Industry Surveys

Erik B. Kolb, Restaurants Analyst March 3, 2011

Current Environment ............................................................................................ 1 Industry Profile .................................................................................................... 12 Industry Trends ................................................................................................... 15 How the Industry Operates ............................................................................... 21 Key Industry Ratios and Statistics................................................................... 26 How to Analyze a Restaurant Company ......................................................... 28 Glossary................................................................................................................ 33 Industry References........................................................................................... 34 Comparative Company Analysis ......................................................... Appendix
This issue updates the one dated September 2, 2010. The next update of this Survey is scheduled for September 2011.

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Outlook 2011: will the positive momentum continue?
In our outlook at the start of 2010, we questioned if 2010 would bring “blue skies” to the restaurant industry, or if it would just be the “eye of the storm,” as we were somewhat suspicious of a meaningful recovery for the industry in 2010. Even though 2010 first-half sales were up only modestly (despite easy comparisons with the first half of 2009), it now appears that the industry has generally stabilized, and some restaurant companies are even growing. In the second and third quarters of 2010, there was serious concern over a double-dip recession, and a pronounced stock market correction. Since September 2010, however, both the economic outlook and the stock market have improved. Home prices also seem to have stabilized, though the bottom nationwide may not be fully reached until spring 2011. We single out home prices and the stock market, as they are the primary stores of household wealth. The recent improvements in both have resulted in a notable uptick in consumer confidence. Indeed, the University of Michigan’s Index of Consumer Sentiment increased to 74.5 in December 2010, up 4.1% from November’s 71.6 and 10.0% from October’s 67.7. The January 2011 figure was about flat with December, at 74.2. Although most economists feel that the US has definitively emerged from recession, Standard & Poor’s Equity Research thinks that some uncertainty still exists about the strength of the economy in 2011, particularly as it pertains to consumer spending in general and to spending in restaurants in particular. The withdrawal of monetary and fiscal stimulus at the federal level and austerity measures being taken by state and municipal governments are all black clouds on the economic horizon. We believe that home prices, while not a direct causative factor in restaurant sales, are still an important influence for several reasons. First, homes had become a source of capital against which many people borrowed in order to maintain their lifestyles. Obviously, since the collapse in home values, this is no longer true; furthermore, those conditions are unlikely to come back anytime soon. Second, rising home values contribute to positive consumer sentiment, but with the outlook still uncertain, consumers aren’t likely to alter their spending habits significantly. Economists have largely cheered the decline in the US unemployment rate, which stood at 9.0% in January 2011, down from 9.4% the previous month and the lowest level since April 2009. Standard & Poor’s believes that this drop reflects not only real improvements in the labor market, but also the withdrawal of workers from the labor force. More importantly for restaurant sales expectations, further improvement in unemployment is expected to be slow. As of February 2011, Standard & Poor’s Economics Department was forecasting unemployment to average 8.9% for 2011. In our opinion, the major downside risk to this forecast is that many of the millions of people that the US Bureau of Labor Statistics (BLS) has determined are no longer in the workforce (i.e., “discouraged workers” who have given up on finding a job and, therefore, are not counted as unemployed) may start looking for work again. Including this group in the unemployment and civilian workforce calculations would mean a January 2011 unemployment rate of 11.2% (the BLS’s U-4 number). We also note that many of the newly employed this past December were part-time workers for the holiday season. Finally, many states are facing large deficits and may be forced to lay off more employees in order to close budget holes. While the federal stimulus package contained funds to aid state and local governments, many of these benefits are set to expire in 2011. Thus, the possibility that the unemployment rate will resume rising cannot be discounted, in our view. Amid this backdrop, most economists expect the economy to grow in 2011. Standard & Poor’s expects GDP growth, job creation, and consumer spending to remain somewhat muted during the post-recession economic recovery. The recent recession clearly was the most difficult period in the history of the modern

restaurant industry, in our view. Not only did it reshape the industry, but it also is likely to remain an influence on the industry’s fundamental vigor for years to come.

As background information for our industry forecast for 2011, we note that 2010 sales, according to the National Restaurant Association’s 2010 Restaurant Industry Forecast, were estimated to reach $580 billion, a 2.5% increase (in current dollars) from the 2009 figure. After adjusting for inflation, however, sales in 2010 would be virtually flat with the previous year. Still, this is an improvement over the 1.2% and 2.9% declines in real (inflation-adjusted) sales experienced in 2008 and 2009, respectively. Standard & Poor’s estimates similar low-single-digit increases in traffic and mix changes (i.e., how often consumers visit a restaurant, and the effect of their menu choices on the average ticket) for 2010. In 2009, sales totaled $566 billion and marked the first annual sales decline (in current dollars) experienced by the domestic restaurant industry in the four decades that the National Restaurant Association has been tracking this measure. This unprecedented decline followed a 3.2% increase in 2008 to $570 billion (as revised), which previously had been the industry’s worst annual sales performance. Only once before in the association’s tracking history—in 1991, another recession year—did nominal sales increase less than 4% a year. On an inflation-adjusted basis, the decline in industry sales in 2009 was 2.9%, almost spot on with our projection of a 3.0% decline. Standard & Poor’s Equity Research forecasts that US foodservice industry revenues will increase 2.2% in 2011 to $582 billion. We expect menu price inflation of 1.0%, which we base in part on reports from numerous restaurant chains of their inability to raise prices, offset by our expectation for higher commodity costs. In other words, there appears to be little, if any, pricing power at restaurants following Table B01: Projected 2009 F2010 F2011 2009’s price increase of 2.2%. Foodservice Industry 517.3 520.4 531.8 0.6 2.2 Commercial foodservice, total In addition, we track the Commercial Sales & drinking places 1 eating 399.0 399.6 408.6 0.2 2.2 consumer price index for Full-service restaurants 182.0 180.2 183.8 (1.0) 2.0 “food away from home,” as Limited-service restaurants 160.0 161.6 165.7 1.0 2.5 compiled by the US Bureau of Commercial cafeterias 7.5 7.7 7.9 2.4 3.0 Labor Statistics. This measure Social caterers 6.8 6.9 7.1 2.0 2.0 slowed to a 1.3% gain in Snack & non-alcoholic beverages bars 24.2 24.4 24.8 1.2 1.5 2010, from 1.8% in 2009 Bars/taverns 18.5 18.8 19.3 1.5 3.0 (versus 5.0% in 2008). We Managed services 39.3 39.9 40.9 1.5 2.5 expect pricing to increase Lodging places 25.8 27.2 28.0 5.5 3.0 1.5%–2.0% in 2011 because Other commercial sales 53.3 53.7 54.4 0.8 1.2 2 Institutional foodservice 46.4 47.2 48.4 1.7 2.6 food commodity costs, 3 Military foodservice 2.1 2.2 2.2 3.0 2.7 particularly for protein and TOTAL US FOODSERVICE SALES 565.8 569.7 582.4 0.7 2.2 fruits and vegetables, are Note: Totals may not add due to rounding. F-Forecast. 1Only for establishments with expected to rise. Our view is payroll. 2Sales by institutional organizations (including business) operating their own that restaurants will be largely foodservice. 3Continental US only. unable or unwilling to raise Sources: National Restaurant Association; Standard & Poor's forecasts. prices much, if at all, for fear of losing customers to the competition. This reluctance will result in further price moderation by the end of 2011, which leads us to our 1.0% price increase forecast.
-- % CHANGE -2009- F2010F2010 F2011


There remains significant price competition in nearly every sub-segment of the restaurant industry, in our view. Chains on the high end have been more aggressive in actually cutting menu prices, while mid- and lower-tier chains—full-service as well as quick-service—have relied more on promotions, along with creating lower-price tiers on their menu. For example, in 2009, McDonald’s Corp. added several breakfast items to its dollar menu.

One can argue that the hundreds of billions in tax cuts. but the Republican victories in the November 2010 Congressional elections now make this extremely unlikely. such as dining out.We expect traffic to be up 0. and higher-priced beverages. when sales growth slowed dramatically to 0. The end of federal stimulus clouds industry outlook for 2011 It is quite probable that the economic recovery since the third quarter of 2009 has been due largely to a boost to consumers and businesses from the American Recovery and Reinvestment Act of 2009 (ARRA). Cuts in government payrolls and the tax increases needed to balance state and local budgets could significantly offset the positive effects of ARRA. when sales were flat. Stimulus I had consisted of more than $100 billion in tax rebate checks for most Americans.5%–1. Because ARRA’s stimulus worked through a reduction in monthly payroll taxes. This notable slowdown corresponded closely with the commencement of the sharp rise in joblessness. which were sent out mostly in the second quarter of 2008. which reflects company commentary in second-half 2010 and early 2011 on traffic. one can make a case that most businesses still have substantial excess capacity and will more likely than not keep staffing at current levels. Sales generally trended lower in the first half of 2009 as unemployment rose further.8% in 2010 and projects it will decline further to 5. with a shift from full-service restaurants to quick-service chains. Indeed. desserts. which averaged 2. our industry outlook for 2011 is for a rather modest increase in sales. its effects have likely been more diffuse as well. We think the positive (if temporary) effect that stimulus checks had on restaurant sales was seen in the US Census Bureau’s tally of monthly retail sales at food and drinking establishments. of which about two-thirds was scheduled to be spent within 24 months. We expect overall traffic to be up slightly. states and localities that received aid did not actually increase payrolls and spending as much as envisioned. rather than a one-time rebate check. in our view. In any case. The savings rate. while still-substantially Democratic delegations make sizable tax cuts also unlikely. desserts. state aid. Against this likely backdrop. On the other hand. and December. it appears that spending will fall. Restaurant sales growth held up generally well in 2008 until November.0% negative mix as part of the sales equation in 2011. Additionally. Congress passed the ARRA with a total size of $787 billion. and are likely to enact more budget cuts for fiscal 2011. otherwise known as Stimulus II. it is likely that federal stimulus—barring Congressional action to extend or expand parts of the ARRA—will have little effect on the consumer beyond 2011. and infrastructure spending did have a positive material effect on employment in 2009. until the effects of ARRA began to be felt in the second quarter. many states and municipalities are facing new holes in their fiscal plans. We expect price increases to remain tough to come by. and expect consumers to continue eschewing extras such as appetizers.6% in 2008. Standard & Poor’s estimates that the rate declined to 5. It is likely that the ARRA’s effect on consumer spending has been somewhat larger than that of Stimulus I in 2008. as well as our overall economic view that employment gains will be relatively modest through the rest of the year. In late February 2009. After using the aid to plug existing gaps in budgets. 2011 3 . After hitting 5. or seek to augment permanent staffing with temporary workers only where needed. We still expect diners to watch their consumption of appetizers. and more expensive beverages. Has the savings rate peaked? One additional positive factor for consumer spending has been a drop in the savings rate. we think this should result in a 1.9% in 2009.6% in 2011. It was believed in some circles that a third round of stimulus was under consideration that would be more focused on job creation and education and training.0% in 2011. began to increase when consumers realized that their homes were no longer a sure store of wealth due to price declines and that more active saving was INDUSTRY SURVEYS RESTAURANTS / MARCH 3. Such drops in the savings rate should prove a modest boon to restaurant companies on the theory that consumers who are saving less are likely spending more on discretionary purchases. albeit by making the unemployment rate “less worse” than it otherwise would have been. as in 2010.5% from a year earlier.

