Restaurant Industry Outlook Softened in July as Restaurant Performance Index Slipped to Its Lowest Level in 11 Months

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Aug 31, 2011, 10:38 ET

Restaurant operators reported softer same-store sales and traffic levels; Operators' outlook for economic conditions fell sharply

WASHINGTON, Aug. 31, 2011 /PRNewswire-USNewswire/ -- As a result of softer same-store sales and traffic levels and a dampened outlook among restaurant operators, the National Restaurant Association's (www.restaurant.org) Restaurant Performance Index (RPI) fell below 100 in July. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.7 in July, down from 100.6 in June and the lowest level in 11 months.

"Although same-store sales and customer traffic levels remained positive in July, restaurant operators' outlook for the economy took a pessimistic turn," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "This survey month was burdened with the debt ceiling crisis and the downgrade in the nation's credit rating, which added an additional layer of uncertainty in an already fragile economic recovery."

"However, if the economy can avoid additional negative shocks in the months ahead, the overall fundamentals continue to point toward growth in the second half of the year," Riehle added.

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 99.8 in July – down 0.7 percent from June's level of 100.5. Although same-store sales and customer traffic remained positive in July, the softness in the labor and capital spending indicators outweighed their performances, which led to a Current Situation Index reading below 100 for the second time in the last three months.

Restaurant operators reported somewhat softer same-store sales results in July. Forty-eight percent of restaurant operators reported a same-store sales gain between July 2010 and July 2011, down slightly from 51 percent of operators who reported higher same-store sales in June. Meanwhile, 34 percent of operators reported a same-store sales decline in July, up from 31 percent of operators who reported lower sales in June.

Restaurant operators also reported softer customer traffic levels in July. Forty percent of restaurant operators reported an increase in customer traffic between July 2010 and July 2011, down from 44 percent of operators who reported higher traffic in June. In comparison, 37 percent of operators reported a traffic decline in July, up from 33 percent who reported lower traffic in June.

In addition to softer sales and traffic results, restaurant operators reported a pullback in capital spending activity. Forty-three percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the lowest level in five months.

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 99.6 in July – down 1.1 percent from June's level of 100.7. In addition, July represented the first time in 20 months that the Expectations Index fell below 100, which indicates a softening in operators' outlook for the months ahead.

Overall, restaurant operators remain relatively optimistic about sales growth in the months ahead. Thirty-nine percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), essentially unchanged from 40 percent who reported similarly last month. However, 23 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 16 percent who reported similarly last month.

Meanwhile, restaurant operators are decidedly less optimistic about the direction of the overall economy in the months ahead. Only 17 percent of restaurant operators said they expect economic conditions to improve in six months, down sharply from 26 percent who reported similarly last month. Meanwhile, 31 percent of operators said they expect economic conditions to worsen in the next six months, up from 20 percent last month and the highest level in 29 months.

Restaurant operators also downgraded their plans for capital spending in the coming months. Forty-two percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 50 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 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 5-8, 2012, 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 27-29, 2012, in Baltimore, Md.) and college-level management program (ManageFirst); 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.