What is the outlook for the restaurant industry?
Must-know: Fiesta Restaurant Group is posting strong results (Part 12 of 13)
Restaurant Performance Index
The U.S. restaurant industry has been a little under the weather since the beginning of 2014. Increasing food costs, weak consumer spending environment, and a few political and general issues have kept the industry under pressure so far this year.
For the month of August, the Restaurant Performance Index (or RPI), a health and outlook measure for the industry, stood at 101.9, an increase of 1% from July, recording its first gain in three months. Stronger same-store sales, customer traffic levels, and a more optimistic outlook among restaurant operators drove this increase.
“The August gain in the RPI was fueled by stronger same-store sales and customer traffic results, aided by continued improving economic conditions,” said Hudson Riehle, senior vice president of RPI’s research and knowledge group.
Restaurant operators also reported positive customer traffic results in August. 45% of restaurant operators reported an increase in customer traffic between August 2013 and August 2014, up from 41% in July. In comparison, 31% of operators reported a decline in customer traffic in August, down slightly from 34% in July.
Outlook
Riehle said, “Looking forward, restaurant operators remain generally optimistic about continued sales growth, while a majority plan to make a capital expenditure in the next six months. However, operators still report food costs and government among top challenges that continue to negatively affect the operating environment.”
According to the Bureau of Labor Statistics, average wholesale food prices were up 7.1% in July 2014 and registered sharp gains in six of the first seven months of 2014. In fact, food prices are set to register their highest annual increase in three years.
Despite the challenges, the underlying fundamentals point toward an improving business environment in the months ahead for Fiesta and its peers like Chipotle Mexican Grill, Inc. (CMG), Jack in the Box Inc. (JACK), Yum! Brands, Inc. (YUM), and McDonald’s Corporation (MCD).
Investors can access the restaurant industry via exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food & Beverage ETF (PBJ).
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