a reduction in debt is equivalent in most cases to “savings. Indeed. the two will jointly develop Starbucks retail outlets. Anecdotally. Brinker International explained that once it completes efforts to stabilize US operations around its Chili’s and Maggiano’s Little Italy chains. Standard & Poor’s believes the agreement could significantly ramp up domestic distribution for Tata Coffee. as well as increase exports to surrounding regions. More recently. 2011 INDUSTRY SURVEYS . the company expects to open its first Chili’s in Brazil later in 2011.” Thus. but does not receive as much attention as we think it should. even as they have voluntarily defaulted on their mortgages.6% increase in occupancy rates. compared to a 9% decline in 2009. is the current state of the travel industry. consumers are once again spending freely (although they won’t admit it). efforts by companies like Yum! Brands Inc. we think restaurants will see a modest uptick in travel-based traffic. That said. an industry data source. and even turned negative in October and November. In February 2011. especially those in the quick-service segment. when debt is either paid back or forgiven. How important is hotel travel to restaurant sales? According to the National Restaurant Association’s 2007/2008 Operations Review. not all “savings” are created equal. we think travel is unlikely to be the large positive contributor to the restaurant industry in 2011 that it has been in the past.. According to an article in Nation’s Restaurant News. The agreement will give Starbucks access to Tata Coffee’s sizable sourcing and roasting operations. Tata Coffee is the largest grower of plantation coffee in Asia and already India’s third largest exporter of instant coffee. We believe the decline in travel-related restaurant meals over the last few years has been significant. 2010) of the $8. and China) have been ongoing for over a decade now. Travel influences restaurant spending Another factor that has a pronounced effect on the restaurant industry. Russia. a division of the Tata Group conglomerate. This statistical phenomenon has led to something of a paradox in 2010: as consumers simultaneously both increased spending and reduced their debt outstanding by a record amount. focusing first on upscale hotels and the like before moving into standalone retail outlets. which had been expanded to most homebuyers. the pace of improvements has slowed decidedly since May 2010. predicts that the hotel occupancy rate had increased 5. Travel has a significant impact on dollars spent on food consumed in restaurants.3% in 2010. Starbucks Corp. there is no true money set aside. How can a record reduction in debt occur even as consumer spending is rising? What this most likely means is that in the aggregate. In May 2010. in November 2010 (latest available data). India. However. Because of the way that savings are counted. generated headlines when it announced that it was expanding into India through a partnership with Tata Coffee Ltd. 4 RESTAURANTS / MARCH 3. Although readings of the S&P/Case-Shiller Home Price Index improved throughout most of 2009 and 2010. However. it will focus on international expansion. the 20-city index was still 28. the firm forecasts a further 1. 20% at casual dining establishments. travelers and visitors in 2007 (latest available) accounted for a median of 15% of sales at quick-service restaurants. stories abound of those who have kept their credit lines current in order to maintain their lifestyle. In addition. One theory for the modest weakening in prices blames the expiration (on April 30. and McDonald’s to expand into the so-called BRIC nations (Brazil. the savings rate bounced around roughly between 5% and 6%. as well as by private lenders. In January 2011. other companies have entered these markets. For 2011. and 40% at fine dining restaurants. even as record amounts of debt are being written off under government-sponsored mortgage debt restructuring programs. as the recovery continues and businesses once again become willing to spend on travel.000 first-time homebuyers’ tax credit. Smith Travel Research. RESTAURANTS FOCUS ON GLOBAL OPPORTUNITIES Global expansion is nothing new for most US restaurant operators. Brinker opened its first Chili’s in Moscow and has plans to open 25 restaurants in Russia by 2017. The Chili’s chain entered India in mid-2009 and had four restaurants there as of this writing.6% below its peak in the spring of 2006. according to Standard & Poor’s. due to less discretionary income available to consumers and business cutbacks on travel. Indeed.necessary.

With what is likely one of the more foreign-investment–friendly economies in this group. Indeed. LABOR AND COMMODITY COSTS REMAIN A KEY FOCUS FOR RESTAURANTS The good news is that labor costs are likely to remain subdued. Olive Garden.CIVETS: the next BRICs? While the BRIC countries remain a key focus for many operators.000 are street stalls. and LongHorn Steakhouse outlets to Bahrain.I. In October 2010. including the United Arab Emirates. Colombia’s improving political stability and 16% annualized GDP growth over the past six years also show the appeal of such opportunities.G. Qatar. Colombia has about 53. points out the potential risks of operating in less-stable countries. January’s political upheaval in Egypt.) and T. South Africa continues to attract interest. especially in Cairo. especially full-service operators. specific targets now include a group of countries known as CIVETS (Colombia. According to an October 2010 article in Nation’s Restaurant News. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. of which about 430. and potentially expanding into North Africa. which has been in the country for a decade. The Cheesecake Factory Inc. with further growth and diversification likely to continue. as evidenced by a number of recently announced projects. Chili’s Grill & Bar (a division of Brinker International Inc. Turkey.  South Africa. First. With coffee companies holding the number one and two chain spots. Middle East attracts restaurant companies Beyond CIVETS. Friday’s (owned by Carlson Companies) have long been players in the Egyptian market. Egypt. One drawback is its relatively low population growth. However. 2011 5 . especially those that were not part of the initial wave to invest in these nations. Lebanon. and probably most important. and the United Arab Emirates over the next five years. has nearly 100 units in Vietnam. including widespread and violent rioting.  Colombia. Kuwait. and Turkey. Vietnam. Indonesia.000 restaurants. Though demand for fast food is growing rapidly in Indonesia. and South Africa) and the Middle East. With large cities like Istanbul and Ankara. Finally.  Indonesia. Darden Restaurants announced that it is partnering with Americana Group of Kuwait to bring at least 60 Red Lobster. Although its protracted battle against guerrillas demonstrates some of the risks associated with moving into less-developed regions. Egypt also has shown high demand for casual dining establishments. According to the above-mentioned NRN article. Qatar. Yum Brand’s KFC. US-based restaurant companies seem drawn to the CIVETS countries for a number of the same reasons that previously brought them into the BRIC nations. despite recent increases in the federal minimum wage. Central and Eastern Europe. Coupled with this growth is usually a motivated and sizable youth population that has growing disposable income and a desire to adopt the cuisine and other aspects of middle-class life. the country seems ripe for opportunity. Record high unemployment for unskilled workers should prevent upward pressure on wages. and Saudi Arabia.  Vietnam.  Turkey. Turkey has drawn considerable interest from US restaurants. In addition to quick-service prospects. Egypt. even as the economy recovers. It has the highest per capita GDP of the CIVETS countries. the CIVETS nations generally offer relative (or at least improving) political stability and capable financial systems that usually encourage foreign investments.750 per person. at about $12. In January 2011. Bahrain.000 foodservice establishments. While we have seen a notable uptick in all geographic areas.  Egypt. Russia. the biggest challenge for US restaurants is to adapt their menus (and the related supply chains) to a predominately Muslim culture. Kuwait. the Middle East continues to draw new investments from restaurant operators. many restaurant companies are now pursuing efforts elsewhere. announced plans to develop 22 restaurants over the next five years in the Middle East. economic prospects in these countries have been rapidly improving. Saudi Arabia. Vietnam has about 530.

It has a more benign view for broilers and eggs. pricing power exists. and we see no end to the trend. even as top-line growth returned for many companies. BEEF. other factors— 6 RESTAURANTS / MARCH 3. with beef up 14%. but we believe labor costs are generally higher than they otherwise would have been. bringing the federal minimum wage to $7. with most other items up or down slightly. Because many publicly owned restaurant companies negotiate most of their commodity purchases well in advance. because numerous states already had a minimum wage that exceeded the new federal minimum. teenage joblessness remains stubbornly high. eggs. 2011 INDUSTRY SURVEYS . the cost of most protein foods (i. already pay wages in excess of the mandated minimums to most of their employees. Some larger national chains. pork up 33%. the rise in unemployment greatly mitigated this pressure. Granted. PORK AND POULTRY PRICES however. We note that the increase in the minimum wage has affected some chains more than others. Food commodity cost outlook remains elevated Most restaurants enacted only modest price increases in 2010 in an effort to preserve sales.. Nevertheless. In addition. For 2011. the increases in the minimum wage have likely put upward pressure on wages even for employees making more than the minimum. mostly young workers. and dairy) rose sharply during 2010. up from 25. the unemployment rate for teenagers—25. wages rose 1. with prices up only in the single-digit percentages. labor costs remained subdued in 2009 and 2010 due to the large available labor pool amid record unemployment for unskilled. This caution is reflected in the change in hourly wages in the leisure and hospitality industry: from September 2009 to September 2010. Unfortunately for most operators. According to the World Agricultural Supply and Demand Estimates report. the inflation in commodity costs (Index. milk up 27%.The federal minimum wage underwent a three-step increase from 2007 to 2009 totaling $2. fish. 1982=100) may not have been entirely felt in 2010. Since most restaurant chains compete with many other employers for the same employees. 1 80 1 70 1 60 1 50 1 40 1 30 1 20 10 1 1 00 90 80 70 1 998 99 00 01 02 03 04 05 06 07 08 09 201 0 Chart H06: Beef Pork Poultry prices The National Restaurant Association estimates that average wholesale food costs rose 5% in 2010. that operate in regions where the average hourly wage is somewhat lower than the national average are likely to see labor costs rise more in line with the increase in the federal minimum wage.10 per hour.7% in January. such as McDonald’s. the impact of the increase was likely limited to those chains operating in states where the federal rate prevails.4% the previous month—could remain at sharply elevated levels if the restaurant industry and other employers of large numbers of unskilled or inexperienced workers remain cautious in hiring. Although the overall unemployment rate fell to 9. published monthly by the US Department of Agriculture (USDA) and approved by the World Agricultural Outlook Board. expectations for accelerating growth in emerging market demand for many agricultural products has largely contributed to a resumption of rising expectations for commodity prices (demand in developed economies is relatively stable). the group sees beef up 1%–9% and cheddar up 1%–6%. according to the Bureau of Labor Statistics. regardless of the likely negative effect this might have had on profit margins. Will restaurants be able to raise prices more than we expect to offset cost increases—both anticipated and unanticipated? We think the Beef & veal Pork Chicken current environment. In addition.e. Chains like Texas Roadhouse Inc. meats. The importance of price as a competitive factor is greater than at any time in the recent past. 2009.0% in January 2011. Uncertainties persist due to the continued use of corn to produce fuel.5%. will persist through 2011. and butter up 41%.25 an hour on July 24. cheddar cheese up 17%. in which very little Source: US Bureau of Labor Statistics. Moreover.

which is used as an ingredient in processed foods and as livestock feed. Egg production likely increased in 2010. Another product affecting the production and price of oils is soybean meal. Prices are likely to continue rebounding after falling sharply in 2009. rice was expected to cost somewhat less in 2010/11 for both long-grain and shortgrain product.70 a bushel.  Wheat. The sharp increase in rice prices spurred US farmers to plant substantially more acreage (primarily of long-grain rice) in recent years. US wheat production for 2011 is expected to benefit from more ideal weather. Of much greater importance in many other countries than in the US.00–$18. and a record crop of 13.70 per bushel.  Corn. canola. This compares to lower returns and reduced flock sizes in 2009. including soybeans. prices actually paid may be higher. corn prices have moderated and the outlook is more stable. This resulted in record US rice production in 2010. greater demand for fuel production offset lower exports. In 2009/10. Prices were slightly lower in 2010. cottonseed. reversing its gradual long-term decline. most likely due to groundless “swine flu” concerns. Over the past several years.90–$5. export demand has been stronger than expected due to lower yields in several key producing countries. Turkey production is seen nearly flat. Pork production declined about 3% in 2010 and is forecast to rebound by 2% in 2011. domestic oilseed production declined as farmers shifted acreage to the corn used for fuel production.  Oilseeds. Milk production is expected to rise slightly through 2011 in response to a rebound in prices. A poor harvest in 2008 did not keep pace with consumption in many places around the world. Prices are projected to rise 11%–14%. and will continue to increase in 2011. In recent years. Ending stocks are projected to be higher than earlier forecast as well. while prices are expected to be up about 12%. The USDA expects beef production in 2011 to decrease about 1% from 2010. farm prices are projected at $5. which led to a shift in supply back to the domestic market. The USDA projects the average farm price to fall to $10. global rice production improved in 2009 due to better weather in several of the primary producing countries. and we see similar trends continuing in 2011. Farm prices in the current year are forecast at $4. when spot prices are falling.50 per hundredweight (cwt) for long-grain. or unpredictable weather conditions such drought or excessive precipitation—could alter global supply and demand balances. Used perhaps more extensively by restaurants serving Mexican or Asian cuisine than at other restaurants.2 billion bushels. conversely.  Livestock and poultry. and the record production forecast is further pressuring prices. sunflower seed. which in turn followed record highs in 2008. the INDUSTRY SURVEYS RESTAURANTS / MARCH 3. and peanuts. Fortunately for US farmers. the drop in corn prices in 2009 caused a return to more acreage of oilseeds. In 2010. stabilization in the amount of corn used to produce fuel.) For producers of broilers. farmers increased corn acreage: the use of corn to make ethanol for fuel raised demand and put upward pressure on prices. and we see a modest increase in 2011.30–$5.00 per cwt for short-grain. reflecting an increase from the previous estimate. prices actually paid may be lower than spot prices. when spot prices are rising. purchase commodities on a forward basis or enter into hedges. Production had been following prices lower: prices were hurt in part by lower export demand.such as protectionist movements in various countries. (The H1N1 flu virus was never transferable from processed pork products to humans. Prices across the soybean complex in 2010/11 are expected to remain at or below the lower levels seen in 2009/10.50–$11. so the prices they pay may differ from spot prices. In general. A variety of crops are used to make oils. so relative pricing can cause a shift in production of the two. particularly large restaurant chains. higher demand led to better pricing and an increase in production in 2010. and to $17. After reducing acreage for 2010 plantings in response to stabilization of wheat prices in 2009. After falling by about a third in 2009 from its 2008 peak. 2011 7 . growers maintained the acreage that was shifted back to soybeans from corn in 2008/09. although moderately higher export demand appears to have put a floor under price declines. Keep in mind that many restaurants.75.50.50 in 2009/10. compared with the 2009/10 average of about $4. from about $9.  Dairy. Due to the increase in acreage. Following are current outlooks for various commodities from the USDA. Most soybeans are used to make either oil or meal. However. which led to export restrictions in several countries and other artificial market controls.  Rice. from $17. For the 2010/11 marketing year.

