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Restaurant Industry Outlook Remained Cautious as Restaurant Performance Index Was Essentially Flat

WASHINGTON(September 30, 2010 - PRNewswire)—As a result of continued soft sales and traffic levels, the National Restaurant Association's comprehensive index of restaurant activity remained below 100 for the fourth consecutive month in August.  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 99.5 in August, essentially unchanged from the previous three months.  In addition, the RPI stood below 100 for the fourth consecutive month, which signifies contraction in the index of key industry indicators.

"Although the sales and traffic indicators remained soft in August, restaurant operators remain relatively optimistic that conditions will improve in the months ahead," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association.  "Restaurant operators' outlook for sales growth improved somewhat in August, and their plans for capital spending activity held steady."

The RPI 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, and index values below 100 represent a period of contraction for key industry indicators.  The RPI consists of two components, the Current Situation Index and the Expectations Index.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 98.9 in August – up slightly from a level of 98.8 in July.  However, the Current Situation Index remained below 100 for the 36th consecutive month, which signifies contraction in the current situation indicators.  

Restaurant operators reported a net decline in same-store sales for the fifth consecutive month in August, with results almost identical to the previous two months.  Thirty-eight percent of restaurant operators reported a same-store sales gain between August 2009 and August 2010, compared with 39 percent of operators who reported higher sales in both June and July.  Meanwhile, 43 percent of operators reported a same-store sales decline in August, compared with 44 percent of operators who reported negative sales in July.    

Restaurant operators also continued to report a net decline in customer traffic levels in August.  Thirty-five percent of restaurant operators reported an increase in customer traffic between August 2009 and August 2010, matching the proportion of operators who reported higher customer traffic in July.  Forty-two percent of operators reported a traffic decline in August, down slightly from 46 percent who reported lower traffic in July.

Restaurant operators reported relatively steady capital spending levels in recent months.  Forty-four percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the past three months, relatively unchanged from the levels reported in the previous three months.

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 100.1 in August – up slightly from a level of 100.0 in July.      

Restaurant operators remain cautiously optimistic about sales growth in the coming months.  Thirty-eight percent of restaurant operators expect to have higher sales in six months (compared with the same period in the previous year), matching the proportion who reported similarly last month.  In comparison, 17 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, compared with 20 percent who reported similarly last month.

Although restaurant operators are relatively positive about sales growth in the months ahead, they are not as optimistic about the direction of the overall economy.  Twenty-five percent of restaurant operators said they expect economic conditions to improve in six months, down slightly from 26 percent who reported similarly last month and the lowest level in 18 months.  In comparison, 21 percent of operators said they expect economic conditions to worsen in the next six months, matching the proportion who reported similarly last month.  

Although their economic outlook softened in recent months, restaurant operators are holding relatively steady on plans for capital expenditures.  Forty-two percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, compared with 43 percent who reported similarly last month.  

The RPI is based on the responses to the National Restaurant Association'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 full report is available online (http://www.restaurant.org/pdfs/research/index/201008.pdf).

The RPI is released on the last business day of each month, and more detailed data and analysis can be found on Restaurant TrendMapper (www.restaurant.org/trendmapper), the Association's subscription-based service that provides detailed analysis of restaurant industry trends.

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