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Distributors Should Exploit Upbeat Operator Outlook



The NRA had reported that the outlook for the restaurant industry improved in June, as its comprehensive index of restaurant activity registered a solid gain, the strongest in six months.

The NRA's Restaurant Performance Index, a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry, stood at 102.0 in June, up 0.6% from a level of 101.4 in May. In addition, June represented the 26th consecutive month above 100 – a level, which represents expansion in the Association's composite index of eight key industry indicators and the strongest Index advance in 2005.

{mosimage}In the wake of such a strong showing, Hudson Riehle, senior vice president of research and information services, replying to a question posed by ID Access, said foodservice distributors should be confident "that the restaurant industry continues to exhibit strong performance both in traffic and sales."

According to Riehle, the operators' expectations for the future, based on the positive results of the latest RPI, remain on a solid path.

"June's increase in the Restaurant Performance Index was driven by a strong gain in the current situation component of the Index," said Riehle. "Restaurant operators reported solid performances in same-store sales, customer traffic, staffing levels and capital expenditures, leading to the strong June Index increase. Another contributing factor is the solid growth in summer travel and tourism, which typically boosts traffic in the nation's 900,000 restaurants."

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), rose to 101.3 in June – up 0.9% from May and its strongest level in six months.

In terms of operator expectations, Riehle noted a difference between operators' outlook for sales and the overall economy. "Although a majority of restaurant operators are expecting sales growth in the short-term, their outlook for growth in the overall economy is not as optimistic," he said. "Fifty-five percent of operators expect their sales in six months to be higher than it was in the previous year, while 38% of operators expect the economy to be stronger in six months. A majority of operators – 53% - expect economic conditions in six months to be about the same as they are now."

Collectively, operator segments are confident about increases in same store dollar volume six months from now but the leading sectors are QSR (59%), family dining (57%) and casual (53%).

Riehle advised distributors to look not only at the popular segments but because the industry is extremely large, diverse and fragmented, they should also pay attention to the emerging operators.

"For example, QSR, when you include everything, is running at a $150 billion rate this year. However, within that massive $150 billion, there are emerging multi-unit operators that haven't attracted a lot of press or investor attention. As long as the proportion of the food dollar spent away from home continues to move up year after year, competition really doesn't turn into a share stealing effort, rather it's like a rising tide that lifts all boats," Riehle noted.

For the 23rd consecutive month, restaurant operators reported an increase in same-store sales. Fifty-eight percent of restaurant operators reported a same-store sales gain between June 2004 and June this year - up from 50% of operators who registered a sales gain in May. Thirty percent of operators reported a same-store sales decline between June 2004 and June this year, while 12% of operators reported no change in sales.

Customer traffic was also stronger in June. Forty-four percent of restaurant operators reported an increase in customer traffic between June 2004 and June 2005 - up from 36% of operators who registered an increase in May. Thirty-six percent of operators reported a decline in customer traffic between June 2004 and June 2005, while 20% of operators reported no change in customer traffic.

Restaurant operators also reported an increase in staffing levels in June. Twenty-five percent of operators said they added employees between June 2004 and June 2005, while only 18% reported staffing declines. Fifty-seven percent of operators said their staffing levels were unchanged.

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), edged up 0.2% in June to a level of 102.7 - its first gain in four months.

In addition to their positive sales outlook, a solid majority of restaurant operators are making plans for new capital expenditures. Sixty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 57% who reported similarly last month.

Restaurant operators are also planning to increase staffing levels during the next several months. Twenty-four percent of operators expect to have higher staffing levels in six months (compared to the same period in the previous year), while only 10% of operators expect to employ fewer workers in six months (compared to the same period in the previous year).

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