price of milk rebounded by about 24% in 2010 and will likely rise moderately in 2011. and a 1. one might consider a scenario where the industry would shrink to where there is one restaurant for every 350 people. announced in January 2011 that their US restaurant unit count had declined by 1% (a loss of 5. With so many kinds of restaurants with varying operating models. which are heavily used by restaurants and in processed foods. given our forecast of only modest sales growth for the industry and with cost pressures likely to intensify.4 (though headcount varies tremendously across all the many types of restaurants in the industry). landlords’ willingness to renegotiate lower rents (rather than lose a valuable tenant). The National Restaurant Association estimated that the number of restaurant locations held steady during 2009. We would characterize some of these deals as last-ditch efforts to buy some time for fundamentals to improve. in our estimation. This would entail the closure of about 70. Our expectation of a 1.. The list of operators that closed locations grew substantially through early 2009. from $12. on a 1.34 in 2008. it is difficult to pinpoint how many restaurants the US can support. The average number of persons working at a restaurant is about 13.5% increase that we see for the foodservice industry overall. managers will carefully weigh whether to absorb cost increases in order to minimize lost traffic. but less onerous operating covenants. Prices for butter. we think consumers have become very sensitive to the minimum and maximum prices in 8 RESTAURANTS / MARCH 3.5% sales increase for this segment contrasts with the 2. the modest return of business travel spending. but closings took at least a temporary hiatus that summer. about 940.000 food service locations in operation—about one for every 330 people in the US— one can make a case that there are too many restaurants.84 in 2009. With more than 925. and an overall feeling of improving certainty about the future of the economy to benefit full-service restaurants more than quick-service operators. the sub-segment of the full-service category that perhaps enjoyed the greatest growth over the past decade. helped save more than a few operators. we believe time is quickly running out for companies to work out new “extend and pretend” financing with their creditors. signifying that the number of locations opening offset closures.000 food service locations were to go out of business. industry research firm NPD Group Inc. managers will be loathe to raise prices on their menus. we would expect more operators to fail. particularly during a severe economic downturn. Most likely. despite the potential that this will squeeze margins. A composite index of prices for various milk and milk byproducts. and are on pace to increase again in 2011.5% to $178. and dry whey (key ingredients in processed foods) also rebounded in 2010.7 billion in 2011. We had thought that a material consolidation would take place in 2009. If 70.000 locations. For casual dining. As in those instances. We expect slightly improved unemployment. FULL-SERVICE CHAINS: PRICES UNDER PRESSURE Standard & Poor’s projects that sales at full-service restaurants will increase 1.0% positive effect from mix changes. but it is likely that very low interest rates.551 restaurants) in fall 2010 compared with fall 2009. With the recent recession turning out to be deeper and longer than the average post–World War II recession.92. propelled by cheap financing made possible by the Federal Reserve. were able to obtain new financing. as well as the sharp drop in commodity prices. In 2010. The level of this price index was $18. 2011 INDUSTRY SURVEYS .000 of the nearly 13 million people working in the foodservice industry would lose their means of support.0% increase in guest traffic. choosing instead to effectively lower costs by reworking recipes or reducing portion sizes. nonfat dry milk. from fine dining to family restaurants. Cheese prices increased 15% in 2010. rose about 24% in 2010 to $15. Indeed. With guest traffic still likely to increase only modestly across nearly all full-service categories. INDUSTRY CONSOLIDATION CONTINUES In 2011. and Ruth’s Hospitality Group Inc. 1. and are expected to climb a further 5%–10% in 2011. several publicly traded restaurant companies. Still.5% higher average menu prices. such as O’Charley’s Inc. due to the Federal Reserve’s near-zero interest rate policy. the terms of new financings often carry reduced maximum borrowings and much higher interest rates.

which we think was driven by more heavily promoted value menu options. The projected advance reflects virtually no menu price increase.restaurants. value is relative. in our view. and desserts are being offered to retain customers. no change in menu prices.0% to $24. entrées. Prix fixe meals for 30%–50% off what they would cost à la carte help lure traffic at fine dining establishments. to 2 p.6 billion in 2011.25%. We project the snack and nonalcoholic beverages segment. we think the new entry point may be $6.500 Denny’s restaurants for an eighthour period on the Tuesday following the game. In all. and some staffing is already required during off-peak periods. with a sales increase of 1. Limited-time offers.5% rise in traffic. which often competes for the same customer but is much smaller than the quick-service category. whereas previously we viewed $10 as the level where consumers felt comfortable. we think this resulted in consumers becoming price sensitive to $8 as the starting price point for entrées. or simply don’t pay attention. down from a larger negative mix effect in 2010. since it would probably hurt the service component of the full-service restaurant’s value proposition. This tactic is very risky. Many operators have also reduced staffing. QUICK SERVICE: CUSTOMERS CHOOSE VALUE Standard & Poor’s forecasts that the quick-service restaurant segment will perform relatively well overall in 2011.m. Some chains prefer to appeal to a more specific target audience with family prices. such as coupons. if additional gross profits on incremental sales from nontraditional day parts at least cover staffing costs during the off-peak periods. at least partly. have adopted a practice that seeks to offset. such as more emphasis on take-out and catering. and the more timely “recession busters” and derivatives thereof. to that little undiscovered jewel that serves all your favorites. Reinventing fast food Fast-food chains have been focusing on under-served parts of the day in order to offset slumping traffic during the traditional lunch and dinner periods. The NPD Group has determined that breakfast accounted for 60% of traffic growth over the 2005–09 period (latest available). Other strategies for preserving business that were adopted during the recession are likely to be maintained. the increased attention makes sense. while keeping entrée and drink prices steady. We expect a smaller negative mix shift of only about 0. Other restaurants that provide higher-priced fare are also jumping on the value bandwagon through a variety of means. or as low as $5. which ran on February 9 from 6 a. instantly re-acquainted consumers with Denny’s and its value proposition (after years in which the chain appeared to struggle to connect) and also boosted repeat business. new smaller portion appetizers. according to the company. special or “happy” hours. are a more direct approach to generating traffic based on price.m. these increases boosted their average check but avoided the “sticker shock” of large jumps in entrée prices. We expect guest traffic to rise about 1. or “two-for” offers for couples. and buffet-style steakhouse chains. Denny’s purchased three ad spots during the 2010 Super Bowl and repeated the free Grand Slam promotion. Nevertheless. bar and grill. From the corner location of your favorite bar and grill. We think that this promotion. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. Over the course of 2010. along with the commercial. Full-service operators. For family dining. about two million Grand Slams were served. which. We expect the breakfast and lunch day parts to continue to outperform the dinner day part. particularly at the very high end. and a 0.8% to $165 billion. The price promotion that received perhaps the most attention during 2009 (and was repeated in 2010) was Denny’s Super Bowl XLIII ad promoting a free Grand Slam at all 1. 2011 9 . partly reflecting a continuing of the trend for customers to trade down from full-service restaurants. and dessert prices. while lunch was flat and dinner traffic declined about 2% per year.5% positive mix. the negative effect on profit margins of promotional activities used to attract the more price-conscious diner: sharply raising appetizer. and may attempt to keep staffing low even as business turns up. side dish. based on four people. The most prominent day part addition in recent years was the breakfast segment. For customers who aren’t as price sensitive.0%. Thus. on a 1. while expensive. The rationale is that rent and other costs are largely fixed. will experience a sales increase of about 1. cost about $5 million.

We do not see pricing power reemerging any time soon. On March 23. which is very price competitive with neighborhood bar and grill menu offerings. Burger King has opened Whopper Bars in select locations. we believe that competitive pressure on menu pricing is intense. rather than a different standard in each state. known as the Patient Protection and Affordable Care Act (PPACA. but it appears that this battle may be close to being lost. While much of the legislation will not take effect for several years. 3590). such as airport waiting areas. The legislation. INDUSTRY’S EFFORTS ON REGULATORY. in favor of a system that would formalize greater responsibility by individuals for paying for coverage. The company has added premium coffee drinks in its US restaurants and has started rolling out other specialty beverages. As the low end of the full-service segment is downsizing menu items to compete directly with quick-service premium offerings in the $3–$5 price range. where customers can custombuild their own burgers. we believe rising costs and weak pricing power remain a key issue for the fast-food sector. Chains such as Taco Bell and others have strong late-night business. In 2010. Another issue the industry has fought for years is menu nutrition labeling. On December 22.Nontraditional day parts account for the rest of the increase in traffic. As various courts subsequently upheld these laws following challenges by the restaurant industry. Though food costs were relatively stable in 2008 and 2009. attempts to cut costs have been controversial. the US House of Representatives passed the Food and Drug Administration Food Safety Modernization Act. McDonald’s. in order to challenge beverage specialists such as Starbucks and Dunkin’ Donuts. McDonald’s began selling fruit and maple oatmeal in January 2011. with a separate counter and additional staffing. LEGISLATIVE MATTERS The restaurant industry actively lobbies government and elected officials on a number of regulatory and legislative issues that are likely to affect the industry. With value menus now pervasive at most quick service and some lower-scale. full-service chains. is fighting back against these upstarts. Burger King heavily promoted its $1 double cheeseburger with two slices of cheese—in ads that directly compared it with McDonald’s double cheeseburger with one slice. 2011. H. fast food operators are beginning to fight back. McDonald’s removed one slice of cheese from the double cheeseburger on its value menu. However. The top issue that dominated the first year of the Obama Administration was healthcare reform. McDonald’s upped the ante by adding a $1 breakfast value menu to its tiered breakfast menu (which has both value and premium items. We do not expect a material change in the relatively higher rates of non-coverage within the restaurant industry relative to other industries. In response. 2010. We cite an instance when. The National Restaurant Association was pleased with the signing of the bill. promoting menu items that are easily transportable. As part of its commitment to offer healthier products. Value menus squeeze margins These recent efforts notwithstanding. 2011 INDUSTRY SURVEYS . A selection of beers is available at some Whopper Bars. as well as in the differences in employer-paid coverage offered to supervisory and full-time employees versus nonsupervisory and part-time employees. in response to record cheese prices in late 2008. which has dominated breakfast. Burger King eventually relented and raised the price to $1. The healthcare reform bill appears to largely shield the restaurant industry from an increased reliance on employer-subsidized coverage. they climbed substantially in 2010 and may continue to do so in 2011. The new regulations center on preventing food-borne illnesses. In addition to the lack of ability to raise prices. The franchisees contended that their franchise agreements do not give the company any control over pricing.R. Customers have become accustomed to value-priced menu options. which the Senate had passed earlier that week. 2010.19. just as its sandwich menu has). it has essentially come around to supporting what it views as the lesser of two evils: a national standard for menu labeling. Various state legislatures have passed laws requiring nutritional information on menus in most restaurants. President Obama signed into law the healthcare reform bill. with a burger and beer combo selling for about $8. rather than responding 10 RESTAURANTS / MARCH 3. was signed into law by President Obama on January 4. we think the present status quo situation will continue. this addition to Burger King’s BK Value Menu caused some franchisees to sue to block the company from forcing them to sell this item for $1.

Better food safety would be a boon for the restaurant industry due to higher quality and safer ingredients. as we believe the industry trade group has proposed. the track record of border security in the US is questionable at best. 2011 11 . appears willing to consider. Most likely this is because the case is fairly strong that doing so often leads to lower costs. better food safety would hopefully prevent future outbreaks. These efforts would essentially shift most responsibility for worker verification from employers to border security and a “workable” employment verification system. we note that some portions of the new law do not take effect for nearly 18 months. Further. coli in spinach and other leafy greens. switching to renewable energy sources. Some areas in which “going green” has caught on within the industry are sustainable building practices. One area where the restaurant industry is not bucking the trend in regulatory matters is on the environment. would do little to thwart hiring of illegal workers. nor the administration. The National Restaurant Association supports immigration reform. immigration reform remains an issue that neither party in Congress. involving salmonella in eggs and peanuts. In our view. which are likely very expensive to remedy. That said. nor increases the costs to verify that workers are eligible. This bill comes after several prominent outbreaks over the past few years. and sustainable procurement practices. to the extent it neither impinges on business’ ability to hire workers at will. Finally. and E.after an outbreak has already occurred. One could argue that any kind of employment verification system would possibly entail increasing penalties for businesses that fail to verify and that knowingly and repeatedly hire illegal workers. upgrading facilities with more efficient appliances and lighting. adoption of local sourcing of foods.  INDUSTRY SURVEYS RESTAURANTS / MARCH 3. An employment verification system.

