Driven by stronger sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association's Restaurant Performance Index (RPI) posted a solid gain in October.
The RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 102.8 in October, up 1.8 percent from its September level. The RPI stood above 100 for the 20th consecutive month, signifying expansion in the index of key industry indicators.
"The positive same-store sales and customer traffic results suggest that restaurants are the beneficiaries of falling gas prices, which were down $0.88 since the end of June," says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. "Elevated food costs continue to top the list of challenges reported by restaurant operators, but overall they remain generally optimistic that business conditions will improve in the months ahead."
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 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 103.1 in October – up 2.1 percent from September. October is the eight consecutive month in which the Current Situation Index stood above 100.
A majority of restaurant operators reported higher same-store sales in October, with results an improvement over September's performance. Seventy-one percent of restaurant operators reported a same-store sales gain between October 2013 and October 2014, up from 63 percent who reported higher sales in August. Meanwhile, 11 percent of operators reported a same-store sales decline in October, down from 23 percent in September.
Restaurant operators also reported stronger customer traffic results in October. Fifty-five percent of restaurant operators reported an increase in customer traffic between October 2013 and October 2014, up from 40 percent who reported higher traffic in September. In contrast, only 16 percent of operators said their traffic declined in October, down from 33 percent who reported similarly in September.
Restaurant operators also reported an increase in capital spending activity. Fifty-seven percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, up from 49 percent 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 102.5 in October – up from September's level of 100.9. The Expectations Index has stood above 100 for 24 consecutive months, which indicates restaurant operators are optimist about business conditions in the coming months.
A majority of restaurant operators expect their sales to rise in the months ahead. Fifty-two percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 40 percent who reported similarly last month. Meanwhile, only 6 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, down from 8 percent last month.
Restaurant operators are also somewhat more optimistic about the direction of the economy. Thirty-five percent of restaurant operators said they expect economic conditions to improve in six months, up from 20 percent last month and the highest level in more than two years. Only eight percent expect economic conditions to worse in six months, while the remaining 57 percent expect economic conditions in six months to be about the same as they are now.
A majority of restaurant operators said they are planning for capital expenditures in the months ahead. Fifty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 53 percent who reported similarly last month.