Restaurant Industry Outlook Remains Positive Despite Modest Dip in Restaurant Performance Index; Restaurant Operators Optimistic About Sales Growth

WASHINGTON, June 30 -- The outlook for the restaurant industry remained positive in May, despite a moderate decline in the National Restaurant Association’s comprehensive index of restaurant activity. The Association’s Restaurant Performance Index -- a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry -- stood at 101.4 in May, down from 102.2 in April. May, however, did represent the 25th consecutive month above 100, which represents expansion in the Association’s composite index of eight key industry indicators.

“Although May’s Index reading was down from stronger levels in recent months, it still signals a period of expansion for the industry’s key indicators,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “A majority of restaurant operators are anticipating sales growth in the short term, with increases in staffing levels and capital expenditures expected as well.”

The Restaurant Performance Index is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The Index consists of two components -- the Current Situation Index and the Expectations Index. (Click on the following link to view this month’s Index report: http://www.restaurant.org/pdfs/research/index/200505.pdf).

The May decline in the Restaurant Performance Index was the result of drops in both the current situation and expectations components of the Index. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.4 in May -- 0.8 percent below its April level of 101.2.

For the 22nd consecutive month, restaurant operators reported an increase in same-store sales. Fifty percent of restaurant operators reported a same-store sales gain between May 2004 and May 2005 -- down from 57 percent of operators who registered a sales gain in April. Thirty-two percent of operators reported a same-store sales decline between May 2004 and May 2005, while 18 percent of operators reported no change in sales.

Customer traffic in May was softer than in recent months. Thirty-six percent of restaurant operators reported an increase in customer traffic between May 2004 and May 2005 -- down from 47 percent in April and the lowest level since November 2004. Thirty-nine percent of operators reported a decline in customer traffic between May 2004 and May 2005, while 25 percent of operators reported no change in customer traffic.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), slipped 0.5 percent in May to a level of 102.5 -- its lowest level since July 2004.

Although optimism was down slightly from recent months, a majority of restaurant operators are expecting sales growth in the coming months. Fifty-four percent of restaurant operators expect their sales volume in six months to be higher than it was during the same period in the previous year, while only 10 percent of operators expect to have lower sales in six months. Thirty-six percent of operators expect their sales to remain about the same.

Restaurant operators are also planning to increase staffing levels during the next several months. Twenty-two percent of operators expect to have higher staffing levels in six months (compared to the same period in the previous year), while only 10 percent of operators expect to employ fewer workers in six months (compared to the same period in the previous year).

In addition to having a positive sales outlook, a solid majority of restaurant operators are making plans for new capital expenditures. Fifty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, which in turn benefits all restaurant- related industries in the economy.

While the Restaurant Performance Index is consistently released on the last business day of each month, more detailed data and analysis can be found on Restaurant TrendMapper ( http://www.restaurant.org/trendmapper ), the Association’s subscription-based Web site that provides real-time analysis of restaurant industry trends.

A chart of the may 2005 Restaurant Performance Index is available on the Association’s Web site, http://www.restaurant.org/pressrooom.

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The National Restaurant Association, founded in 1919, is the leading business association for the restaurant industry, which is comprised of 900,000 restaurant and foodservice outlets and a work force of 12.2 million employees -- making it the cornerstone of the economy, career and employment opportunities and community involvement. Along with the National Restaurant Association Educational Foundation, the Association works to represent, educate and promote the rapidly growing industry. For more information, visit our Web site at http://www.restaurant.org

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Annika Stensson

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National Restaurant Association

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