bars. sales at limited-service establishments in the United States rose 1. INDUSTRY SEGMENTS The publicly traded companies that dominate the restaurant industry are varied. 2011 INDUSTRY SURVEYS .2% TOTAL: $205. Given modest economic growth.9% Other 2. Burger King Holdings Inc. There are also a few public companies in the fine dining sub-segment of the full-service part of the industry. For additional details and industry breakdowns.1 % Coffee 3. They are typically located in cities or resort Bakery café Convenience areas. and so forth) to food contractors and institutional providers. Larger chains tend to have an advantage because their economies of scale allow them to develop the operational expertise to improve efficiency and speed transactions. (operator of IHOP and Applebee’s).). Another trait of fast food outlets is that generally they do not serve alcohol.0 billion (28. (formed by the September 2008 acquisition of Wendy’s International Inc.2% store affluent. Buffet 1 . They range from fast-food operators. However. by Triarc Companies Inc.7% 0.. such as chicken and fish sandwiches.1 6.7 BILLION* * Total sales are the combined domestic sales of the top 1 chains. (operator of Chili’s Grill & Bar and Maggiano's Little Italy).. meals to eat in or take out.2% Snack 2.3% of total 2009 US foodservice industry sales).INDUSTRY PROFILE Satisfying the consumer’s appetite The US foodservice industry comprises a large and varied range of away-from-home eating facilities: everything from commercial eating and drinking places (restaurants. This Survey focuses on the restaurant sector of the foodservice industry. 00 Source: Nation's Restaurant News. According to estimates by the National Restaurant Association. Fast food Quick counter service. or limited partnerships. and to purchase supplies more cheaply.1 % Chicken 6. The main attraction at a sandwich chain is the hamburger. and DineEquity Inc. and Wendy’s/Arby’s Group Inc. Olive Garden. many chains offer a larger variety of main-course items. and cater to business people.8% Hotel 2. to companies that run full-service chains. low prices. estimates that overall US foodservice industry sales were $580 billion in 2010. and/or chicken. cafeterias.6% Family % Pizza 5. such as McDonald’s Corp. More often. such restaurants are traditionally run by RESTAURANT MARKET SHARES—2009 individuals.5% from $565. an industry trade group. These outlets tend to specialize in a few menu items: hamburgers. The National Restaurant Association.7 billion in 2009. (operator of the Red Lobster. Standard & Poor’s forecasts that revenues will rise a similar 2%– 3% in 2011. up 2. Brinker International Inc.1 Casual dining 1 5.5% in 2009 to $160. sandwiches. pizza. families. and LongHorn Steakhouse restaurants). the 1 .  Sandwich chains. The fast-food industry is less fragmented than its full-service counterpart. and plain décor are features common to fast-food (or limited-service) restaurants.3% Chart H04: Restaurant market shares Sandwich 42. and those who aspire to affluence.7% Contract 1 % 0. This is partly a result of the segment’s focus on quick service and price. Sales figures and comparisons that follow reflect the latest available data. see the “Projected US foodservice industry sales” table in the “Current Environment” section. Many offer salads as a popular 12 RESTAURANTS / MARCH 3. such as Darden Restaurants Inc.

0 billion).6 Domino's Pizza 3.0 Sonic Drive-In 3. However. Many Top 100 chains saw average unit sales fall in 2009 due to the recession.905 10. have been a major source of growth for sandwich chains in recent years.419 2.19 million per unit.0) (1.500 5. These included Jack in the Box.69 million).7 4.415 (4.  Pizza.0) 4. P.033 3.380 13. This group centers on meeting customers’ demand for speed.564 5. are seen as a future source of growth.158 3.152 8.8 CHAIN 2008 2009 % CHG.US UNITS ---------Bell.217 8. and Five Guys Burgers and Fries.197 1.0 billion in US sales in 2009. Chipotle Mexican Grill.8 . These four account for 87% of the aggregate sales in the pizza chain restaurant segment. Jack in the Box Inc.837 0.4) 0.0 4.253 1.5) (4. as well. McDonald’s was the leader.480 4. and quality—-all at a lower price point than at a full-service restaurant.961 4.7 0. In 2009.633 4. Tacos and burritos are also included in the sandwich category.3 Jack-in-the Box 3. Company results varied widely.34 million).5 Panera Bread 2.5 3. According to research firm Mintel.566 5.962 3.3 2.918 21. Some operators within the fast-food segment could also be considered part of the growing fast-casual segment.263 5.447 2. and Taco -----.08 million.292 3.4) Taco Bell 6.980 23.868 1.4 IHOP Restaurants 2.600 2.09 billion) and Little Caesars (a division of Ilitch Holdings Inc.544 717 1. Nontraditional service hours. New menu items.5 Subway 9.596 4. topped all sandwich chains with $2. with chains that are generally recognizable throughout the nation. a privately held company that made the list for the first time in 2008 topped the home of the Big Mac for the second straight year. including the breakfast.475 685 1.584 1.927 2. ($3.3) Dairy Queen 2.. according to data from company reports and industry publication Nation’s Restaurant News (NRN).875 1.1) Starbucks 7.553 5. and Wendy’s ($1. Other prominent sandwich chains in the Top 100 included fast-growing Chipotle Mexican Grill Inc. and overnight parts of the day.579 5.604 6. We also note that the fastest growing chain in the country in 2009.072 0.811 3.3 0.919 (1. ($2. 2011 13 McDonald's 29. a division of Yum Brands (US sales of $5.365 2. such as dessert-like coffee drinks and fruit smoothies.034 7.423 5.5) Chili's Grill & Bar 3. LARGEST US RESTAURANT CHAINS Burger King (about $9.999 largest 3. Papa John’s International Inc.and healthy alternative to sandwiches. about $1.638 9.271 3. followed by Domino’s Pizza Inc.487 4.983 (8. However. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. $10. 13.8 Table B02: Burger King 9.700 6.110 3.009 7.10 billion). Chang’s China Bistro has scaled down its concept for the Pei Wei brand. a division of Yum! Brands Inc.000 (9. For example. with an average of about $2. Five Guys Burgers & Fries (45% expansion in 2009). and Ruby Tuesday plans to open 200 Lime Fresh locations by the end of 2012.588 6.057 3. Wendy’s (Ranked by 2009 US systemwide foodservice sales) (approximately $7.373 (2.1 Pizza Hut 5.988 31.900 (5.US SALES (MIL.19 billion) also are large.1) KFC 5.5 Dunkin' Donuts 4. convenience. and a number of chains have taken advantage of the tortilla’s portability to offer a variety of wraps.5 (1. and White Castle.047 2.9 Chick-fil-A 2.7 Olive Garden 3.640 1.212 3.09 million per unit. the concept faces strong competition from Subway (operated by privately held Doctor’s Associates Inc. Jason’s Deli. ($1. bucked the trend.992 5.254 2.8 Source: Nation's Restaurant News .25 million per location.. which has about 215 locations in 28 states.297 3.$) ---------------.F.8 Arby's 3.395 7. which dipped just over 1% to $1.8) Applebee's 4.4 (0. up 30% from 2006’s tally. The nation’s largest purveyor of pizza is Pizza Hut.000 1. while the predominantly California chain In-N-Out Burger was third with $2.566 7.4 5.097 1. McDonald’s is the largest fast-food chain by a wide margin.955 5.0) restaurant chains Wendy's 8.00 billion in 2009). which saw a decline of over 5% to $1.4) 2. Standard & Poor’s expects the segment to remain a key area for potential growth and for full-service operators in particular to introduce new concepts. Some of the largest and most successful players in this growing segment are Panera Bread.200 4. nationally known pizza concepts.0) 0.41 million).877 10. dominate the sandwich chain category.0 (1.048 3. ($1. with a 14% increase in average unit sales to $1.755 7.41 million per unit.4 2. and we expect substantial growth to continue in coming years.162 1.31 million. With $30. Among publicly held companies.0 billion). ($6.9 billion). 2008 2009 % CHG. These three were the only sandwich chains to top $2 million per restaurant.7) (0. annual sales at sandwich chains in NRN’s Top 100 averaged $1.251 1.22 million in annual per-unit sales.433 0.511 3. Several large competitors. fast-casual sales totaled about $23 billion in 2010. billion).800 1.881 7. snack.233 5.0 (2.540 1.882 (3.

F. pasta.0 3.7 3.3 12. Sales at full-service eateries accounted for 32. . Based on total systemwide sales. switching places with P.4 17. salad. $858 million). down 3. 14 RESTAURANTS / MARCH 3. ($3.2 16.0 2. was No.3 2.9 2. which fell to third ($4.4 14.5 Two newcomers that joined the Top 100 list of pizza purveyors in 2008 saw mixed results in 2009.) leads the segment ($4. Red Lobster (also a Darden-owned brand.5 4.8 5. while the next largest competitor. $1.00 billion in the fiscal year ended June 2008). Revenue growth at Chick-fil-A has increased more quickly than at its competitors over the past several years.79 million). though their price points range from low to high. with a 0.2 18.4 (4. which saw sales dip 3%.46 billion) and Outback Steakhouse (operated by OSI Restaurant Partners LLC. $2.1 3.90 billion in 2009.175 locations in 32 states and Canada.0 8. Full service All full-service restaurants offer some form of table ordering.. including seafood. followed by Chili’s Grill & Bar (operated by Brinker International.0 20.6 7. (a division of Yum Brands) is the leader in this category.68 million). KFC Corp. Olive Garden ($4.FASTEST-GROWING US RESTAURANT CHAINS (Ranked by percentage increase in foodservice revenues) % CHANGE IN ----. $4. The Cheesecake Factory Inc.5% gain. fueled by aggressive expansion and high customer satisfaction scores. $2. Only one of the top 10 casual dining chains ranked by average per-unit sales—Chili’s Grill & Bar—saw an increase in average unit sales in 2009. Applebee’s Neighborhood Grill & Bar (operated by DineEquity Inc.36 billion). Measured by average per-unit sales. and Italian. as its US systemwide sales fell 9% in 2009.1 7. Papa Murphy’s Take ‘N’ Bake Pizza saw sales rise 8% to $626 million in 2009.8 3.5 3. Not faring as well was CiCi’s Pizza ($564 million).3 20..58 million sales per unit in 2009.3 9.8 3. and dessert buffet for about $5.9 22.90 million per unit) moved into second place.1 16. especially for speed of service.9) 4.7) 69. The mostly franchised chain has nearly 1.0 billion in 2009. Top-ranked Pizza Hut was the biggest loser in the market share battle. with US systemwide sales totaling an estimated $4. KFC stumbled again in 2009 as sales fell for the second year in a row. according to data from Nation’s Restaurant News. as long as you like the selections that CiCi’s offers. Chang’s China Bistro Inc.8 5. Casual dining chains (also referred to as the dinnerhouse segment) encompass a host of restaurant types.2 15. 1. 2011 INDUSTRY SURVEYS Five Guys Burgers and Fries Buffalo Wild Wings Grill & Bar Chipotle Mexican Grill Chick-fil-A Table B03: Zaxby's FASTESTBojangles' Famous Chicken 'n Biscuits GROWING US Papa Murphy's Take 'N Bake Pizza RESTAURANT Panera Bread CHAINS 7-Eleven Steak n Shake IHOP Restaurants Subway Panda Express McDonald's Dunkin' Donuts In-N-Out Burger Wawa Olive Garden Texas Roadhouse Golden Corral Source: Nation's Restaurant News . Rounding out the top five were Red Lobster ($3.9 3. The pizza segment continued to struggle in 2009 to find the right balance of promotions and pricing to keep both customers and profits.49 billion) and Church’s Chicken (operated by Cajun Operating Co.2 8..1% of total US foodservice industry sales in 2009.70 million) and Texas Roadhouse ($3. on average.25 billion). The latter is a category in which the company maintains the highest scores in the fast-food industry. These restaurants have much higher per-unit sales volume. Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Sep-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 Dec-09 May-10 Dec-09 Dec-09 74. According to the National Restaurant Association. CURRENT YEAR YEAR FISCAL YEAR END  Chicken. than do fast-food outlets.  Casual dining. $3. Chick-fil-A Inc.0 3. Other competitors include Popeye’s Chicken & Biscuits (operated by AFC Enterprises Inc. sales at full-service restaurants totaled about $182. by offering pizza (with the customer’s choice of toppings) that is then taken home and cooked.22 billion) saw sales rise 9%. Olive Garden (operated by Darden Restaurants Inc.0 8. with $9.6 2.37 billion in 2009).REVENUES ----PREV.5 (0.9% from 2008. CiCi’s takes the pizza concept in a completely opposite direction by offering an all-you-caneat pizza.. Asian.3 3. with five showing sales gains and five showing declines.5 4.6 8. The top 10 chains based on sales had mixed results in 2009.4 4.

