Driven by improvements in both business performance and expectations for future business conditions, the National Restaurant Association's comprehensive index of restaurant activity rose to its highest level in 22 months in December. The Association's Restaurant Performance Index (RPI), a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry, stood at 98.7 in December, up 0.9 percent from November and its strongest level in nearly two years.
"The RPI's strong gain in December was the result of broad-based improvements among several index components," says Hudson Riehle, senior vice president of the Research and Knowledge Group for the National Restaurant Association. "Although restaurant operators continued to report a net decline in same-store sales and customer traffic, both registered their strongest performances since the summer of 2008."
"Along with a solid improvement among the current situation indicators, restaurant operators are increasingly optimistic about industry growth in the months ahead," Riehle adds. "More than a third of restaurant operators expect to their sales to improve in six months, the highest level in more than two years."
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 RPI consists of two components: the Current Situation Index and the Expectations Index.
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. Despite the solid improvement in December, the RPI remained below 100 for the 26th consecutive month.
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor, and capital expenditures), stood at 97.3 in December—up a strong 1.4 percent from November and its highest level since August 2008. However, December still represented the 28th consecutive month below 100, which signifies contraction in the current situation indicators.
Although restaurant operators reported negative same-store sales for the 19th consecutive month, the overall results improved dramatically in December. Thirty-five percent of restaurant operators reported a same-store sales gain between December 2008 and December 2009, well above the 24 percent of operators who reported higher sales in November. Forty-nine percent of operators reported a same-store sales decline in December, down sharply from 65 percent who reported negative sales in November.
Restaurant operators also reported an improving customer traffic performance in December. Thirty percent of restaurant operators reported an increase in customer traffic between December 2008 and December 2009, up from just 21 percent who reported higher customer traffic in November. Forty-seven percent of operators reported a traffic decline in December, down from 62 percent who reported lower traffic in November.
Although restaurant operators reported stronger sales and traffic results in December, capital spending activity continued to drop off. Thirty-one percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, down from 33 percent last month and the lowest level on record.
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 100.0 in December, up from a level of 99.6 registered in the previous two months. December represented the first time in eight months that the Expectations Index reached the 100 level, which means restaurant operators were no longer pessimistic about the six-month outlook for the industry.
Restaurant operators are increasingly optimistic about sales growth in the months ahead. Thirty-five percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 31 percent who reported similarly last month and the highest level in more than two years. In comparison, 21 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 24 percent who reported similarly last month.
Restaurant operators are also more optimistic about the direction of the economy in the months ahead. Thirty-four percent of restaurant operators said they expect economic conditions to improve in six months, while 18 percent expect economic conditions to worsen during the next six months. Last month, 27 percent of operators said they expected the economy to improve in six months, while 19 percent expected economic conditions to deteriorate.
Despite the positive outlook for sales and the economy, restaurant operators' plans for capital expenditures dipped somewhat this month. Thirty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, down from 41 percent who reported similarly last month.