"The Restaurant Performance Index remains well above its 2002 and 2003 levels, although it has edged down in recent months," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "The first and second quarters of 2004 are the strongest quarters on record for the Index, fueled by positive same-store sales, traffic levels and capital expenditure activity."
Customer traffic also remained positive in July. Forty-seven percent of restaurant operators reported an increase in customer traffic between July 2003 and July 2004, while only 33% of operators reported a traffic decline.
In addition to solid performances in same-store sales and traffic, restaurant operators continued to make capital expenditures in recent months. Fifty-six percent of operators made a capital expenditure for equipment, expansion or remodeling during the last three months - the seventh consecutive month at a level above 50%.
Although restaurant operators reported positive results in terms of same-store sales and customer traffic, operators continue to be challenged by high food costs. For the fourth consecutive month, food costs topped the list of challenges among restaurant operators. Twenty-six percent of restaurant operators identified high food costs as the number-one challenge currently facing their business, easily outpacing building-and-maintaining-sales-volume, which was reported as the top challenge by 15% of operators.
The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators, declined 0.8% in July. Although operators remain optimistic about industry growth during the next several months, the strength of their confidence softened in recent months.
Although operator optimism slipped somewhat in recent months, a majority of operators expect to have higher sales in six months. Fifty-three percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), while only 13% of operators expect to have lower sales in six months (compared to the same period in the previous year).
Restaurant operators are also somewhat less optimistic about the direction of the overall economy. Thirty-eight percent of operators said they expect economic conditions in six months will be better than they are now, down 25 percentage-points from the record high of 63% registered during the first two months of 2004. Fifty-one percent of restaurant operators expect economic conditions in six months to be about the same as they are now, while only 11% of operators expect economic conditions to worsen in six months.