This has forced operators to find ways to continue to boost market share. These chains have grown up specializing in one or just a few particular food or beverage items.. Bob Evans restaurants (operated by Bob Evans Farms Inc. INDUSTRY TRENDS The restaurant industry is highly competitive. and snack and beverage bars.” Category leader International House of Pancakes/IHOP. there are chains that do not easily fit into specific categories.56 billion in its fiscal year ended September 2010. Cracker Barrel led this segment.. Perkins Restaurant and Bakery (a division of Perkins & Marie Callender’s Inc.. (systemwide sales of $2. Sonic Corp. industry sales indicated the industry was finally stabilizing. and Domino’s 15 *Change in data compilation from SIC categories to NAICS categories. Cracker Barrel Old Country Store (a division of CBRL Group Inc. Family restaurants. although menu expansion has almost always been tried as a way to spur growth. sales in the US were approximately $7. caterers. both owned by Dunkin’ Brands Inc. According to industry US FOOD SALES GROWTH (In billions of dollars) research firm Technomic Inc. the company specializes in coffee products.73 million per unit). as they strive to maximize profits. and Steak ’n Shake ($1. low prices.22 million per unit in the fiscal year ended July 2009. but declined 1.2% when adjusted for inflation. operated by DineEquity Inc.88 billion) was in third place with nearly flat sales growth in its latest fiscal year. In recent years.. and that a number of companies were even growing. This was well ahead of IHOP ($1. Other Within the restaurant industry.500 locations in the United States. 2011 . many companies are still recovering and repositioning after the downturn. and menus geared to both children’s and adults’ palates.60 million per unit). total foodservice sales likely increased 0.16 billion) saw its sales decline. This comes after years of declines that likely stabilized in 2010. due to the kind of product they sell or the way in which they serve the product. systemwide sales of $2. and Krispy Kreme Doughnuts Inc. 59 of the top 100 restaurant chains reported lower sales..0% of total US foodservice sales. Examples include bars and taverns.48 million per unit).51 billion in 2009). while second-place Denny’s (a division of Denny’s Corp. and to control costs. With about 10. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. Source: US Department of Commerce.0 billion in 2009.3% in 600 2010 in nominal terms. On a sales per unit basis. grew despite the tough economy in 2009. numerous companies. 500 400 300 200 1 00 0 1 984 86 88 90 *92 94 96 98 00 02 04 06 08 201 0 Eating & drinking places All food stores Chart H01: US FOOD SALES GROWTH Despite the stabilizing trends. The lack of top-line growth over the past few years has led to a greater focus on the availability and use of capital. $1. Other examples of chains specialized by product include Dunkin’ Donuts ($5. or about 10. These loose categories accounted for sales of approximately $57. ($464 million).11 billion) and Baskin-Robbins ($578 million). averaging an estimated $3. These restaurants are sometimes referred to as “midscale. is perhaps the best example of a restaurant chain thriving in the specialty area of the industry. but by the third quarter of 2010. $1. SALES TRENDS FINALLY STABILIZING AFTER YEARS OF DECLINES In 2009.  Coffee/Snack. A family restaurant aims to appeal to customers of all ages by offering a relaxed atmosphere. While Starbucks does sell food. Starbucks Corp. such as Dunkin’ Brands. to find and retain employees..76 million per unit). $1. This represents a marked change for an industry that has traditionally had ready access to capital from banks and in the capital markets.

The largest of these deals was 3G Capital’s $4 billion takeover bid for Burger King. Papa Murphy’s. reflecting this community’s growing influence in the US economy. Wendy’s/Arby’s Group put the Arby’s sandwich chain on the auction block in January 2011. though given the sector’s recent run-up in valuation.6% decline in 2009 have demonstrated the risk in this premise. More fast-food chains are offering breakfast options. Many others were taken private in similarly leveraged transactions by private equity groups. one could hypothesize that this preference or desire for home ownership would result in lower remaining income being available for spending on other types of goods and services. COMPETING FOR CUSTOMERS To improve or simply maintain market share in the competitive restaurant industry. cash flow is once again a key driver of near-term operations and prospects. For instance. (We also note this same question could be posed for Americans in general. and Jack in the Box have stepped up pursuit of the Mexican-inspired market through their Taco Bell and 16 RESTAURANTS / MARCH 3. and Rubio’s. with the Hispanic and Asian-American segments growing at a faster pace than the overall US population. Driven by demographic changes. Yum Brands Inc. At recent growth rates. Now that trends seem to be stabilizing. many restaurants are developing new products to target these groups’ tastes. including on food away from home. Underlying these strategies was the premise that growth would reduce financial risk over time. Most are increasing the cash that they hold. Other firms that saw bids in 2010 include On the Border. Moreover.) Even after adjusting to equalize household incomes for ethnic groups. if so. it remains to be seen whether this trend will continue. (The study found that Hispanic households on average spent more of their income on housing. companies employ strategies to improve consumer choice. or buying back stock. the data showed that Hispanic households still spent more on housing. just days after Yum Brands announced it was seeking a buyer for Long John Silver’s and A&W All-American Food Restaurants.) Moreover. However. and value. paying down debt taken on earlier to grow. particularly after accounting for housing expenditures. often attracting other customers in the process. and that higher debt would always result in a higher return on equity. voluntarily underwent leveraged recapitalizations. many have resumed expansion plans. Most capital projects now are focused on more modest efforts and utilize less aggressive funding methods. expanding takeout service. Meanwhile. and recently immigrated Hispanic households. convenience. Indeed. many restaurants have begun to diversify their menus across various cuisine types. Indeed. the flavors of the cuisines of diverse Hispanic cultures have influenced American food tastes broadly. Most restaurant operators now take a longer-term view when considering changes in their capital structure. Hispanic market in focus The Hispanic market has become increasingly important to the restaurant industry. the group is expected to rise to 25% of the population within several decades.Pizza. but the recent downturn has left its mark. nearly 16% of the US population (about 48 million people) identify themselves as Hispanic or Latino. While the study did not pursue this line of thought. a recently published study by the US Census Bureau suggests that Hispanic households have somewhat lower disposable incomes relative to other groups. the study did not differentiate among multigenerational Hispanic-American households. Restaurants are also extending their menus to draw in both value-conscious and premium customers. It remains to be seen if Hispanic households will maintain this preference or if the severe housing recession has altered it. Techniques include adding cuisine types. Clearly. a wave of deals in 2010 demonstrates that private equity groups have developed a taste for the industry. and many are catering to a latenight clientele by extending operating hours. It remains to be seen if buyers emerge for these properties and. discounting prices to attract customers. According to the US Census Bureau. what they are willing to pay. flat GDP growth in 2008 and a 2. and using technology to improve customer satisfaction. Many restaurant concepts have adjusted their menu selections to cater to this group. announced in September 2010 and completed in November 2010. 2011 INDUSTRY SURVEYS .

and A&W).Qdoba chains. Besides menu development. each of these companies has increased its sophistication with respect to marketing. Wendy’s is actively pursuing Hispanic customers in its marketing program through media sources that are popular with this group. Easier than home cooking The home meal replacement (HMR) market is of particular interest to restaurant operators. Jack in the Box offers classes in English as a second language to attract Hispanic employees.’s Qdoba has more than quadrupled the number of restaurants in operation since Jack in the Box acquired it in 2003. no additional capital investment. prepared and packaged for busy customers to eat at home. Jack in the Box Inc. Bennigan’s. as well as reduce risk to the parent company and its affiliated investors through diversification. however. Yum Brands believes that multi-branded sites achieve 20%–30% higher sales. adding new concepts can boost long-term growth in sales and earnings: because customer tastes are fickle. Pizza Hut. According to Technomic Inc. Yum Brands has taken the multi-concept idea a step further. as success in some of its concepts can provide a buffer against poor performance in others. these multi-brand strategies were not successful enough or failed to satisfy impatient investors. seeking to “multi-brand” individual restaurants by incorporating more than one concept under a single roof. The company believes that by combining two or more of its major concepts (Taco Bell. and recruiting franchisees with advanced knowledge of the broad and diverse Hispanic community. which is co-branding locations with those of the Cold Stone Creamery ice cream parlor chain owned by privately held Kahala Corp. 2011 17 . However. it has received similar attention from casual-dining operators only in recent years. In our view. and derive at least a 30% increase in average cash flow per site. should continue to grow solidly over the next few years. We believe the strong demand for takeout food. Some fast-food purveyors have been more successful with their multi-concept strategies. takeout sales account for about 60% of total sales at limited-service chains. Other companies have been adding and shedding concepts at the same time. Long John Silver’s. the strategy gives a company the advantages of diversification. McDonald’s divested Chipotle Mexican Grill and Boston Market. it will draw customers to its locations by creating more choice. hiring. Private equity firms were active in acquiring multiple restaurant brands. The constant drive to increase the return on assets has INDUSTRY SURVEYS RESTAURANTS / MARCH 3. as well as the company that owns Village Inn and Bakers Square will likely not be the only private equity–related bankruptcies before the current industry downturn ends.. companies must come up with new ideas to stimulate demand. in some cases. on average. This idea is being taken a step further by Tim Horton’s. the problem resulted from a clash of cultures between a relatively large and conservative parent brand and a quick-on-its-feet upstart brand that was more interested in top-line growth than short-term profits. Darden Restaurants Inc. as a way to increase sales with incremental or. and Steak & Ale chains. KFC. respectively. in some cases. the predominantly Canadian coffee shop chain. For example.. Second. Brands come and go The industry downturn has resulted in a substantial retrenchment in the trend of restaurant companies developing multiple brands. it appears these deals often were based primarily on low-cost capital and overstated business strategies. while Chipotle Mexican Grill has developed the niche for Mexican food made with locally grown fresh and organic ingredients. Although takeout has always been a focus for quick-service restaurants. a market research firm. operator of Longhorn Steakhouse. Perhaps. the recent bankruptcy filings for the Uno Restaurant Holdings. McDonald’s is the fifth highest ranked spender on Hispanic media spending. In several notable instances. especially real estate. Popular in the 1990s and earlier in this decade. It also expects to leverage additional sales against each location’s fixed costs. First. and Wendy’s divested Tim Horton’s and Baja Fresh. multiple concepts were favored for two main reasons. decided to sell Smokey Bones Barbeque & Grill at approximately the same time that it acquired RARE Hospitality International Inc. in the hope that common oversight might create synergies and potential cost savings.

growing 9%. which it says are critical to its long-term development in China. The buffet restaurant segment is also increasingly emphasizing takeout. The company is currently focusing on drive-through outlets there. and experience in managing food spoilage and wastage to avoid hurting profitability. and pitfalls are manifold. if not more so. primarily the Americas ex-US. 28%. where takeout accounts for about 15% of systemwide sales. average order size. in an effort to take advantage of the trend of rising car ownership in China. charging customers by the pound. takeout food has been growing about twice as fast as the overall restaurant industry. full-service casual dining and fast-growing quick-casual chains will gain a larger share of this market. success in this sector is not guaranteed. and other countries. Europe accounted for about 29%. China’s largest gas retailer. Ltd. with about 10% of sales coming from Mainland China. Standard & Poor’s anticipates that. chains found that sales growth from 2003 through 2005 did not rebound as quickly as in the US due to a less robust economic recovery. (Yum’s China division now covers only Mainland China. which owns the Ryan’s Grill & Buffet Bakery chain and others. where Yum opened over 500 new locations in 2009. is looking for ways to introduce takeout to its all-you-caneat buffet formats. In Europe. McDonald’s entered a strategic alliance with Sinopec Shanghai Petrochemical Co. Applebee’s has significantly improved takeout packaging and rolled out curbside delivery service at its restaurants. Buffets Holdings Inc. the division’s former non-mainland groups were reclassified into other divisions in 2009. A leader in this category was Outback Steakhouse. 2011 INDUSTRY SURVEYS . about 43% of its systemwide sales were from the US. where takeout has always been a significant part of the business. They also have the disadvantages of higher cost structures and labor costs that comprise a higher percentage of sales. in our view. The challenge for many of these chains is not to undermine the existing concept by cannibalizing sales or disrupting the normal operating flow of the restaurant. It also has begun to test technology that would enable it to use handheld remote devices to accept credit cards for payment. China. Russia.. According to Technomic. Golden Corral Corp. we think they will remain second to limited-service chains. has adopted a new cafeteria prototype with curbside-to-go service. In 2006. In 2009. success in the global markets has not been without difficulty. supermarkets have some advantages: a successful formula that they have used for years.. Nevertheless. has rolled out “Golden to Go” takeout stations and reserved parking for takeout buyers at many of it locations. in particular. and Asia/Pacific. and quantity of food to order and prepare. In contrast.spurred full-service chains to invest significant sums to improve pick-up access and packaging. Africa. In Mainland China. Although an increasing number of restaurants are seeking ways to win in the growing and lucrative carryout market. revenues of Yum’s China division slowed a bit from the 46% pace in 2008. which has aggressively sought takeout customers by retrofitting its units to serve them. over time. has been a key focus. FAST-FOOD CHAINS MOVE OVERSEAS Quick-service restaurants have been expanding rapidly overseas. However. Luby’s Inc. restaurants are relatively inexperienced in this business segment and are bound to have difficulty in gauging demand. Supermarkets will likely remain major players in takeout food and a potent threat to restaurants. for example. Sales growth was healthier from 2006 to 2008. the Middle East. In serving the takeout market. Competition is everywhere—from local food stands to casual restaurants to supermarkets that offer takeout and delivery. The dominant overseas player in China remains Yum Brands.. given their numerous regular customers and convenient locations. The higher labor costs and food wastage can erode their profitability in the takeout sector. and about one-fourth of the net increase in new restaurants at McDonald’s during 2009 was in China. but 2009 was a difficult year. same-store sales slipped 1% (excluding 18 RESTAURANTS / MARCH 3. and India) are increasingly targeted by restaurant companies. McDonald’s revenue base is just as diversified. Yum Brands generated over 50% of systemwide sales from overseas markets in 2009. and on menu development.) In 2009. China and the other BRIC countries (Brazil. with nearly all the primary international operators touting pacesetting foreign sales.

