KANSAS CITY, MO. — The National Restaurant Association’s (NRA) Restaurant Performance Index (RPI) over the past year shows an important industry category in turmoil. Inflation, consumers with less disposable income and rising labor costs are only some of the issues that have combined to challenge the ability of operators to run their businesses profitably.

The RPI is a monthly composite index that tracks the health of the US restaurant industry. It is published on the last business day of each month, and the index is measured in relation to a value of 100, with values above 100 indicating a period of expansion and values below 100 representing category contraction.

For May, the RPI stood at 99.1, up slightly from 98.8 in April. In May 2023, the RPI was 99.6, down 1.3% from 100.9 in April.

Underpinning the RPI are two components — the Current Situation Index that measures current trends in same-store sales, traffic, labor and capital expenditures, and the Expectations Index that measures the six-month outlook of restaurant operators for same-store sales, employees, capital expenditures and business conditions.

The Current Situation Index in May was 98.7, up 0.6% over April but down from 99.7 in May 2023. May 2024 marked the eighth consecutive month the Current Situation Index was in contraction territory due to weak sales and customer traffic, according to the NRA.

The Expectations Index rose to 99.6 in May from 99.5 in April. In May 2023, the Expectation Index also was 99.5. The NRA said the May 2024 index level shows restaurant operators remain uncertain about both sales and the overall economy in the months ahead.

Interestingly, 30% of restaurant operators who responded to the NRA survey said they expected higher sales in six months versus the same period of the previous year. Twenty-five percent indicated they expected lower sales in six months. But when asked about their outlook for general economic conditions in six months, 43% indicated they expect it to be worse versus 13% who expect better conditions in six months.

Lower-income consumers have been the most adversely affected by the economic climate, and Ricardo Cardenas, president and chief executive officer of Darden Restaurants, the owner of restaurant concepts including Olive Garden, Ruth’s Chris and Yard House, said the weakness has hurt the company’s results.

McDonald’s Corp. has seen similar behavior shifts and introduced a national value menu last month to recapture some of its lost business.

But it may be shortsighted to solely blame restaurant category weakness on the overall economy and behavior changes among lower-income consumers. While both are contributors, restaurant outlets operate on slim margins, and other economic shifts related to higher labor costs, reduced traffic at some outlets due to more people working from home and the adoption of a four-day work week by some businesses also may be contributing to this period of contraction.

The restaurant industry has been buffeted by significant challenges since the COVID-19 pandemic. While the category has weathered many of the difficulties, operators may only now be understanding the full scope of changes to the market that have occurred since March 2020.