RetailSails

Most retail sectors saw at least moderate improvements in sales performance going into the end of the year, but the same cannot be said about the restaurant industry. The National Restaurant Association reported that its Restaurant Performance Index (RPI) declined to 97.8 in November, down from 98.0 in October and the 3rd drop in the last 4 months. This was the 25th consecutive month the RPI remained below 100, which signifies contraction in the index of key industry indicators.

The Current Situation Index, which measures trends in same-store sales, traffic, labor and capital expenditures, fell to its second lowest reading on record and remained below 100 for the 27th consecutive month. Restaurant operators reported their 18th straight month of same-store sales declines and traffic was down for the 27th straight month. Restaurants are showing little faith in the economic recovery so far, as plans for hiring and capital expenditures remain near record-low levels.

On the bright side, restaurants are cautiously optimistic, reporting a positive sales outlook with the expectation that general economic conditions will improve in the next six months. The Expectations Index, which measures restaurant operators’’ six-month outlook, remained unchanged in November at 99.6. Thirty one percent of those surveyed expect sales volume to pick up in the months ahead, compared to 24% who expect lower sales. However, these figures have remained at roughly the same level since the start of the year, with little performance improvement to show for it.

It’s not surprising that moves in the RPI have largely mirrored those of consumer confidence measures, which show that consumers “hope” that things will get better in the year ahead even as they describe their own personal finances as dismal. As with most of retail, restaurants got ahead of themselves and over-expanded as the housing boom fueled unrestrained spending. We will no doubt see relative improvement in 2010, but it will take several years for consumers to repair their finances. In the meantime, as housing and unemployment worries stay on center stage, shoppers will eat at home more and keep a tight hold on their wallets when they do eat out.