Restaurant Industry Outlook Softened In June As Restaurant Performance Index Declined For Third Consecutive Month

Same-store sales and customer traffic levels remained negative in June; Restaurant operators are not as optimistic about growth in the months ahead

As a result of a dampened outlook among restaurant operators, the National Restaurant Association's Restaurant Performance Index (RPI) declined for the third consecutive month in June. The RPI- a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry - stood at 99.5 in June, down 0.3 percent from May and the lowest index level since February. In addition, the RPI stood below 100 for the second consecutive month, which signifies contraction in the index of key industry indicators.

"Although the current situation indicators registered a modest improvement in June, each of the four expectations indicators dipped for the second consecutive month," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "Restaurant operators are generally optimistic that sales and business conditions will improve in the next six months, but the strength of their optimism fell to a five-month low."

Watch a video of Riehle providing an industry update on the June RPI and how tourism drives restaurant sales growth.

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 98.8 in June - up 0.1 percent from its May level. However, the Current Situation Index remained below 100 for the 34th consecutive month, which signifies contraction in the current situation indicators.

Restaurant operators reported a net decline in same-store sales for the third consecutive month in June, though the results were a modest improvement from the May performance. Thirty-nine percent of restaurant operators reported a same-store sales gain between June 2009 and June 2010, up from 35 percent of operators who reported higher sales in May. Meanwhile, 43 percent of operators reported a same-store sales decline in June, down from 46 percent of operators who reported negative sales in May.

Restaurant operators also reported a net decline in customer traffic levels in June. Thirty-three percent of restaurant operators reported an increase in customer traffic between June 2009 and June 2010, matching the proportion who reported higher customer traffic in May. Similarly, 43 percent of operators reported a traffic decline in June, unchanged from the proportion who reported lower traffic in May.

Along with soft sales and traffic results, restaurant operators reported a dip 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, down slightly from 45 percent who reported similarly last month.

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 June - down 0.6 percent from May and its lowest level in five months. Despite the recent declines, the Expectations Index remained above 100 for the sixth consecutive month, which represents expansion in the forward-looking indicators.

Although restaurant operators are generally optimistic about an improving business environment, their outlook