Industry News | April 2, 2013

Restaurant Industry Takes a Tumble in February, NRA Says

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Due in large part to softer same-store sales and customer traffic levels, the National Restaurant Association’s (NRA) Restaurant Performance Index (RPI) slipped below 100 in February.

The RPI, a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry, stood at 99.9 in February, down 0.8 percent from January’s five-month high.

February represented the fourth time in the last five months that the RPI stood below 100, which signifies contraction in the index of key industry indicators.

“The Restaurant Performance Index decline was due largely to softer sales and traffic results, which fell in February amid higher gas prices and the impact of the payroll tax hike,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, sales and traffic comparisons were more difficult due to the extra day in February 2012 as a result of Leap Year.

“Despite the sales and traffic declines in February, restaurant operators remain generally optimistic about business conditions in the months ahead, which suggests they feel the setbacks will be temporary,” Riehle adds.

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, 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 98.3 in February, down 1.4 percent from January’s level.

In addition, the Current Situation Index stood below 100 for the sixth consecutive month, which signifies contraction in the current situation indicators.

With sales comparisons more difficult in February due to Leap Year in 2012, restaurant operators reported a same-store sales decline for the first time in 21 months.

Thirty-three percent of restaurant operators reported a same-store sales gain between February 2012 and February 2013, while 48 percent of operators reported lower sales. In January, 44 percent of operators reported higher same-store sales, while 37 percent reported a sales decline.

Restaurant operators also reported a decline in customer traffic levels in February. Twenty-four percent of restaurant operators reported higher customer traffic levels between February 2012 and February 2013, while 53 percent of operators said their traffic declined.

In January, 33 percent of operators reported an increase in customer traffic, while 40 percent reported lower traffic levels.

Capital spending activity also dipped along with the sales and traffic results. Forty-eight percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, down from 52 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 101.4 in February, down slightly from January’s level of 101.6.

Each of the four expectations indicators stood above 100 for the second consecutive month, which suggests restaurant operators remain generally optimistic about business conditions in the months ahead.

Although restaurant operators’ outlook for sales growth remains positive, their expectations are slightly less bullish compared to last month.

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 46 percent last month.

Meanwhile, 14 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 17 percent last month.

Although restaurant operators have a net positive outlook for the overall economy for the second consecutive month, their confidence is tenuous.

Twenty-five percent of restaurant operators said they expect economic conditions to improve in six months, down from 30 percent who reported similarly last month. Meanwhile, 20 percent of operators said they expect economic conditions to worsen in the next six months, unchanged from last month.

Restaurant operators continue to make plans for capital spending in the months ahead. Fifty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, down slightly from 59 percent who reported similarly last month.