As a result of dampened sales and traffic levels and a mixed outlook for future business conditions in the United States, the National Restaurant Association’s Restaurant (NRA) Performance Index (RPI) fell for the second consecutive month in August. The RPI – a monthly composite index that tracks the health of and outlook for the US restaurant industry – stood at 100.2, down 0.4 percent from a level of 100.6 in July.
August represented the lowest RPI reading since January, and the decline was the result of drops in both the current situation and expectations components. Restaurant operators reported softer same-store sales and customer traffic levels in August, and their six-month outlook for sales fell to its lowest level in more than a year. A bright spot was the outlook for capital spending, with a majority of operators anticipating expenditures in the next six months.
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 Restaurant Performance Index 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 100.0 in August – down 0.5 percent from a level of 100.4 in July. August represented the second consecutive monthly decline in the current situation component, and marked the lowest reading since April.
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 100.5 in August – down 0.3 percent July and the third consecutive monthly drop. August represented the lowest reading in the Expectations Index since December 2015.
Mixed Sales and Traffic Results
Restaurant operators continued to report mixed same-store sales and customer traffic results in August. Thirty-nine percent of operators reported a same-store sales increase between August 2016 and August 2017, down from 46 percent who reported higher sales in July. Forty percent reported a same-store sales decline in August, essentially unchanged from 42 percent who reported similarly in July.
While sales results were mixed, restaurant operators reported a net decline in customer traffic for the fifth consecutive month. Twenty-five percent reported an increase in customer traffic between August 2016 and August 2017, while 48 percent reported a traffic decline. In July 37 percent of operators reported higher customer traffic levels and 48 percent reported a decline.
Although sales and traffic results were mixed in recent months, capital spending activity remained generally positive. Sixty-five percent of restaurant operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, a level that has remained generally stable during 2017.
Near Term Optimism Slips
Restaurant operators are somewhat less optimistic about business conditions in the months ahead. Twenty-nine percent expect to have higher sales in six months (compared to the same period in the previous year), down from 32 percent last month and the lowest level since January of 2016. Eighteen percent expect their sales volume in six months to be lower than it was during the same period in the previous year, while 53 percent think their sales will remain about the same.
Restaurant operators also have a mixed outlook for the economy in the months ahead. Twenty percent said they expect economic conditions to improve in six months, down from 28 percent who reported similarly last month. Sixteen percent think economic conditions will worsen in six months, while roughly two thirds of operators think economic conditions will remain about the same as they are now.
Looking ahead, restaurant operators’ outlook for capital expenditures in the coming months ticked slightly higher. Fifty-two percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 50 percent who reported similarly last month.
