Restaurant industry still struggling to recover

by Bryan Salvage
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WASHINGTON – For the month of July, the National Restaurant Association’s (N.R.A.) comprehensive index of restaurant activity remained essentially flat as a result of soft sales and traffic levels and a deteriorating outlook among restaurant operators.

N.R.A.’s Restaurant Performance Index (R.P.I.) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – was 99.4 in July, down 0.1% from June and its fourth consecutive decline. The R.P.I. also stood below 100 for the third consecutive month, which signifies contraction in the index of key industry indicators.

“While there were signs in recent months that the short-term outlook may be improving, the latest figures indicate the restaurant industry’s recovery has yet to fully gain traction,” said Hudson Riehle, senior vice president of the N.R.A.’s Research and Knowledge Group.

The R.P.I. 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 R.P.I. 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 98.8 in July – unchanged from its June level. In addition, the Current Situation Index remained below 100 for the 35th consecutive month, which signifies contraction in the current situation indicators.

Restaurant operators reported negative same-store sales for the fourth consecutive month in July, with the overall results similar to the June performance. Thirty-nine percent of restaurant operators reported a same-store sales gain between July 2009 and July 2010, matching the proportion of operators who reported higher sales in June. Meanwhile, 44% of operators reported a same-store sales decline in July, compared to 43% of operators who reported negative sales in June.

For the month of July, restaurant operators also relayed a net decline in customer traffic levels. Thirty-five percent of restaurant operators reported an increase in customer traffic between July 2009 and July 2010, up slightly from 33% of operators who reported higher customer traffic in June. Forty-six percent of operators reported a traffic decline in July, up from 43% who reported lower traffic in June.

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 100.0 in July – down 0.1% from June and its lowest level since December 2009. In addition, the Expectations Index declined for the fourth consecutive month after reaching a three-year high in March.

Restaurant operators have become less optimistic about their prospects for sales growth in recent months and they are also much less bullish about the direction of the overall economy.
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