Industry News | January 3, 2006

NRA Offers an Optimistic Outlook for the Restaurant Industry in 2006

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The outlook for the restaurant industry remains optimistic going into 2006, says the National Restaurant Association. The group's comprehensive index of restaurant activity held steady in November. The Association's Restaurant Performance Index—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 101.5 in November, unchanged from its October level. In addition, November represented the 31st consecutive month above 100, a level which represents expansion in the association's composite index of eight key industry indicators.

"The November performance of the Restaurant Performance Index is a positive sign for the restaurant industry heading into the new year," says Hudson Riehle, senior vice president of Research and Information Services for the Association. "Of particular note is restaurant operators' optimistic outlook for the overall economy, which rose to its strongest level in nine months."

The Restaurant Performance Index 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 Index consists of two components, the Current Situation Index and the Expectations Index. (Click on the following link to view this month's Index report: http://www.restaurant.org/pdfs/research/index/200511.pdf).

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor, and capital expenditures), stood at 100.4 in November, unchanged from its October level.

For the 28th consecutive month, restaurant operators reported an increase in same-store sales. Fifty-one percent of restaurant operators reported a same-store sales gain between November 2004 and November 2005, up from 49 percent of operators who registered a sales gain in October. Thirty-one percent of operators reported a same-store sales decline between November 2004 and November 2005, while 18 percent of operators reported no change in sales.

Customer traffic also remained positive in November. Forty percent of restaurant operators reported an increase in customer traffic between November 2004 and November 2005, up slightly from 39 percent who reported traffic gains in October. Thirty-seven percent of operators reported traffic declines in November, while 23 percent reported no change in customer traffic.

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 102.6 in November, up from 102.5 in October and its third consecutive monthly gain.

A majority of restaurant operators are optimistic about sales growth in the coming months. Fifty-two percent of restaurant operators expect their sales volume in six months to be higher than it was during the same period in the previous year - the second consecutive month above 50 percent. In contrast, just 13 percent of restaurant operators expect their sales in six months to be lower than it was during the same period in the previous year.

In addition to a positive sales outlook, restaurant operators are also more optimistic about the direction of the overall economy. Forty-one percent of operators expect economic conditions to improve in six months, the strongest level in nine months. Meanwhile, just 11 percent of operators said they expect economic conditions to worsen in six months, while 48 percent expect economic conditions to remain about the same.

Another positive indicator is the continued strong outlook for capital expenditure activity in the restaurant industry. Sixty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, the second consecutive month at a level above 60 percent.

While the Restaurant Performance Index is consistently released on the last business day of each month, more detailed data and analysis can be found on Restaurant TrendMapper (www.restaurant.org/trendmapper), the association's subscription-based web site that provides detailed analysis of restaurant industry trends.