The latest data from the National Restaurant Association showed that the Restaurant Performance Index (RPI) declined again in September and it is now almost at the same level that it was a year ago. While foodservice business has improved compared to the recession, it has been difficult in the last three years to show any consistent growth. The volatility reflects the broader trends in macro markets, with high unemployment and tepid job growth key factors negatively impacting sales.

The RPI index tracks restaurant business conditions and readings above 100 indicate expansion while readings below 100 indicate contraction. In September, the index was pegged at 100.4, down 0.3 points from August and down almost a full 2 points compared to where it was in March. The index is built so that it gives equal weight to measures of current conditions and future prospects. The current conditions index now stands at 99.9 points and it has vacillated in the last few months.

The expectations index actually was modestly higher. The monthly survey used to build the index showed that both same-store sales and foot traffic was softer in September. The same-store sales component of the index stood at 101.2, still indicating same store sales increases but down from 104.5 back in February. More troubling was the slowdown in foot traffic.

The customer traffic indicator now stands at 99.6, indicating contraction. In February, the customer traffic index was almost 4 points higher. This is consistent with what one would expect from higher rates of inflation at foodservice. According to the Census Bureau, restaurant sales in dollar terms were up 5.7% in September (they were growing by as much as 8.8% in March. While sales are improving, the main reason for the increase in dollar sales at foodservice is due to price inflation.

Higher costs, including higher food costs, have forced restaurants to increase menu prices. This is done either via higher sticker prices for a given item, smaller menu portions or a combination of both. It has allowed restaurants to keep up same store sales (although the pace of growth has slowed down) but reduce the number of people that can afford to eat out. The segment struggling the most at this point is family dining as 51% of survey respondents from this segment indicated lower customer traffic than a year ago and only 22% said restaurant traffic has increased.

The best performing segment remains fast casual concept, a hybrid between fast food and casual dining (e.g. Panera). In this category, 60% of respondents indicated higher foot traffic and higher same store sales than a year ago and only 27% noted year over year declines.

Another category showing growth is fine dining. Fast food business, which was leading the parade in the last two years, is showing signs of strain. Respondents in this category were split almost evenly between those that indicated sales and foot traffic was increasing and those that reported declines. Fast food operators are struggling to reconcile their value proposition with higher costs.

The disappointing results from some major publicly traded fast food restaurants are also indicative of this situation.