The outlook for the restaurant industry remained cloudy in November, as the National Restaurant Association’s comprehensive index of restaurant activity registered its third decline in the last four months. 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 97.8 in November, down 0.2 percent from its October level. In addition, the RPI remained below 100 for the 25th consecutive month, which signifies contraction in the index of key industry indicators.
“Although the RPI remained below 100 for the 25th consecutive month, which signals contraction, restaurant operators are cautiously optimistic that conditions will improve in the months ahead,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA. “Restaurant operators reported a positive six-month sales outlook for the first time in three months, and remained optimistic that the economy will improve during the next six months.”
The RPI is based on the responses to the NRA’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 Restaurant Performance Index 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, while index values below 100 represent a period of contraction for key industry indicators.
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor, and capital expenditures), stood at 96.0 in November–down 0.5 percent from October and tied for its second-lowest level on record. In addition, November represented the 27th consecutive month below 100, which signifies contraction in the current situation indicators.
Restaurant operators reported negative same-store sales for the 18th consecutive month in November, with the overall results similar to the September and October performances. Twenty-four percent of restaurant operators reported a same-store sales gain between November 2008 and November 2009, up slightly from 22 percent of operators who reported positive sales in October. Sixty-five percent of operators reported a same-store sales decline in November, up from 61 percent who reported negative sales in October.
Customer traffic also remained soft in November, as restaurant operators reported net negative traffic for the 27th consecutive month. Twenty-one percent of restaurant operators reported an increase in customer traffic between November 2008 and November 2009, matching the proportion who reported higher traffic in October. Sixty-two percent of operators reported a traffic decline in November, compared to 60 percent who reported lower traffic in October.
Along with soft sales and traffic levels, operators reported a drop-off in capital spending activity. Thirty-three percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, down from 40 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 99.6 in November—unchanged from its October level. November represented the 24th time in the last 25 months in which the Expectations Index stood below 100, which represents a pessimistic six-month outlook for the four industry indicators.
Restaurant operators are somewhat more optimistic about sales growth in the months ahead. Thirty-one percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 29 percent who reported similarly last month. In comparison, 24 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 29 percent who reported similarly last month.
Restaurant operators also remained cautiously optimistic about the direction of the economy. Twenty-seven percent of restaurant operators said they expect economic conditions to improve in six months, while 19 percent expect economic conditions to worsen during the next six months. Last month, 30 percent of operators said they expected the economy to improve in six months, while 20 percent expected economic conditions to deteriorate.
Restaurant operators’ plans for capital expenditures held relatively constant this month. Forty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, compared to 42 percent who reported similarly last month.
