Restaurant Performance Dips in September Due to Softer Sales

Restaurant Performance Dips in September Due to Softer Sales

Same-store sales rose for the 16th consecutive month. Restaurant operators are somewhat more optimistic about sales growth.

As a result of softer same-store sales and customer traffic levels, the National Restaurant Association's Restaurant Performance Index declined in September. The RPI is a monthly composite index that tracks the health of, and outlook for, the U.S. restaurant industry.

The index stood at 100.4 in September, down 0.3% from August. Despite the decline, September represented the 11th consecutive month that the RPI stood above 100. That signifies continued expansion in the index of key industry indicators.

Same-store sales rose for the 16th consecutive month. Restaurant operators are somewhat more optimistic about sales growth.

"Although restaurant operators reported softer same-store sales and customer traffic levels in September, they are somewhat more bullish about sales growth in the months ahead," says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "Forty-five% of restaurant operators expect their sales to improve in the next six months, while only 11% expect weaker sales."

Bear in mind the survey data were collected before the magnitude of hurricane Sandy's impact became known.

The index will likely dip again for October. It may well also track lower for November as much of the U.S. east coast works to recover from hurricane Sandy. The storm clearly trimmed restaurant traffic. It likely also trimmed restaurant demand for meat. People who stayed away from restaurants during the storm likely will not eat out twice as much for a while afterwards. Demand lost during the storm is gone forever.

On the flip side, restaurants and consumers who lost food inventories due to power outages will need to restock. That will be good for meat movement. Impact on restaurant profits and consumer ability to spend is less clear.

Traffic down, investment up

While sales remained positive overall, restaurant operators reported a net decline in customer traffic levels in September. Thirty-six percent of restaurant operators reported higher customer traffic levels between September 2011 and September 2012, down from 47% who reported positive traffic in August. Meanwhile, 41% of operators reported lower customer traffic levels in September, up from 32% in August.

Despite the softer sales and traffic results, restaurant operators reported an uptick in capital spending activity. Forty-nine% of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, up from 41% who reported similarly last month.

Optimism for improvement persists

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 100.9 in September – up 0.2% from August. Although August marked the 13th consecutive month that the Expectations Index stood above 100, it remains below the stronger levels reached during the first half of 2012.

Restaurant operators are somewhat more optimistic that their sales levels will improve in the months ahead. Forty-five% of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 40% last month and the strongest level in three months. Meanwhile, only 11% of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, essentially unchanged from 12% last month.

In contrast to their generally positive outlook for sales, restaurant operators are more uncertain about the direction of the overall economy. Only 26% of restaurant operators said they expect economic conditions to improve in six months, down slightly from 29% last month. Meanwhile, 18% of operators said they expect economic conditions to worsen in the next six months, while 56% think conditions will stay about the same.

Restaurant operators' outlook for capital spending remained steady. Forty-four% of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, unchanged from last month.

Restaurant Performance Dips in September Due to Softer Sales

National Restaurant Association Restaurant Performance Index

Values Greater than 100 = Expansion; Values Less than 100 = Contraction


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