News
Restaurant-industry outlook positive despite activity-index drop
February 27, 2007
Washington, D.C. — TheNational Restaurant Association's comprehensive index of restaurant activity registered its largest decline in 17 months, but the NRA claims the restaurant-industry outlook remains positive.
The Association's Restaurant Performance Index (RPI), a monthly composite index that tracks the health of and outlook of the U.S. restaurant industry, stood at 100.6 in January, down 1.1 percent from its December 2006 level.
Despite the decline, the RPI remained above 100 for the 45th consecutive month, which represents expansion in the association's composite index of eight key industry indicators.
"The January sales and traffic declines were due in large part to the combination of extreme weather conditions in some parts of the country and tough comparisons with the strong January 2006 performance," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "In fact, restaurant operators reported solid sales results in each of the first three months of 2006, which will likely make for challenging same-store sales comparisons for the entire first quarter of this year."
The Restaurant Performance Index is based on responses to the NRA's Restaurant Industry Tracking Survey, fielded monthly among restaurant operators nationwide on indicators including sales, traffic, labor and capital expenditures. The RPI consists of two components: the Current Situation Index and the Expectations Index.
The Current Situation Index measures trends in four industry indicators: same-store sales, traffic, labor and capital expenditures. It stood at 98.8 in January, down 2.5 percent from December and its sharpest decline on record. In addition, the index reading below 100 signifies contraction in the current situation indicators — the first occurrence since September 2005, according to the NRA.
Thirty-eight percent of restaurant operators reported a same-store sales gain between January 2006 and January 2007, down from 54 percent who reported a sales gain in December and the lowest level in more than three years. Forty-five percent of operators reported a same-store sales decline in January, up from 24 percent who reported similarly in December.
Customer traffic and capital spending
Twenty-eight percent of restaurant operators reported an increase in customer traffic between January 2006 and January 2007, down from 48 percent who reported a traffic gain in December. Forty-six percent of operators reported a traffic decline in January, while 26 percent said their traffic levels were about the same as they were in January 2006.
Despite the January sales and traffic declines, restaurant operators didn't report much of a drop off in capital spending. Forty-eight percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down slightly from 51 percent who reported similarly last month.
In contrast to the sharp decline in the Current Situation Index, the RPI's expectations indicators registered improvements in January. The Expectations Index measures restaurant operators' six-month outlook for four industry indicators: same-store sales, employees, capital expenditures and business conditions. In January, it stood at 102.2, up 0.3 percent from December and its strongest level in seven months.
Despite the decline, restaurant operators remain optimistic about sales growth in their establishments. Fifty percent of restaurant operators expect to have higher sales in six months — compared to the same period in the previous year — while only 11 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period last year.
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