Brinker International announced a new menu at its Chili’s unit that includes significant low-fat and low-carbohydrate options. perhaps because it has the most to lose from consumer perceptions about the healthfulness of its food offerings and from potential lawsuits. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. and active lifestyles. Plaintiffs have sought remedies such as menu changes. see the “Current Environment” section of this Survey. for instance. McDonald’s has developed a wide range of “Healthy Lifestyle” programs and initiatives. nutritional labeling. and monetary damages. the company’s Global Advisory Council on Healthy Lifestyles. Finally. An important driver in the new health-conscious trend has likely been various diet crazes. or the effects of carbohydrates on blood sugar levels. Ruby Tuesday Inc. The fast-food industry has seen even more dramatic changes. For instance.the effects of currency translations) during the year. In New York City. or fruit. These lawsuits reflect an American culture that has become significantly more health-conscious and litigious over the last several decades. Since 2003. In the latter part of the past decade. the company has moved to educate consumers by printing brochures that direct them to nutritional information on its corporate website. including the addition of menu offerings that the company believes will attract health-conscious consumers. (For further discussion of global expansion by restaurants. Customers who might have paid lip service to healthy diets in the past are now beginning to practice what they preach. healthy lifestyles among its customers. the company conducted a marketing campaign focused on promoting a balanced lifestyle and nutritional health. vegetables. many restaurant chains have made significant changes to their menu offerings. as evident by a recent suit against Yum Brand’s Taco Bell that claims the chain’s beef actually only contains 36% beef. It also decided to discontinue the “supersize” French fries and soda offerings that had once been a strong focus of its marketing. and have led to a native Chinese fast food industry that is just in its infancy. McDonald’s has sought to promote nutritional education and awareness among its customers. the fast-food industry has been hit with lawsuits alleging that specific corporations are responsible for obesity-related health problems faced by consumers—particularly children. McDonald’s has collaborated with the World Health Organization and the US Department of Health and Human Services to educate consumers on the importance of nutrition and fitness. dedicates a section of its menu to “Smart Eating” foods. The company also has promoted its corporate website as a source of nutritional information about its menu items. Applebee’s now dedicates a segment of its menu to items that were developed with and approved by Weight Watchers International Inc. This is a result of rising obesity rates. added fruit and more salad offerings to its menu. a policy was implemented in July 2010 that subjects restaurants to an annual inspection. whole-health diets and back-to-basics eating seem to have taken their place. The company has put its marketing muscle behind its salad offerings and developed new Happy Meals that include yogurt. has helped to guide the company on activities to promote balanced. Some restaurant companies have sought to distinguish themselves by combining with brands associated with the new trends. a baked potato. depending on the location. Though the popularity of low-carbohydrate diets. 2011 19 . such as the Atkins Diet and the less intense South Beach Diet. In response to strong customer demand. after which the restaurant is given a letter grade that must be posted. and perhaps to help insulate themselves from potential liabilities. Over the years. For instance. seems to have ebbed. advertising restrictions. In the casual dining industry. In the latest health initiative. nutrition. Lawsuits have also centered on better disclosure of menu contents. or a side salad for the French fries at no additional cost. Wendy’s has promoted four meal combinations (which were already on its menu) with less than 10 grams of fat. for example. skyrocketing healthcare costs. An increasing awareness of foods’ glycemic index. many cities are implementing health grade requirements for restaurant operators. Numbers such as these have attracted other chains such as Dunkin’ Donuts. and changed its combo meal to allow customers to substitute chili.) INDUSTRY FOCUSES ON HEALTH In recent years. milk. and growing concerns about the impact of obesity on overall health. which includes experts in fitness. also seems to be on the rise.

Fast-food chains recently dealt with new laws in various states and cities across the United States to ban trans fats from the food they serve. A 2008 Los Angeles City Council moratorium on new fast-food restaurants was subsequently extended. Although not the first such law. On January 4.1% in 2006. Despite legal challenges and other efforts by individual restaurants as well as chains and industry groups. PURCHASED MEALS & BEVERAGES AS A % OF DISPOSABLE INCOME 1 .000 8. Since then. 2011.20 4.30 4. South Carolina.000 2. Some. were switched to zero trans fat by the end of 2008.668. such as fried pies and baked cookies.5% of total food expenditures in 2010.698 in 2009.25 4. a new law went into effect in July 2008 in New York City (which had been passed by the city’s Board of Health in December 2006). these laws have largely been upheld by the courts. FDA food safety activities. One of the linchpins in the trend toward eating out is steady growth in disposable income. and San Diego. The moratorium covered a portion of the city where it was deemed that a lack of alternatives to fast-food establishments was resulting in rising obesity. The percentage spent away from home was up slightly from 2000. It requires restaurants in the city to remove trans fats from the ingredients of the items on their menus.1 5 Chart H03: PURCHASED MEALS & BEVERAGES AS % OF DISPOSABLE INCOME 4. down from $2.000 1 989 91 93 95 97 99 01 03 05 07 2009 Disposable income (Bil. $.000 6.000 1 1 0.05 4. chain-weighted US disposable personal income per capita increased at a compound annual growth rate (CAGR) of 1. as restaurant goers continue to raise their disclosure expectations. INDUSTRY SURVEYS 20 RESTAURANTS / MARCH 3. the Food and Drug Administration Food Safety Modernization Act was signed into law by President Obama. Various states and municipalities have begun requiring chain restaurants to post calorie and fat information for items on their menu. or even higher. According to the company’s nutrition website. 2011 . The amount per household spent on food away from home in 2010 was $2.00 3. but not all. Other cities now include Dallas. According to updated data from the US Department of Labor’s Bureau of Labor Statistics. USDA Economic Research Service. as Los Angeles has been using a similar system for over 12 years.000 3. up from 41. High-profile salmonella and E.9% in 2008. According to the US Department of Commerce. please see the “Current Environment” section of this Survey.) FOOD-AWAY-FROM-HOME TRENDS STABILIZE The long-term trend toward eating out more ended in 2006 and eroded further in recent years. (For further discussion of the bill. numerous municipalities have followed New York’s lead.5%. consumption of food away from home accounted for 43. and to make changes in. nominal disposable personal income grew at a CAGR of 4.4% of total food spending. Aided by tax cuts in 2008. Standard & Poor’s expects the health grade trend to continue expanding to new cities.1 0 4. left scale) Purchased meals & beverages as %of disposable income (right scale) Sources: US Bureau of Economic Analysis.85 It remains to be seen if the percentage of pay spent on away-from-home food will continue rising to its 2006 high.000 9. New York is not the only city with such a system.90 3.000 7. but down from the high of 44.95 3. of the factors that supported the long-term climb in eating out over nearly 50 years should eventually support increased demand in the future. McDonald’s has switched to zero trans fat for its French fry cooking oil as well as the fats used as ingredients and to cook nearly all other items on its menu. Other recent governmental efforts are aimed at helping consumers to be better informed about their dining decisions. Chains such as Burger King and Wendy’s are using new kinds of trans-free cooking oils or have already reduced the amount of trans fat in the oils they use for frying and cooking. 4. Louisville.Establishments that receive grades lower than ‘A’ will be visited by health department officials more frequently. as well as states like North Carolina. and Mississippi. at 41.000 5.000 4. coli outbreaks in the recent past increased calls from Congress in 2007 and 2008 to increase funding for.17% between 2003 and 2010. remaining items.

HOW THE INDUSTRY OPERATES Over the past 50 years.The resumption of the long-term trend toward eating more meals away from home will likely depend on a resumption of personal income rising faster than price increases in the restaurant industry and for food in general. median household income has continued to increase. In 2009. both parents hold full-time jobs. Economic trends have played an important role in the popularity of eating out. A significant part of demand for food away from home is driven by being at work. sufficient to reduce the expectation of having two incomes to support household spending. According to the National Restaurant Association. boosting the propensity to eat out. Higher growth in personal income from 1985 to 2005 meant that total food expenditures declined from 11. projected industry sales for 2010 were $580 billion. Contributing heavily to this trend has been the rise of fast-food dining that began in the 1950s with industry trendsetters Jack in the Box Inc. In many families. It remains to be seen if future retirees—members of the baby boom generation. the industry is the nation’s largest private-sector employer. down 0.7% from 2008. and with numerous moderately priced restaurants to choose from. Further boosting the dining-out trend is the decline in free time. totaled INDUSTRY SURVEYS RESTAURANTS / MARCH 3. In addition. (A more detailed breakdown of the various categories is listed in the table entitled “Projected US foodservice industry sales” in the “Current Environment” section of this Survey. meals eaten away from home as a percentage of total food expenditures have risen fairly steadily from just 26% in 1960.3%.5% of total food expenditures.3 billion.7% of disposable personal income to 9. according to the US Department of Agriculture. from 41. institutional. As a percentage of total food expenditures in the United States. domestic life has become more time-pressured.9%. the National Restaurant Association reported that those 65 or older spend approximately half as much on food away from home as do those from age 45 to 54. RESTAURANTS: FROM TAKE-OUT TO FULL-SERVICE Foodservice businesses are a highly diverse group. The industry is divided into three general categories: commercial. these companies significantly improved customer satisfaction while lowering wait times. Restaurants provide a quick option for feeding the family.9% of the projected US gross domestic product. which comprises everything from restaurants and cafeterias to ice cream parlors. Dual-earner households account for more than 50% of US families. With the rise of dual-income and singleparent families. Any prolonged period of high unemployment. and cafés. is by far the largest category. and McDonald’s Corp.) Commercial restaurant service. The convenience of eating out and the large number of reasonably priced options mean that restaurant meals will likely remain an integral part of daily life in America. could cause a permanent trend change in food consumed away from home. according to the National Restaurant Association. in both the fast food and casual dining categories. but subsequently rose to 12. bars.4% in 2010. its sales in 2009 were an estimated $517. where the restaurant scene has come into its own over the last decade. The establishment of large chains. during this 20-year period. which leaves less time to prepare meals at home. a trade group. has helped to streamline operations and lower costs further. who have lived their entire adult lives eating out—will continue to do so in their golden years. A key challenge for the restaurant industry as baby boomers start to retire will be to entice this generation of retirees to eat out more than prior retirees. eating out had gradually become part of the way of life for many Americans. and military. 2011 21 . dining out is often the most convenient choice. according to the Bureau of Labor Statistics. consisting of sales by institutional organizations and businesses operating their own foodservice.7 million employees in 2010. Institutional foodservice. With a projected 12. known for its top restaurants. or Joel Robuchon in Las Vegas. which would account for 3. ranging from corner pubs and fast-food franchises to such deluxe restaurants as highly regarded Jean-Georges in New York. By offering drive-through service and revolutionizing work flow processes. With the rise in singleparent and dual-income households. Food away from home rose to 43.

(operator of the Red Lobster. and alcoholic beverages are often available. presumably in exchange for higher-quality food and fresher preparation. a relatively high percentage of incremental revenues can become profit.000 units in the United States and 32. which may include. for instance. and Longhorn Steakhouse chains. This includes the large number of small franchisees that operate single or a few locations of the major fast-food brands. Advantages include purchasing power in negotiating food and packaging supply contracts. but because of the industry’s intense competition and high fixed costs. For restaurants that do succeed. with or without seating. Full-service restaurants usually feature moderate to high prices and sit-down service. another concept. Fast-food chains have long used proliferation to their advantage: McDonald’s now has about 14. Olive Garden.2 billion.” has emerged to bridge the two categories.000 and other technical assistance fees of typically about $50. Franchising permits restaurant companies to expand their brand-name recognition rapidly. however. It gives the franchisee the right to construct and operate a restaurant on a site accepted by the franchisor and to use the franchisor’s operating and management systems. HIGH RISK/RETURN Small operators run a substantial majority of all restaurants. without bearing the full cost of acquiring land. Now. have come to dominate the mid-price segment. Food packaging is often disposable. Some of these ventures succeed. and equipment. the franchisor charges the franchisee a one-time fee. buildings. Franchise contracts vary in length. however. Most also require franchisees to contribute 2% to 5% of sales to cover both local and national advertising. and marketing. aptly named “quick casual. Large restaurant chains have been able to realize economies of scale that have made competition extremely difficult for small operators. location selection. Meals are served with flatware and china. while military sales are expected to come in at $2.4 billion. and the average check price is almost always less than $7. the franchisee makes royalty payments based on gross receipts from restaurant operations. which estimates that 91% of all operators have fewer than 50 employees. with specified minimum payments. (Institutional and military foodservice are not covered by this Survey. In a typical franchise relationship. In the United States. For 2010. institutional foodservice sales are expected to be $47. an initial nonrefundable fee of about $5.700 worldwide.about $46. and military foodservice was worth an estimated $2. The restaurant business’s low barriers to entry are partly responsible for its popularity among small-scale entrepreneurs. FRANCHISING: A QUICK WAY TO GROW Many restaurant chains choose to grow their concepts by franchising. Under these arrangements. Limited-service (also called fast-food or quick-service) restaurants typically offer rapid food preparation and low prices. such costs are borne by the franchisee.1 billion.2 billion. as well as increased sophistication in real estate purchasing.) In the commercial foodservice business. LOW ENTRY BARRIERS. many fail. casual dining chain concepts have taken market share from independent operators through geographical expansion. In recent years. multi-concept casual dining operators.000. In addition. Average check prices generally exceed $8. In recent years. The practice of franchising involves a business contract between two companies: a franchisor (or parent company) and a franchisee (or individual business operator). Once sales reach the break-even point. the payback on investment can be considerable. Quick-casual restaurants have a slightly higher average check price than fast-food concepts. among others). menu development. 22 RESTAURANTS / MARCH 3. the largest segments are full-service and limited-service restaurants. generally $7 to $10. royalty payments are generally 4%–5% of total receipts. (formed through the 2007 acquisition of Applebee’s by IHOP) and Darden Restaurants Inc. such as DineEquity Inc. Take-out orders account for a large portion of this business. which also pays a royalty to the parent company for the right to be part of its chain. 2011 INDUSTRY SURVEYS . according to the National Restaurant Association. but may be for periods of 10 to 20 years.

