WASHINGTON, D.C. — The outlook for the restaurant industry worsened in September, as the National Restaurant Association's comprehensive index of restaurant activity fell to a new record low. The association's Restaurant Performance Index (RPI) — a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry — stood at 96.7 in September, down 1.7 percent from August and its 11th consecutive month below 100.
"The September decline in the Restaurant Performance Index was the result of broad-based declines across the index components, with both the Current Situation and Expectations indices falling to record lows," said Hudson Riehle, senior vice president of research and iInformation services for the association. "Nearly two out of three restaurant operators reported negative same-store sales and traffic levels in September, while 50 percent expect their sales in six months to be lower than the same period in the previous year.
"The rapid deterioration in economic conditions is reflected in operator sentiment, with a record 42 percent of restaurant operators saying the economy is currently the number-one challenge facing their business," Riehle added. "Operators aren't optimistic about the economy looking forward either, with 50 percent expecting economic conditions to worsen in six months."
The RPI is based on the responses to the NRA'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 consists of two components — the Current Situation Index and the Expectations Index.
The Restaurant Performance Index 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 under 100 represent a period of contraction for key industry indicators.
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.4 in September — down 1.5 percent from August and its lowest level on record. In addition, September marked the 13th consecutive month below 100, which signifies contraction in the current situation component. Restaurant operators continued to report negative same-store sales, with September representing the worst result in more than five years. Twenty-six percent of restaurant operators reported a same-store sales gain between September 2007 and September 2008, down from 38 percent who reported a sales gain in August. Sixty percent of operators reported a same-store sales decline in September, up from 48 percent who reported similarly in August.
In addition to negative sales, September traffic levels represented the weakest performance in the six-year history of the RPI. Only 15 percent of restaurant operators reported an increase in customer traffic between September 2007 and September 2008, down from 25 percent who reported similarly in August. Sixty-six percent of operators reported a traffic decline in September, up from 55 percent who reported negative traffic in August.
Along with weak sales and traffic levels, capital spending activity remains extremely soft. Forty percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, which equals the lowest level on record.
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 97.0 in September — down 1.9 percent from August and the lowest level on record. In addition, September represented the 11th consecutive month in which the Expectations Index stood below 100.
Restaurant operators grew more pessimistic about sales growth in coming months. Only 15 percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 30 percent who reported similarly last month. Meanwhile, 50 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, up from 33 percent who reported similarly last month and the highest level on record.
Restaurant operators also remain decidedly pessimistic about the direction of the economy. Fourteen percent of operators expect economic conditions to improve in six months, down from 24 percent who reported similarly last month. Fifty percent of operators said they expect economic conditions to worsen in six months, up sharply from 33 percent who reported similarly last month.
Restaurant operators remain reticent to plan for capital expenditures in the months ahead. Just 41 percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 43 percent last month and the lowest level on record.
While the RPI is released on the last business day of each month, 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.