Industry News | February 26, 2010

Sales Down in January, But Optimism Remains

Bookmark/Search this post
Email this story Email this story
Printer-friendly versionPrinter-friendly version

Read More About

Restaurant operators gained confidence about future economic and business conditions in the first month of this year, according to the National Restaurant Association’s comprehensive index of restaurant activity. As a result of softening sales and traffic results in January, however, the Restaurant Performance Index (RPI) backed off slightly from December’s 22-month high.

The association’s RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 98.3 in January, down 0.3 percent from December’s level.

“Although the current situation indicators remained soft in January, the Expectations Index rose above 100 for the first time in 9 months,” says Hudson Riehle, senior vice president of Research and Knowledge Group for the National Restaurant Association. “Restaurant operators are relatively optimistic about improving sales growth and economic conditions in the months ahead, and their capital spending plans rose to the highest level in five months.”

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. January’s mark of 98.3 represents the 27th consecutive month of an index below 100, which signifies contraction in the index of key industry indicators.

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, 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 96.6 in January—down 0.8 percent from December. In addition, January represented the 29th consecutive month below 100, which signifies contraction in the current situation indicators. After posting a moderate improvement in December, restaurant operators reported a softening in sales results in January. Twenty-seven percent of restaurant operators reported a same-store sales gain between January 2009 and January 2010, down from 35 percent of operators who reported higher sales in December. Fifty-seven percent of operators reported a same-store sales decline in January, up from 49 percent who reported negative sales in December.

Restaurant operators also reported softer customer traffic results in January. Twenty-six percent of restaurant operators reported an increase in customer traffic between January 2009 and January 2010, down from 30 percent who reported higher customer traffic in December. Fifty-four percent of operators reported a traffic decline in January, up from 47 percent who reported lower traffic in December.

Capital spending activity in the restaurant industry held relatively steady in recent months. Thirty-two percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the past three months, roughly on par with the levels reported by operators in the previous two months.

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 100.1 in January—up 0.2 percent from December and its third gain in the past four months. In addition, the Expectations Index crossed above the 100 level for the first time in 9 months, which signifies expansion in the forward-looking indicators.

Restaurant operators remain relatively optimistic about sales growth in the months ahead. Thirty-three percent of restaurant operators expect to have higher sales in six months (compared with the same period in the previous year), compared with 35 percent who reported similarly last month. In comparison, 22 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, and 21 percent reported similarly last month.

Restaurant operators are also cautiously optimistic about the direction of the economy in the months ahead. Twenty-nine percent of restaurant operators said they expect economic conditions to improve in six months, and 18 percent expect economic conditions to worsen during the next six months. Last month, 34 percent of operators said they expected the economy to improve in six months, and 18 percent expected economic conditions to deteriorate.

With a relatively optimistic outlook for sales and the economy, restaurant operators’ plans for capital expenditures ticked upward this month. Forty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, up from 39 percent who reported similarly last month.