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NRA: Economic outlook discourages restaurant operators in September

NRA: Economic outlook discourages restaurant operators in September

Restaurant Performance Index falls 0.9 percent, to 101.0

The National Restaurant Association’s Restaurant Performance Index stumbled in September, falling 0.9 percent, due mostly to a dimming economic outlook from restaurant operators.

Despite the decline, the monthly index found that the restaurant industry expanded for the 19th straight month.

“Restaurant operators remain unimpressed about the direction of the economy,” Hudson Riehle, senior vice president of the NRA’s Research and Knowledge Group, said in a statement.

The index is a composite of the current health and outlook for the restaurant industry, and is based on operators’ current sales and traffic, as well as their expectations for the coming months. The index was 101.0 in September, a 0.9-percent decrease from August. A reading above 100 signifies industry expansion.

The index uses two different measurements, one for the current situation and another for operators’ expectations.

The Expectations Index fell the most, by 1.1 percent, between August and September, when the index stood at 100.9. That was its lowest level in 11 months, though it was the 23rd straight month that the index was above 100. So, despite the dampened outlook, operators are optimistic, according to the NRA.

Hudson Riehle breaks down the index >>

Operators’ biggest concern at the moment is food costs. Wholesale food price inflation through September is on track to rise 5.1 percent this year, Riehle told Nation’s Restaurant News.

“This will be the highest year for wholesale food price inflation in three years,” Riehle said.

Beef price inflation has risen 16 percent; pork has increased 20 percent; butter has risen 36 percent; and eggs have increase 20 percent.

“A lot depends on the specific menu theme of the operator,” Riehle said. “But for certain menu themes, it can have a dramatic impact. That’s putting margin pressure on operators.”

Yet operators are somewhat optimistic that sales will grow, even if that optimism has taken a slight hit. According to the NRA, 40 percent of operators expect higher sales in six months, a slight decrease from 45 percent in August. Eight percent said sales would fall in six months, an increase from 5 percent who said the same last month.

Restaurateurs’ views on the overall economy were more pessimistic. According to the survey, 20 percent of operators expect economic conditions to improve in six months, while 19 percent expect it to worsen. The remaining 61 percent said conditions will stay the same.

Still, operators said they’re getting people to spend at their restaurants. The NRA’s Current Situation Index fell 0.8 percent, to 101.0, in September, still well into growth territory. Most operators said same-store sales are improving.

According to the NRA, 63 percent of operators said same-store sales grew in September, essentially unchanged from August. Only 23 percent said same-store sales declined, rising slightly from 21 percent in August.

Traffic softened in September, when traffic grew for 40 percent of the operators surveyed, falling from 45 percent in August. Meanwhile, 33 percent said traffic fell, rising from 31 percent in August.

However, operators are still expanding, building and upgrading. According to the NRA, 53 percent of restaurateurs said they plan to make capital expenditures in the next six months. That is a decrease from 59 percent in August, but still marked the 13th straight month of growth.

While the industry is in expansion mode, growth likely varies by region, Riehle said, because employment growth and consumer confidence vary greatly throughout the country. Earlier this week, the Conference Board said its Consumer Confidence Index hit a seven-year high in October.

Yet Riehle noted that there is extreme variability in the expectations portion of that index, from 50 to 145. A big reason is job growth. He noted that only 20 states out of 50 have employment that is back at pre-recession levels.

“As we always say, all restaurant sales are local,” he said. Any true growth in the restaurant industry won’t come until there is more broad-based job growth.

“From the restaurant industry’s perspective, there’s no substitute for long-term employment growth,” he said. “That drives income, and it drives the ability for the restaurant industry to grow.”

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze

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