Strong and vital franchisees are essential to the continued success of many restaurant chains. training and marketing support from the parent company. acquisition. however. general managers report to district managers. versus only 46% at Jack in the Box. entrepreneurial-minded franchisees to assure long-term success and safety. who are responsible to the corporate executive management. Licensing and franchising involve some loss of control of the business. an associate manager. they face other risks. franchisees of restaurants in 2009 were expected to operate nearly 229.000 restaurant locations in the United States. franchised 89% and 84% of their US units at year-end 2010. while generating a steady stream of royalty fees. While this tactic can improve overall returns. since franchise royalties are based on a percentage of sales.4% from 2008. and one to five assistant managers. personnel management. Franchising eliminates the need to focus on the day-to-day concerns of operating units. franchising strategies can vary. restaurants may be acquired due to geographic or operational benefits to existing company-operated units. cost controls. the popularity of these cash-generating programs is easy to understand. and Yum Brands Inc. RESTAURANT MANAGEMENT AND TRAINING There is a strong correlation between the quality of restaurant management and the long-term success of a concept.Franchising is a widespread phenomenon around the world. Furthermore. up 1. With the day-to-day operating decisions made by franchisees. such as Yum Brands. Even among concepts owned by the same company. an independent trade group. Individual franchisees depend on the overall success of the entire chain to maintain their own standing. Every restaurant typically employs a general manager. Nonetheless. restaurant maintenance. According to a PricewaterhouseCoopers report for the International Franchise Association. fast-food giants McDonald’s. who in turn report to regional managers. regularly buy and sell restaurants as a means of strengthening their operations. in an industry that requires relatively high capital expenditures. franchisees accounted for 69% of total units. The franchisee also can participate in cooperative purchasing. overseeing customer relations. and the restaurant’s profitability. Refranchising frees up invested capital and generates franchise fees. Acquired restaurants. For chain restaurants. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. enabling it to sell food at a lower price than an independent operator can. respectively. Selling restaurants generates cash that can then be used to fund new development. they can ensure a steady stream of revenue even in a difficult operating environment. which may not have been performing up to expectations under franchisee ownership. A company that tries to profit at the expense of its franchisees—for example. rather than profits. In return. and remodeling programs. Why franchise? Many restaurant chains opt to franchise their businesses to enjoy superior returns. At Jack in the Box Inc. The percentage of franchised versus company-operated units varies widely among individual chains. Companies that employ the franchise business model rely on maintaining successful franchisees and attracting new. Associate and assistant managers support the general manager’s duties and fill in when needed. its ultimate success depends on a company’s ability to find qualified franchisees to purchase its restaurants. implementation of company policies. a practice known as refranchising. but it is especially prevalent in the restaurant industry. Successful refranchising Some companies. General managers are primarily responsible for the day-to-day operations in one restaurant. one poorly run franchised unit can reflect badly on the whole chain. the franchisee enjoys the benefits of brand-name recognition and. While franchisors avoid some of the hazards of expansion. The gains can be substantial. In other cases. with a combined 4. foodservice. 2011 23 . For example. often. Restaurant management structure varies by concept and sales volume. by charging high prices for supplies—can damage the trust needed to have a good working relationship between franchisor and franchisee.4 million employees and $251 billion of economic output.’s Qdoba chain. particularly in the fast-food segment. can be improved and then operated profitably by the company or sold to another franchisee.

Franchisers such as Applebee’s International Inc. COST STRUCTURE The costs of owning and operating a restaurant vary by format. labor. We estimate that. as do upscale formats with a greater investment in interior design and higher spending on costly food items.AVERAGE CHECK PER PERSON ---$25 AND SERVICE UNDER $15 $15-$24. especially dairy products. training is conducted for all restaurant employees. consisting of eight weeks of in-store training and three weeks at corporate headquarters. such as beef. For employees who have development or supervisory responsibilities. To justify the expense. Companies negotiate directly with national and regional suppliers to ensure consistent quality.9 33. Obviously. The larger the fivemonth period for managers and supervisors. while casual dining restaurants may increase the speed in which tables turn. and it is (As percent of total) likely to be shut down. its profitability also THE RESTAURANT INDUSTRY DOLLAR—2009 will be below plan. sends new managers through an 11-week training program. Some of the products subject to the greatest price variability.8 33. if a unit’s volume does not reach the company’s revenue projections. Some supply contracts signed by larger chains can lock in less volatile food products. at stable prices for an entire year. If a company can use its increased manpower to speed service times. Forward pricing is a hedging strategy whereby a company negotiates with a supplier to purchase a certain amount of a product at a given price. the greater the bargaining power that it has over suppliers. larger units cost more than smaller ones. freshness. FULL-SERVICE RESTAURANTS Table B04: restaurant Industry dollar Cost of food and beverages 32.1 26. can be locked in only for shorter periods. These companies also give periodic training to their restaurant employees. large units are typically located in areas with greater population density or that have a larger geographic draw. and competitive prices.2 5.1 5. Brinker International Inc. Labor Labor is the restaurant industry’s second largest expense. the cost of food and beverages is one of a restaurant’s largest expense categories.2 Income before income tax 3. (See “The restaurant industry dollar” table for these and other costs as a percentage of sales for different industry sectors. McDonald’s dubs its school “Hamburger University. They generally see greater revenues than smaller units. 2011 INDUSTRY SURVEYS .99).7 25.4 7. a company may raise staffing levels in order to improve service and thus increase sales.1 26.00 to $24. and employee benefits represented about one-third of sales.) Food and beverages Not surprisingly.. Training teams also instruct employees on opening a new restaurant. and real estate constitute the restaurant owner’s largest cost categories. McDonald’s. CBRL Group Inc.9 Food and beverages.7 6.7 Restaurant occupancy costs 4. these factors accounted for less than 30% of sales.” Often. and Wendy’s operate extensive training programs in a classroom setting. wages. fast-food restaurants may serve more customers at the register over a period of time. labor typically represents about 40% of sales. 31. at major fast-food restaurant chains.4 3. Many companies engage in forward pricing to stabilize food costs.5 LIMITED---. extensive restaurant operations training courses are standard at most companies. remaining on location for two to three weeks to ensure a smooth transition to operating personnel. In any event..2 Wages & benefits 33. salaries. In addition. though the proportion of total cost varies by restaurant type.0 Source: National Restaurant Association. though this is not always the case.Training takes a variety of forms.8 31.5 1.9 Other 26.99 OVER RESTAURANTS 31. In a competitive environment.’s training program includes a four. 24 RESTAURANTS / MARCH 3. customer satisfaction levels can be an important determinant in improving sales volumes.9 29. At fine dining establishments. at casual dining restaurants (average meal prices of $15. which operates Cracker Barrel Old Country Stores.

and site visibility. they give restaurant operators the option of relocating or closing units. turns rapidly in the restaurant business.8 million for its upscale Maggiano’s Little Italy chain. to better control their costs. If real estate values decline. Inventory. or the value of the lease for the land when capitalized (valued as an asset on the balance sheet). the company must have good financial resources. The land on which a restaurant is built can be purchased or leased. office complexes. 2011 25 . such as McDonald’s. most fast-food and restaurant chains spend a great deal of time researching and developing new products. CREATING AND TESTING NEW FOODS In recent years. local market demographics. Brinker International. many restaurant companies operate with negative working capital. This is also one reason why debt levels are relatively low compared with other industries. and hotel and entertainment centers. Many chain operators choose to build their own units. The bottom line After food. Profitability. so that individual restaurants all conform to the same design concept. the level of sales at a given establishment is a key determinant. In the process. or build a new one. Companies award stock options to personnel from the highest levels of management down to the restaurant-level manager. labor. the company can benefit from appreciation. especially those that must support high levels of slow-moving inventory. Proximity to sites that draw large crowds. site selection is critical to the success of a new restaurant. financed from normal trade credit. Leases are finite in duration and eventually expire. however. Some businesses are simply better than others at reining in costs. Companies devote significant time and resources to analyzing each prospective site. Other chains. competition has fostered innovation as restaurants have sought to boost volume. companies have placed a premium on retaining their best operators. In many cases.) A working capital deficiency occurs when current liabilities exceed current assets. It is sometimes referred to as net working capital. Although customers may not be aware of it. is $946. choose to locate units in strip malls or malls to increase visibility. such as Subway (operated by privately held Doctor’s Associates Inc. Real estate A restaurant owner can purchase or lease an existing space. so does the value of the company’s investments. such as retail centers. they have made new product introductions an important part of the equation. what is left is operating profit. Whether owned or leased. Starbucks Corp.. varies widely among the various industry segments and even among individual units in a chain. Accessibility concerns. On the other hand. Some chains. (Working capital equals current assets minus current liabilities. Expense structures also vary from company to company. To finance such a purchase. as current assets can be considered working capital needed to support the business. managers’ pay relies on incentives and often is tied to restaurant-level profit performance. Both options have pros and cons. a company will review potential competition in a trade area. The main criteria are customer traffic levels and convenience. such as retailers. prefer freestanding locations in high-traffic areas. Leasing requires less capital and offers greater flexibility than do outright purchases. thus. It’s a cash business Because virtually all sales in the restaurant industry are transacted in cash or equivalents (such as credit cards). In addition. occupancy. In recent years. are also important. and the CBRL Group all issue significant amounts of options to compensate management. is desirable. Purchases are either financed with loans or paid out of current funds. leasing leaves operators vulnerable to rising rents or the loss of a lucrative location. it must cover the purchase price.Restaurant sales and profits can be greatly influenced by the efforts of general managers and area managers. however. When a company purchases real estate. such as the availability of parking and ease of entry. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. Once real estate is purchased. and other expenses are subtracted.). Brinker International estimates that the average cost for land.000 for a Chili’s unit and $4. with cash on its balance sheet and borrowing power. if site selection is poor and the units are not drawing enough volume.

as well as existing menu items. Most major economies are cyclical. part of the US Department of Commerce. Given the rigors of the McDonald’s testing process. the company’s new product introduction process generally takes from six months to two years to complete. analysts consult the following indicators. Real GDP shrank 2. and the operational and procurement efforts needed to support a rollout over the company’s nearly 14. the company gathers 80 to 100 customers at a selected McDonald’s unit to get input on new ideas. it should deliver financial benefits. it could be expected to create a new sandwich item. such as Jack in the Box. and health concerns. Reported each month by the US Bureau of Economic Analysis. Price wars are common throughout the industry and favor well-financed behemoths McDonald’s and Burger King Corp.1% in 2011.9% in 2010 and forecast an increase of 3. advancing and contracting with the business cycle. salad. the company became the largest single user of apples in the country. Testing often is supported by advertising. When a new product is introduced. and so forth—must fit clearly into the chain’s menu and meet its customers’ expectations. Thus. have helped to both drive customer traffic and raise the average check. New menu item ideas are categorized by food category. such tests often last for six months to ensure marketability. in contrast to a 0. Its day-to-day preparation should be compatible with company standards and operations. while a chain such as Wendy’s would be unlikely to unveil a new pizza topping. when the company decided to promote its Apple Dippers product in 2005. Reported quarterly by the Bureau of Economic Analysis.4% increase in 2008. which in turn is influenced by the health of the overall economy. In the highly competitive fast-food category. minus taxes and adjusted for inflation. Before an item can be rolled out across the McDonald’s restaurant system. focus on new product development to differentiate themselves from competitors. Items recently added to the menu. Armed with an increased understanding of customer trends. The business cycle dating committee of the National Bureau of Economic Research establishes the official beginning and end of recessions. Approximately every six weeks.6% in 2009. Products are chosen for tests in select markets and then select regions. and its potential impact on the restaurant industry. The Bureau of Economic Analysis also issues advance and preliminary estimates of GDP before reporting the final GDP figure for the quarter.  Disposable personal income. In some cases. three key elements determine its success. As of February 2011.Menu offerings evolve along with consumer taste. restaurant chains conduct consumer research and keep up on the latest trends in food. Finally. disposable personal income is a measure of aggregate consumer income. inflation-adjusted (or real) GDP growth is a measure of the health of the overall US economy. the company must arrange for a supply of ingredients. such as the Snack Wrap or Southern Style Chicken biscuits and sandwiches. main course. To develop prototype products. dessert. thereby reducing the potential impact of large-scale industry discounting. this may take several months due to the vastness of the company’s needs. Changes in this measure are important. which can take anywhere from several weeks to three months to arrange. McDonald’s has had great success in driving sales through new products. For instance. the company can experiment with various food ideas at McDonald’s Hamburger University campus in Oak Brook. The company’s product development process is driven predominantly by customer feedback. Over the past several years. The type of new product introduced—sandwich. Smaller regional companies.  Real growth in gross domestic product (GDP). new menu items can be crucial to driving sales as they can help to raise traffic—without the margin pressure of price discounting. price sensitivity. The product must meet consumer expectations and thus generate incremental sales. Illinois. To gain knowledge of the economy’s current and anticipated state of health. Standard & Poor’s Economics estimated that real GDP grew 2. because they influence the level of consumer spending that can be 26 RESTAURANTS / MARCH 3. KEY INDUSTRY RATIOS AND STATISTICS Restaurant sales are driven by consumer spending. A full growing season was actually needed to create a supply equal to the demand. 2011 INDUSTRY SURVEYS .000 US restaurants.

