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As a result of softer same-store sales and traffic levels and fading optimism among restaurant operators, the outlook for the restaurant industry softened in May, according to the National Restaurant Association's Restaurant Performance Index (RPI). The index is a monthly composite that tracks the health and future outlook of the U.S. restaurant industry.
The index stood at 99.9 in May, down 1.0 percent from April's level. It was the first time in six months that the RPI hovered below 100, which signifies contraction of key industry indicators.
"Like the economy as a whole, the restaurant industry's recovery hit a speed bump in May, with same-store sales and traffic levels softening from recent months," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA. "However, the overall economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger performances in the months ahead."
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.2 in May – down 1.1 percent from April's level of 100.3.
Restaurant operators reported softer same-store sales results in May. Thirty-nine percent of restaurant operators reported a same-store sales gain between May 2010 and May 2011, down from 50 percent of operators who reported higher same-store sales in April.
Operators also reported a net decline in customer traffic in May -- 33 percent of restaurant operators reported an increase in customer traffic between May 2010 and May 2011, down from 38 percent of operators who reported higher traffic in April.
Levels of capital spending activity remained relatively steady, with 44 percent of operators making capital expenditure for equipment, expansion or remodeling during the last three months, down slightly from 48 percent who reported similarly last month.
The outlook for upcoming months
The Expectations Index, which measures restaurant operators' 6-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 100.6 in May – down from a level of 101.5 in April. Although May represented the 10th consecutive month above 100 for the Expectations Index, it was the fourth decline in the last five months.
Operators are not as optimistic about future sales growth as they were earlier in the year. Forty-one percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 55 percent who reported similarly in January.
As a result, they're much less bullish about the direction of the overall economy in the months ahead: 24 percent said they expect economic conditions to improve in six months, down from 46 percent in January and the lowest level in more than two years.
Although operators are slightly less optimistic, they continue to plan for capital spending, as 50 percent plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 49 percent who reported similarly last month.