Industry News | June 30, 2007

Restaurant Industry Outlook Remains Positive

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The outlook for the restaurant industry remained positive in May, as the National Restaurant Association’s comprehensive index of restaurant activity held relatively steady. 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 100.9 in May, down 0.1 percent from its April level of 101.0. Despite the modest downtick, the RPI remained above 100 for the 49th consecutive month, which represents expansion in the Association’s composite index of eight key industry indicators.

“The underlying trends in the Restaurant Performance Index were positive overall in May,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Bolstered by improvements in capital spending activity, the current situation component registered a modest gain in May. In contrast, a tempered economic outlook among restaurant operators led to the second consecutive decline in the expectations component of the Index.”

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. 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 100.2 in May – up 0.2 percent from its April level.

Restaurant operators reported positive same-store sales for the third consecutive month in May. Forty-seven percent of restaurant operators reported a same-store sales gain between May 2006 and May 2007, up slightly from 46 percent who reported a sales gain in April. Thirty-six percent of operators reported a same-store sales decline, while 17 percent said their sales volume was about the same as it was in May 2006.

Customer traffic levels were relatively steady in May. Thirty-nine percent of restaurant operators reported an increase in customer traffic between May 2006 and May 2007, while 40 percent reported a traffic decline. Twenty-one percent of operators said their customer traffic levels were about the same as they were in May 2006.

Restaurant operators continued to report solid capital spending levels. Fifty-three percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, up from 49 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 101.6 in May – down 0.3 percent from April and its lowest level in nine months.

Restaurant operators remained relatively optimistic about sales growth in the coming months. Forty-seven percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 46 percent who reported similarly last month. Meanwhile, only 13 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. In contrast to their positive expectations for sales growth, restaurant operators are not as optimistic about the direction of the overall economy. Only 25 percent of operators expect economic conditions to improve in six months – the lowest level in 10 months. Twenty percent of operators said they expect economic conditions to worsen in six months, while 55 percent expect economic conditions to remain about the same. A solid majority of restaurant operators are planning to make new capital expenditures in the coming months. Fifty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months – down slightly from 61 percent who reported similarly last month.