Restaurant operators bullish about sales growth

Dec. 2, 2013

Fueled by stronger same-store sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association's Restaurant Performance Index rose to a four-month high in October. The RPI — a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry — stood at 100.9 in October, up 0.7 percent from September and the strongest level since June. In addition, the RPI stood above 100 for the eighth consecutive month, which signifies expansion in the index of key industry indicators.

"The RPI's October gain was driven by broad-based gains in the index components, most notably solid improvements in same-store sales and customer traffic," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA. "Looking forward, restaurant operators are relatively optimistic about sales growth in the months ahead, though their outlook for the overall economy remains mixed."

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 100.9 in October — up 1.0 percent from a level of 99.9 in September and the highest level in five months. With the exception of September's dip, the Current Situation Index remained above 100 in six of the last seven months, which represents expansion in the current situation indicators.

A majority of operators reported higher same-store sales in October, and the results were a solid improvement over September's performance. Fifty-four percent reported a same-store sales gain between October 2012 and October 2013, up from 41 percent who reported higher sales in September. In comparison, 30 percent reported a decline in same-store sales in October, down from 40 percent in September.

Restaurant operators also reported stronger customer traffic levels in October. Forty-three percent reported higher customer traffic levels between October 2012 and October 2013, up from 33 percent who reported a traffic gain in September. Meanwhile, 39 percent of operators reported a decline in customer traffic in October, down from 44 percent in September.

Along with higher sales and customer traffic, respondents continued to report positive capital spending levels. Fifty-seven percent said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the sixth consecutive month in which a majority of operators reported expenditures.

Expectations Index

The Expectations Index measures restaurant operators' six-month outlook and stood at 100.9 in October — up 0.4 percent from a level of 100.5 in September. In addition, October represented the 12th consecutive month in which the Expectations Index stood above 100.

Operators' outlook for sales growth in the months ahead remains cautiously optimistic. Thirty-six percent expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 34 percent who reported similarly last month. Meanwhile, 11 percent expect their sales volume in six months to be lower than it was during the same period in the previous year, compared to 13 percent last month.

In contrast, operators remained mixed about the direction of the economy. Twenty-seven percent said they expect economic conditions to improve in six months, while 26 percent expect the economy to worsen. Operators' outlook was an improvement over last month, when 19 percent said they expected the economy would improve and 28 percent thought conditions would worsen.

Despite an uncertain outlook for the economy, a majority of restaurant operators are planning for capital expenditures in the months ahead. Fifty-three percent plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 52 percent who reported similarly last month.

Read more about restaurant industry trends.

Topics: Financing and capital improvements , Franchising & Growth , National Restaurant Association , Operations Management , Trends / Statistics

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