percent of restaurant operators expect economic conditions to improve in the next six months, the lowest level in 10 months."

"Despite their uncertainty, roughly one-half of restaurant operators still plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, which is a positive indicator for both the industry's supply chain and the overall economy," Riehle added.

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 below 100 represent a period of contraction for key industry indicators. The Index 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 99.8 in July – down 1.7 percent from June's level of 101.5. Although same-store sales remained positive in July, the softness in the labor and customer traffic indicators outweighed the performance, which led to a Current Situation Index reading below 100 for the first time in nine months.

Although restaurant operators reported positive same-store sales for the 14^th consecutive month in July, results were much softer than recent months. Fifty-three percent of restaurant operators reported a same-store sales gain between July 2011 and July 2012, down from 61 percent who reported positive sales in June. In comparison, 36 percent of operators reported lower same-store sales in July, up sharply from 24 percent in June.

While sales remained positive overall, restaurant operators reported a net decline in customer traffic levels in July. Thirty-five percent of restaurant operators reported higher customer traffic levels between July 2011 and July 2012, down from 50 percent who reported positive traffic in June. Meanwhile, 46 percent of operators reported lower customer traffic levels in July, up from 29 percent in June.

Restaurant operators reported relatively steady levels of capital spending. Forty-six 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 100.7 in July – down 0.6 percent from June and the fourth consecutive monthly decline. Although July marked the 11^th consecutive month that the Expectations Index stood above 100, it also represented the weakest level in nine months.

Overall, restaurant operators remain cautiously optimistic that their sales levels will improve in the months ahead, though their outlook softened from recent months. Forty-two percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 50 percent who reported similarly last month. Meanwhile, 15 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 13 percent last month.

In contrast to their generally positive outlook for sales, restaurant operators are noticeably less optimistic about the direction of the overall economy. Only 22 percent of restaurant operators said they expect economic conditions to improve in six months, down from 28 percent last month and the lowest level in 10 months. Meanwhile, 22 percent of operators said they expect economic conditions to worsen in the next six months, while 56 percent think conditions will stay about the same.

Despite the uneasiness about the economy, restaurant operators' capital spending outlook remains relatively firm. Forty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down slightly from 51 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.

The RPI is released on the last business day of each month, and a more detailed data and analysis can be found on Restaurant TrendMapper, the Association's subscription-based web site 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 970,000 restaurant and foodservice outlets and a workforce of nearly 13 million employees. We represent the industry in Washington, D.C., and advocate on its behalf. We operate the industry's largest trade show (NRA Show May 18-21, 2013, in Chicago); leading food safety training and certification program (ServSafe); unique career-building high school program (the NRAEF's ProStart, including the National ProStart Invitational April 19-21, 2013, in Baltimore, Md.); as well as the Kids LiveWell program promoting healthful kids' menu options. For more information, visit www.restaurant.org and find us on Twitter @WeRRestaurants, Facebook and YouTube.