NRA's Restaurant Performance Index Remained Above 100 Despite Softer Sales
As a result of softer sales and traffic levels and restaurant operators’ dampened outlook for the economy, the National Restaurant Association’s Restaurant Performance Index (RPI) declined for the second consecutive month. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.7 in July, down 0.6 percent from June’s level of 101.3. Despite the decline, the RPI remained above 100 for the fifth consecutive month, which signifies expansion in the index of key industry indicators.
“The RPI’s July decline was the result of pullbacks in both the current situation and expectations indicators,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Most notably, restaurant operators’ outlook for the economy fell to a five-month low, with only 23 percent of operators expecting business conditions to improve in the next six months.”
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 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 100.1 in July – down 0.6 percent from a level of 100.7 in June and the second consecutive monthly drop. Despite the recent declines, the Current Situation Index remained above 100 for the fourth consecutive month.
Although restaurant operators continued to report net positive same-store sales in July, the results were softer than the previous two months. Forty-four percent of restaurant operators reported a same-store sales gain between July 2012 and July 2013, down from 52 percent who reported higher sales in June and 63 percent who reported a sales gain in May. In comparison, 36 percent of operators reported a decline in same-store sales in July, up slightly from 34 percent in June.
Restaurant operators reported a net decline in customer traffic for the first time in three months. Thirty-five percent of restaurant operators reported higher customer traffic levels between July 2012 and July 2013, while 43 percent of operators said their traffic declined. In June, 43 percent of operators reported an increase in customer traffic, while 39 percent reported lower traffic levels.
Despite the dampened sales and traffic results, restaurant operators reported positive capital spending levels. Fifty-eight percent of operators saying they made a capital expenditure for equipment, expansion, or remodeling during the last three months, up from 52 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 101.3 in July – down 0.6 percent from June and the lowest level in seven months. Despite the decline, each of the four expectations indicators stood above 100 for the seventh consecutive month, which indicates restaurant operators remain generally optimistic about business conditions in the months ahead.
Restaurant operators’ sales outlook was dampened somewhat from previous months. Thirty-seven percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 46 percent who reported similarly last month. Meanwhile, 9 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 to 11 percent last month.
Restaurant operators are also less optimistic about overall economic conditions. Twenty-three percent of restaurant operators said they expect economic conditions to improve in six months, down from 30 percent who reported similarly last month. Eighteen percent of operators said they expect economic conditions to worsen in the next six months, up slightly from 16 percent last month.
Along with a dampened outlook for sales and the economy, restaurant operators reported a pullback on capital spending plans for the months ahead. Fifty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 59 percent who reported similarly last month.
Restaurant operators’ outlook for staffing levels remained generally positive for the coming months. Twenty-three percent of operators plan to increase staffing levels in six months (compared to the same period in the previous year), while 10 percent said they plan to cut positions.
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 RPI is released on the last business day of each month, and a more detailed data and analysis can be found on Restaurant TrendMapper, the Association’s subscription-based web site that provides detailed analysis of restaurant industry trends.