“The recent growth in the RPI was driven by the Expectations component, which rose above 100 in April for the first time in 18 months, a level which indicates expansion,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Although the RPI’s Current Situation indicators are still in a period of contraction, the solid improvement in the forward-looking indicators suggests that the end of the industry’s downturn may be in sight.”
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 Index consists of two components – the Current Situation Index and the Expectations Index.
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, while index values below 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 97.0 in April – up 0.9 percent from March and its highest level since August 2008. However, April represented the 20th consecutive month below 100, which continues to signify contraction in the current situation indicators.
Sales, Traffic Still Soft but Capital Spending Rises
Even though sales comparisons benefitted from Easter falling in April this year, restaurant operators reported negative same-store sales for the 11th consecutive month in April. Twenty-six percent of restaurant operators reported a same-store sales gain between April 2008 and April 2009, up slightly from 24 percent who reported a sales gain in March. Fifty-nine percent of operators reported a same-store sales decline in April, down from 63 percent who reported negative sales in March.
Restaurant operators reported negative customer traffic levels for the 20th consecutive month in April. Twenty-three percent of restaurant operators reported an increase in customer traffic between April 2008 and April 2009, up from 20 percent who reported similarly in March. Sixty percent of operators reported a traffic decline in April, down from 63 percent who reported similarly in March.
Although sales and traffic levels remained soft, restaurant operators reported an uptick in capital spending activity. Forty-three percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the highest level in 10 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 100.2 in April – up 0.8 percent from March and its fifth consecutive monthly increase. In addition, the Expectations Index crossed above the 100 level for the first time in 18 months, which signifies expansion in the forward-looking indicators.
Growth in the Expectations Index was driven by restaurant operators’ improving outlook for both sales and the economy. In fact, for the first time in 15 months, restaurant operators reported a positive six-month outlook for sales growth. Thirty-three percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 30 percent last month and the highest level in 18 months. Meanwhile, just 30 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, down from 38 percent who reported similarly last month.
Restaurant operators also continue to grow more optimistic about the economy. Thirty-seven percent of restaurant operators said they expect economic conditions to improve in six months, up from 30 percent who reported similarly last month and the highest level in three years. In comparison, only 16 percent of operators expect economic conditions to worsen in six months, down from 21 percent last month.
Along with an improving outlook, restaurant operators are also ramping up plans for capital expenditures in the months ahead. Forty-six percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 44 percent last month and just 37 percent four months ago.
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