Industry News | January 3, 2011

Restaurant Industry Took Slight Hit in November, Says NRA

As a result of a downtick in same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index(RPI) fell below 100 in November. The RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 99.9 in November, down 0.8 percent from October. November marked the first time in three months that the RPI stood below 100, the level above which signifies expansion in the index of key industry indicators.

“While the RPI’s November decline was largely the result of softer same-store sales and traffic performances, it doesn’t necessarily mean the industry’s recovery is in peril,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Like the economy as a whole, the restaurant industry’s road to recovery will be one with occasional bumps along the way.”

“Overall, the economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger sales results in the months ahead,” Riehle says.

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 98.7 in November—down 1.3 percent from October and the first decline since May. November’s decline came on the heels of the Current Situation Index reaching the 100 level in October, the first such occurrence since August 2007.  

For the first time in three months, restaurant operators reported a net decline in same-store sales. Forty percent of restaurant operators reported a same-store sales gain between November 2009 and November 2010, down from 51 percent of operators who reported higher same-store sales in October. In comparison, 44 percent of operators reported a same-store sales decline in November, up from 33 percent of operators who reported negative sales in October. 

Restaurant operators also reported a net decline in customer traffic levels in November. Thirty-six percent of restaurant operators reported an increase in customer traffic between November 2009 and November 2010, down from 44 percent of operators who reported higher traffic in October. In comparison, 45 percent of operators reported a traffic decline in November, up from 34 percent in October.

Along with softer sales and traffic levels, capital spending activity dropped off somewhat. Forty percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, down slightly from 42 percent of operators 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 101.2 in November—down 0.2 percent from October and its first decline in four months.     

Although the overall Expectations Index declined in November, restaurant operators remain relatively optimistic about sales growth in the months ahead. Forty-two percent of restaurant operators expect to have higher sales in six months (compared with the same period in the previous year), roughly on par with 43 percent who reported similarly last month. Meanwhile, only 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, up slightly from 12 percent who reported similarly last month.

Restaurant operators are also generally optimistic about the direction of the overall economy. Thirty-seven percent of restaurant operators said they expect economic conditions to improve in six months, up slightly from 35 percent last month. In comparison, 15 percent of operators said they expect economic conditions to worsen in the next six months, up from 12 percent who reported similarly last month. 

Buoyed by a positive outlook for sales and the economy, restaurant operators’ plans for capital expenditures remained relatively steady. Forty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, compared with 48 percent who reported similarly last month. 

For the second consecutive month, restaurant operators reported a modestly positive outlook for staffing gains in the months ahead. Sixteen percent of operators expect to increase staffing levels in six months (compared with the same period in the previous year), while 14 percent plan to reduce staffing levels in six months. 

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.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.