Driven by a solid improvement in restaurant operators’ outlook for sales growth, capital spending plans, and staffing levels, the National Restaurant Association’s Restaurant Performance Index (RPI) rose to its highest level in 27 months in February. The comprehensive index of restaurant activity stood at 99.0, up 0.7 percent from January and its strongest level since November 2007.
“The RPI’s strong gain in February was the result of broad-based improvements among the forward-looking indicators,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators’ optimism for sales growth stood at its strongest level in 29 months, with capital spending plans also rising to a two-year high.”
“In addition, restaurant operators reported a positive outlook for staffing gains for the first time in more than two years,” Riehle says. “This bodes well for replacing the more than 280,000 eating and drinking place jobs lost during the recession.”
The RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—remained below 100 for the 28th consecutive month. 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 96.7 in February—up 0.1 percent from January’s level of 96.6. February, however, represented the 30th consecutive month below 100, which signifies contraction in the current situation indicators.
Restaurant operators reported negative same-store sales for the 21st consecutive month in February, with the overall results similar to the January performance. Twenty-eight percent of restaurant operators reported a same-store sales gain between February 2009 and February 2010, compared with 27 percent of operators who reported higher sales in January. Fifty-seven percent of operators reported a same-store sales decline in February, matching the proportion that reported negative sales in January.
Customer traffic also remained soft in February, as restaurant operators reported net negative traffic for the 30th consecutive month. Twenty-five percent of restaurant operators reported an increase in customer traffic between February 2009 and February 2010, down slightly from 26 percent who reported higher customer traffic in January. Fifty-five percent of operators reported a traffic decline in February, compared with 54 percent who reported lower traffic in January.
Along with continued soft sales and traffic performances, capital spending activity continued to drop off. Thirty percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the past three months, down from 32 percent last month and the lowest level on record.
In contrast to the trends in the current situation indicators, restaurant operators are increasingly optimistic about improving conditions in the months ahead. 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—up 1.2 percent from January and its strongest level in 29 months. In addition, the Expectations Index stood above the 100 level for the second consecutive month, which signifies expansion in the forward-looking indicators.
Restaurant operators are increasingly optimistic about sales growth in the months ahead. Forty-four percent of restaurant operators expect to have higher sales in six months (compared with the same period in the previous year), up from 33 percent who reported similarly last month and the strongest level in 29 months. In comparison, just 16 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, down from 22 percent last month.
Restaurant operators are also more optimistic about the direction of the economy. Thirty-eight percent of restaurant operators said they expect economic conditions to improve in six months, while just 13 percent expect economic conditions to worsen during the next six months. Last month, 29 percent of operators said they expected the economy to improve in six months, and 18 percent expected economic conditions to deteriorate.
Along with an improving outlook for sales and the economy, restaurant operators’ plans for capital expenditures continued to expand. Forty-eight percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, up from 43 percent who reported similarly last month and the strongest level in two years.