Restaurants See Positive Signals

Although it may have been only a slight increase, the National Restaurant Association’s Restaurant Performance Index (RPI) brought some much-needed good news to the on-premise industry: The July RPI stood at 98.1, up 0.3 percent from its June level and the first gain the index has seen in three months. But the RPI still remained below 100 for the 21st consecutive month, signifying contraction in the industry.

The RPI, which is based on responses to the NRA’s monthly Restaurant Industry Tracking Survey, measures the health of the industry in relation to a steady-state level of 100; values above 100 indicate expansion, while values below 100 indicate contraction. The key industry indicators measured include sales, traffic, labor and capital expenditures. Read the full report here.

“Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are more optimistic about improving conditions in the months ahead,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators reported a positive six-month economic outlook, and the proportion expecting higher sales rose to its highest level in three months.” Nationally, 2008 and 2009 have been the most difficult years for the restaurant industry in several decades, Riehle told the Washington Business Journal.

Restaurant operators noted an improvement in July over June’s soft performance — 26 percent reported a same-store sales gain between July 2008 and July 2009, up from 22 percent who reported positive sales in June. Fifty-eight percent reported a same-store sales decline in July, down slightly from 61 percent who reported negative sales in June.

National Restaurant Association's Restaurant Performance Index
Values Greater than 100 = Expansion; Values Less than 100 = Contraction

Customer traffic also was down in July for the 23rd consecutive month; 23 percent reported an increase in customer traffic between July 2008 and July 2009, up slightly from 19 percent who reported similarly in June, while 59 percent reported a traffic decline in July.

The Expectations Index, which measures restaurant operators’ six-month outlook for same-store sales, employees, capital expenditures and business conditions, rose 0.5 percent from June to July, to 99.4. This marked the Expectations Index’s first gain in three months and resulted from an improvement in outlook for sales growth and the overall economy. Thirty-one percent of operators expect to have higher sales in six months (compared to the same period in the previous year), up from 24 percent who said this in June. Additionally, 32 percent expect economic conditions to improve in six months, a 7 percent increase over this belief in June.

Operators’ positive expectations have been backed up by another recent study: RBC Capital Markets’ September restaurant spending survey showed consumers’ restaurant spending plans rose 3 percent from May’s survey and 14 percent from last year’s September survey, Nation’s Restaurant News reported.

Sixteen percent of respondents said they plan to spend more on dining out over the next three months, a 3 percent increase from May’s survey and up 8 percent from February. Similarly, 33 percent said they planned to spend less, down from 39 percent in May and 50 percent in February.

“Confidence in the economy is improving, as those planning to spend more at restaurants cited better job security and less need to save money,” said RBC restaurant securities analyst Larry Miller in a statement. “Value is driving consumers to eat out more, as are having less time to cook and an uptick in workers per household.”

Consumers might frequent brands like Red Lobster, Chipotle, Olive Garden, Maggiano’s Little Italy and Panera Bread more often, according to respondents, while they would not increase their presence at Denny’s, Golden Corral and Morton’s, The Steakhouse.

The survey queried more than 2,000 consumers, and their most notable reason for increased dining out was value, spurred by more dollar menu items, bundled three-course meals or fixed price menus. Customers also look for value in service, menu quality and experience, according to the survey.

And although they’re getting good news, many operators are not sold on success in Q4. In RBC’s Operator Survey, 50 percent of restaurant operators said sales wouldn’t change from the current levels, while 46 percent said sales would improve from a year ago, NRN also reported. Those who said sales would improve based this on easier comparisons to a year ago, improved cost structures and positive economic data like consumer confidence. Those who believe sales will decline point to a summer sales slump and rising unemployment.

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