Foodservice operators on the front line every day probably won’t be surprised that the National Restaurant Association’s comprehensive index of restaurant activity remained essentially flat in July.
As a result of soft sales and traffic levels and a deteriorating outlook among operators, the association’s Restaurant Performance Index (RPI) â€“ a monthly composite index that tracks the health and outlook for the U.S. restaurant industry â€“ stood at 99.4 in July, down 0.1 percent from June and its fourth consecutive decline. In addition, the RPI stood below 100 for the third consecutive month, which signifies contraction in the index of key industry indicators.
â€˜While there were signs in recent months that the short-term outlook may be improving, the latest figures indicate that the restaurant industry’s recovery has yet to fully gain traction,â€™ says Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA. â€˜Restaurant operators continued to report declines in same-store sales and customer traffic in July, and their previously-optimistic outlook for sales growth and the economy softened in recent months.â€™
Watch a video of Riehle providing an industry update on the June RPI and how tourism drives restaurant sales growth.
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. The RPI consists of two components, the Current Situation Index and the Expectations Index.
Current Situation Index below 100 for 35th consecutive month
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 98.8 in July â€“ unchanged from its June level. In addition, the Current Situation Index remained below 100 for the 35th consecutive month, which signifies contraction in the current situation indicators.
Restaurant operators reported negative same-store sales for the fourth consecutive month in July, with the overall results similar to the June performance. Thirty-nine percent of restaurant operators reported a same-store sales gain between July 2009 and July 2010, matching the proportion of operators who reported higher sales in June. Meanwhile, 44 percent of operators reported a same-store sales decline in July, compared to 43 percent of operators who reported negative sales in June.
Optimism for sales growth declines
Restaurant operators also have become less optimistic about their prospects for sales growth. Thirty-eight percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 42 percent last month and the lowest level in six months. In comparison, 20 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, compared with 21 percent who reported similarly last month.
Restaurant operators are also much less bullish about the direction of the overall economy. Twenty-six percent of restaurant operators said they expect economic conditions to improve in six months, down from 28 percent who reported similarly last month and the lowest level in 13 months.
Despite the deteriorating outlook, restaurant operators reported a slight uptick in plans for capital expenditures. Forty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 41 percent who reported similarly last month.