DRIVEN by stronger same-store sales and a more optimistic outlook among restaurant operators, the National Restaurant Assn.'s (NRA) Restaurant Performance Index (RPI) posted a moderate gain in October.

The RPI — a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry — stood at 102.1 in October (Figure), a 0.7% increase from a level of 101.4 in September.

NRA said October represented the 32nd consecutive month in which the RPI stood above 100, which signifies expansion.

"The October gain in the RPI was buoyed by broad-based improvements in the current situation indicators," Hudson Riehle, senior vice president of the NRA research and knowledge group, said. "In addition, restaurant operators are somewhat more optimistic about both sales growth and the economy in the months ahead."

RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction. The index consists of two components: the Current Situation Index and the Expectations Index.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 102.5 in October — a 1.2% rise from September and the highest level in three months.

A majority of restaurant operators reported higher same-store sales for the 20th consecutive month, with October's results representing the strongest performance since July.

Healthy capital spending continued in October, with 76% of operators reporting that they made a capital expenditure for equipment, expansion or remodeling during the last three months. This marked the 13th consecutive month in which a majority of operators reported making an expenditure.

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.6 in October — up slightly from 101.4 in September. October represented the 36th consecutive month in which the Expectations Index stood above 100, which indicates that restaurant operators remain generally optimistic about business conditions in the coming months, NRA noted.

Restaurant operators reversed a downward-trending sales outlook with their somewhat more optimistic expectations.

Forty percent of restaurant operators expect to have higher sales in six months compared to the same period in the previous year, up from 35% who reported such an expectation last month. Meanwhile, only 6% of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, down from 12% last month.

According to NRA, restaurant operators are also somewhat more optimistic about the direction of the overall economy. Nineteen percent of restaurant operators said they expect economic conditions to improve in six months, while only 9% expect conditions to worsen.

Looking forward, 59% of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, a slight decrease from 62% who reported similar plans last month.

Food demand

After a dip in October, consumers' "willingness to pay" (WTP) for animal proteins increased for all products in November, according to the latest "Food Demand Survey" from Oklahoma State University.

The monthly survey asks consumers a series of questions about the WTP for several grocery items — including beef, chicken and pork — and their purchasing intentions for the upcoming month.

Among meat products, the WTP for chicken wings witnessed the greatest increase — approximately 39% — while hamburger saw the smallest increase from last month, at 1.22%. The WTP for hamburger, pork chops and deli ham decreased relative to the same time last year, whereas the WTP for steak, chicken breast and chicken wings increased compared to this time last year.

The November report showed that the WTP for steaks was $7.06/lb., which is 6 cents higher than last year and up 46 cents from October. Additionally, consumers were willing to spend $5.44/lb. for chicken breast, an increase from $5.16/lb. last year and $4.96/lb. in October. The WTP for pork chops decreased from $4.02/lb. last year to $3.82/lb. this year but was close to 40 cents higher than October's WTP.

Anticipating higher meat prices, the survey respondents said they would purchase slightly less chicken, beef and pork compared to the prior month.

They also said they would spend less on both food prepared at home and food consumed away from home. Grocery food expenditures in November were $95.54, a 3.21% decrease from October, and expenditures for food consumed away from home were $53.39, a decrease of 4.85%.

Market recap

Fed cattle futures posted gains last Tuesday after Monday's lower close of $130.05/cwt. However, nearby contracts fell sharply Wednesday to $129.10/cwt. and then went even lower Thursday to $125.70/cwt.

Len Steiner and Steve Meyer wrote in the "Daily Livestock Report" that one concern moving forward is that fed cattle weights are on the rise again after declining in October.

"Feedlots face steep losses on the cattle they have on feed, and they are looking to maximize the pounds they put on them. Front-end cattle supplies are some of the heaviest we have seen in recent years, and holding cattle on feed longer further exacerbates the situation," they said.

January feeder cattle futures last week were lower than the prior week and followed the same trend as fed cattle futures. Nearby contracts closed higher Tuesday after closing lower Monday but finished sharply lower Thursday at $159.75/cwt.

The Choice and Select beef cutouts both closed higher last Thursday at $204.49/cwt. and $193.02/cwt., respectively.

December lean hog futures were mixed last week. Nearby contracts closed lower last Monday at $58.425/cwt. but recovered some of the losses by Tuesday's close. However, they fell again, closing lower Wednesday and Thursday at $59.35/cwt. and $58.35/cwt., respectively.

Pork cutout values closed mostly higher last Thursday. Wholesale pork cutout values finished higher at $74.08/cwt. Loins closed slightly lower at $71.46/cwt., but hams finished strong at $64.97/cwt. Pork bellies saw some significant gains and closed nearly 10 cents higher at $111.84/cwt.

Hogs delivered to the western Corn Belt last Thursday were slightly higher than the previous week, at $52.28/cwt.

In the poultry markets, the Georgia dock was unchanged at $1.1325/lb. last Wednesday. Breast meat fell nearly 20 cents to $1.495/lb. from $1.69/lb. the week before. Leg quarters and wings slightly declined to 36.5 cents/lb. and $1.495/lb., respectively.

According to the U.S. Department of Agriculture, California and regional egg prices were steady last week, with a steady to sharply lower undertone. Offerings were moderate to heavy, and supplies were mixed but usually moderate to heavy, USDA reported.

Large eggs delivered to the Northeast were slightly higher last Thursday at $2.14-2.18/doz. Eggs delivered to the Southeast and Midwest rose to $2.25-2.28/doz. and $2.16-2.19/doz., respectively. Eggs delivered to California closed unchanged at $3.11/doz.

The turkey markets were steady to weak, with light to moderate offering prices and light demand. Prices for hens fell slightly to $1.21-1.28/lb., while prices for toms were unchanged at $1.21-1.38/lb.

Volume:87 Issue:46