“Like the economy as a whole, the restaurant industry’s recovery hit a speed bump in May, with same-store sales and traffic levels softening from recent months,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, the overall economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger performances 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, 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 99.2 in May – down 1.1 percent from April’s level of 100.3. In addition, the Current Situation Index fell below 100 for the first time in three months, which signifies contraction in the current situation indicators.

Restaurant operators reported softer same-store sales results in May. Thirty-nine percent of restaurant operators reported a same-store sales gain between May 2010 and May 2011, down from 50 percent of operators who reported higher same-store sales in April. In comparison, 40 percent of operators reported a same-store sales decline in May, up from 31 percent of operators who reported lower sales in April.

Restaurant operators also reported a net decline in customer traffic in May. Thirty-three percent of restaurant operators reported an increase in customer traffic between May 2010 and May 2011, down from 38 percent of operators who reported higher traffic in April. In comparison, 41 percent of operators reported a traffic decline in May, up from 35 percent in April.

Restaurant operators continued to report relatively steady levels of capital spending activity. Forty-four percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down slightly from 48 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 100.6 in May – down from a level of 101.5 in April. Although May represented the 10th consecutive month above 100 for the Expectations Index, it was the fourth decline in the last five months, which illustrates a recent erosion of optimism among restaurant operators.

Restaurant operators are not as optimistic about future sales growth as they were earlier in the year. Forty-one percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 55 percent who reported similarly in January. In comparison, 20 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, up from just 8 percent in January.

Restaurant operators are also much less bullish about the direction of the overall economy in the months ahead. Twenty-four percent of restaurant operators said they expect economic conditions to improve in six months, down from 46 percent in January and the lowest level in more than two years. In comparison, 21 percent of operators said they expect economic conditions to worsen in the next six months, up from only 8 percent who reported similarly in January.

Although restaurant operators are less optimistic about sales growth and the economy in the coming months, they continue to plan for capital spending. Fifty percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 49 percent who reported similarly last month.

Source: National Restaurant Association