Restaurant Operators' Outlook Worsens

chef cryingRestaurant operators have grown more pessimistic about the outlook for the industry, according to the National Restaurant Association's latest monthly Restaurant Performance Index (RPI), reflecting operators' reported results and projections as of November 2008.

The RPI--which uses 100 to reflect a "steady state" overall health status for the industry--was 96.7 in November, down 0.4% from October. November marked the 13th consecutive month of RPIs below 100, which represent contraction for key industry indicators.

The RPI includes two components--the Expectations Index and the Current Situation Index--and both were negative in November.

The Expectations Index, which measures restaurant operators' six-month outlook for same-store sales, employees, capital expenditures and business conditions, was at 97.1--down 0.5% from October and just slightly above the record-low level of 97 registered in September. November also marked the 13th consecutive month of below-100 performance for this index.



Just 21% of operators are projecting sales gains in the coming six months versus the same period last year (about the same number as in October). Moreover, those who expect declines in sales increased from 43% in October to 48% in November--one of the highest levels on record for this indicator. Furthermore, nearly half (49%) of operators expect overall economic conditions to worsen over the next six months, versus only 17% who predict an upturn.

The sole relatively upbeat indicator: The number of operators expecting to make a capital expenditure in the next six months improved slightly--to 40%, versus 37% in October.

The operators' glum expectations mirror their reported performance stats for November.

The Current Situation Index, which measures current trends in same-store sales, traffic, labor and capital expenditures, was at 96.2--down 0.3% from October and its lowest level on record. November also marked the 15th consecutive month below 100 for this index.

Restaurant operators reported negative same-store sales for the sixth consecutive month. Fully 60% reported a decline versus November 2007, about the same percentage reporting negative sales performance in September and October. At the same time, the number who reported same-store sales gains declined to 26%, versus 29% in October.

Customer traffic levels also continued to drop, with 65% (about the same as in October) reporting declines and just 18% (versus 20% in October) reporting increases.

Capital spending remained extremely soft, with 39% of operators reporting having made a capital expenditure for equipment, expansion or remodeling during the past three months--another record low.

The NRA is not adjusting its official 2009 outlook as a result of the November data, although it will make adjustments during the year if conditions warrant that, according to an association spokesperson. The outlook, released in mid-December, calls for total U.S. restaurant sales to grow 2.5% to $566 billion next year, which in inflation-adjusted terms translates to a decline of 1%. Inflation-adjusted sales also declined 1% last year.

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