1% gain in 2010 and a 4.0 1 990 92 94 96 98 00 02 04 06 08 201 0 Source: US Bureau of Labor Statistics. Standard & Poor’s Economics was forecasting that the CPI would rise 1.  Consumer confidence.6% in 2010.0 7. When unemployment rates are relatively low. restaurants often have to raise pay levels to attract and retain workers.0 6.5 1 0.5 3. and had risen to levels not previously seen since CONSUMER PRICE INDEX FOR FOOD AWAY FROM HOME spring 2010 (62. restaurant chains are generally reluctant to raise menu prices. in percent) 1 0. Restaurants rely heavily on the availability of a dependable work force at the low end of the national pay scale.5 4. Growth in disposable income decelerated in 2009 despite the effect of tax rebates. Released monthly by the Bureau of Labor Statistics (BLS. Restaurants. When consumer confidence is high or rising. Wages are often the largest single expense at restaurants.  Unemployment rate. especially at quick-service restaurants. Driven by decreased energy prices. Conversely. This index is compiled monthly by the Conference Board. it is usually accompanied by increased spending and borrowing. when it is stagnant or weak. food. They may shift to eating at less-expensive restaurants or at quick-service chains or to cooking at home. utilities. In January 2011.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 201 0 Source: US Bureau of Labor Statistics. 27 INDUSTRY SURVEYS RESTAURANTS / MARCH 3.0 9. (Year-to-year percent change) 5. and energy.5 0. Conversely. This qualitative measure of consumer attitudes is expressed as an index. like most companies.0%. where annual turnover often exceeds 200% for non-management positions. a private research organization. telephone services.3% decline in 2009. A steady stream of acceptable replacements is needed. consumers who are uncertain about the future are likely to pare or postpone their expenditures. Employee turnover rates are relatively high.0 2. Factors that influence the index include perceptions of employment availability and current and projected income levels.000 representative US households to gauge consumer sentiment. which polls 5. consumers are more willing to loosen their purse strings. A reading above 90 is considered a strongly positive outlook on the economy.7 in May 2010). As of February 2011. US UNEMPLOYMENT RATE (Monthly data. When personal income is growing. and consumers’ expectations about how they will be affected. with real disposable income rising 1.9% in 2008. though. The “core” CPI smoothes out the index by removing the volatile food and energy categories.6. electricity.5 7.0 4. Chart H02: CPI for food away from home  The consumer price index (CPI). 2011 . with 1985 used as a base year (1985=100).0 5. and thus serves as an inflation indicator.5 6.5 9.4% increase in 2011.5 unemployment rate 8.expected. consumers are less willing to spend. following a 0. fuel oil. the overall CPI rose 1. the Conference Board’s consumer confidence index stood at 60. As of February 2011. Given the highly competitive environment.0 0.0 1 .5 2.0 4.9% in 2011. an agency within the US Department of Labor). down from 3.0 3. Standard & Poor’s Economics expected real disposable personal income to record a 3.0 Chart H05: US 8.5 1 .5 4.5 5. try to pass on increased costs for supplies and labor to customers. Its two components—the present situation index and the expectations index—reflect consumers’ views of current and future business and economic conditions. the CPI measures changes in the price of commodities.

This situation led to store closings and concept failures. If a restaurant’s same-store sales are declining while the rest of the industry is showing gains. both quantitative and qualitative. A range of factors. even as the industry is doing relatively well. After hitting a peak of 5. The growth rate of overall restaurant locations should be in line with increases in demand to ensure a healthy overall business. the unemployment rate rose to 10. systemwide sales.33% as of January 2011. then the problem may lie beyond the company. As of February 2011. After bottoming in late 2007. the unemployment rate tracks the number of working-age people currently searching for employment as a percentage of those employed or looking for work. the rate on the 10year Treasury note was about 3.25% in June 2007. If a company chooses debt financing.0% as of December 2009. Volatility in the credit markets sparked by concerns about subprime mortgage defaults also pushed down 10-year Treasury yields.25%.  Interest rates. prices. However. and cash flow. In the early 1990s. return on assets.  Industry expansion rates. Many growth companies cannot finance expansion strategies wholly from current cash flow and must therefore access capital markets. they can significantly affect profitability. but then fell to 9. in order to determine whether the business is achieving improvements in its performance. to its current target of 0. can be helpful in comparing and contrasting a company to its competition. sub-industry peer group. Standard & Poor’s expected rates to rise to 4. Standard & Poor’s Economics was forecasting the unemployment rate to average 8. if a company’s competitors are also experiencing weak financial performance.0% (as of January 2011) as the economy continued its recovery and many of the jobless dropped out of the labor force and. Further study then would likely suggest where the problems lie. therefore. and to the restaurant industry in general. comparative analysis is needed to measure the relative success of a company under given industry conditions. short-term rates dropped dramatically through 2008. Conversely.Released monthly by the BLS. operating margin. and perhaps the most important. QUANTITATIVE ISSUES Aspects of a restaurant’s business that can be measured quantitatively include same-store sales. In addition.0% to 0. prevailing interest rates may affect corporate profitability. Rising costs can erode profit margins if the company cannot pass the added expense on to the customer in the form of a price increase. 2011 INDUSTRY SURVEYS . if a company’s financial performance is stellar versus its peers.1% by the end of 2011. clearly there is cause for concern and further investigation. step in analyzing a restaurant company is relating the fundamental outlook for the restaurant industry to the company under consideration.9% in 2011.  Commodity costs. Although absolute numbers are critical to the assessment of any company. comparing the company’s results with those of its peers is useful in determining relative performance. or other factors changed in ways that make the potential investment return of the business more or less attractive? Analysis then could suggest either how to address the problems or that they may be too large or too broad for the company to fix. Is it indicative of a change in consumer tastes or preferences? Have costs. were not counted as unemployed. These hard numbers are the basis for analyzing company trends over time. Ten-year Treasury notes often are seen as the most reliable indicator of long-term interest rate trends and are traded daily on secondary bond market exchanges. 28 RESTAURANTS / MARCH 3. Food commodity costs are one of the largest input costs of a restaurant company. Reflecting Federal Reserve policy. HOW TO ANALYZE A RESTAURANT COMPANY The first. analysis could show if or for how long the outperformance can be sustained. restaurant industry expansion caused supply to significantly outpace demand.

Restaurants can raise the amount of the average check by adding higher-priced items to the menu. its long-term growth—even its survival—can be in doubt. according to the Bureau of Labor Statistics). somewhat higher costs for food (especially beef) and utilities led many restaurant chains to raise menu prices at a slightly faster 3. weak economic conditions outside of housing are having a negative impact on the sales trends of restaurants located in those areas. they are where restaurant companies have been expanding the most. as well as acceleration of certain food costs starting in late 2007. Traffic gains often reflect customer satisfaction. In difficult economic times. average weekly sales may be preferable to same-unit sales as an indicator of sales trends. From 2004 through 2006. advertising and promotions. In California recently. or changes in customer preferences—any factor that affects the size of the average check. such as the Midwest. and service meet their needs. or select less expensive options. It is important to note that some chains compare same-store sales for units open only 13 months—a less reliable indicator of sales strength than the 18-month period. because these regions have had the fastest growing populations in recent years. or can lower it by featuring value products in an advertising campaign designed to spur traffic. We expect price increases to be very modest in 2011. customers tend to avoid ordering desserts and drinks. A company that is expanding rapidly by adding new units can boost overall sales growth. 2011 29 . Moreover. Prices for food away from home increased only 1. Often these extra weeks are at the end of the year. in our view. which has had a pronounced impact on regions particularly hurt by the downturn in housing. A company that experiences declining same-store sales while the rest of the industry posts strong revenue gains is losing market share. In other regions.3% annually. it may indicate that new locations are opening to lower (higher) volumes than existing stores. or traffic. other than price increases. INDUSTRY SURVEYS RESTAURANTS / MARCH 3. many operators raised prices only modestly (2.Same-store sales The most closely watched quantitative indicator is same-store sales. Shifts in mix can reflect menu changes. if average weekly sales growth is significantly lower (or higher) than same-store sales growth. such as an increased assortment of appetizers and alcoholic beverages. and the week between Christmas and New Year’s Day is one of the strongest sales weeks throughout the year. The same-store sales trends of a company should be considered within the context of the demographic and geographic markets it serves. Whether this week falls into the fourth quarter of the current fiscal year or the first quarter of the next can skew comparisons. due to relatively slower demand growth compared with prior years.0%). Stores often take several months. Average weekly sales Some chains report the average weekly sales of their restaurants. to reach the maturity necessary to make meaningful comparisons. but we believe overall economic weakness is likely to persist.8% in 2009 and 1. home sales have perked up as buyers have been tempted by prices as much as 50% or more below their all-time peaks. contributed to increases in prices for food away from home in 2007 (4. These may include the inclusion of an extra 14th week in a quarter or 53rd week in a year. Other nonrecurring factors can influence same-store sales comparisons. Gains in same-store sales can be achieved through increases in prices and through increases in customer count.1% annual pace. Restaurant sales have been especially weak in regions like the Southwest and Southeast where the economy has been particularly hurt by falling home values and ongoing foreclosure activity. Hikes in the minimum wage. but it is important to monitor sales trends at existing units to be sure the concept is doing well One additional component of same-store sales is product mix. Price increases are often necessary to offset wage and commodity cost inflation. for example. and reasons for this loss need to be closely examined. For companies that are expanding rapidly. as most chains have little pricing power. Also. Diners are the ultimate judges of whether a restaurant’s food. Units that have been in operation for at least 18 months may not comprise a large enough percentage of the store base to give a true indication of the state of the business. price. defined as year-over-year sales changes for units open and operating at post-startup levels in both years. From 2001 through 2003. Consumer choices also can alter product mix. if not years. A key issue facing the industry in 2011 is how companies respond to declining employment and consumer income.0%) and 2008 (5. If a chain fails to please customers and to report sufficient sales gains.3% in 2010.

For example. Operating margin Operating margin is arguably the most important profitability measure in assessing a restaurant company. have state minimum wage laws that set the hourly rate higher than the federal minimum (the remainder either have no minimum or set the state’s lowest wage automatically equal to the federal). linen. is an operator that has experienced consistently stellar restaurant traffic. in order to meet their publicly stated financial targets. we believe that wage increases at the minimum. 2008. For instance. but because it almost always increases prices only in response to cost inflation. including food and beverage costs. a 41% increase in the federal minimum wage over three years was enacted in 2007. and allocated general and administrative expenses. chains have sought to improve margins by rotating menu selections to take advantage of the food products that can be acquired cheaply. particularly in upscale casual dining and fine dining restaurants. an ample supply of people in the 16-to-24 age category. Furthermore. these vary from year to year depending on how performance measures up against various internally set sales and profitability targets. Sales from franchisees. Margin analysis should always be considered within the context of the segment of the restaurant industry that the company serves.13 an hour) is at least equal to the federal hourly minimum. are not recorded in a company’s revenues. employers are required by law to ensure that such employees’ compensation (tips. For tip-earning employees. Cheesecake Factory has been able to consistently outperform the industry in terms of sales per unit and has generally reported higher same-store sales than its peers. its franchisees. at a time of declining seafood prices. its licensees and affiliates. We believe that. the traditional source of labor for restaurants. china. However. earn more than the minimum wage—in some cases. including such line items on the income statement as food. It can occur through expansion of sales capacity or through same-store sales growth. Operating margin can be affected by a number of variables. Conversely. Systemwide sales growth is an important factor in projecting the top-line growth potential of a company. A lack of qualified workers can put upward pressure on salaries and benefits.15 per hour since 1997. plus occupancy. beverage. and from affiliates that are less than 50% companyowned. More recently. or bottom of the scale. About three-fifths of the states. the result is operating profit. the analyst must first calculate the company’s total cost of restaurant sales. operating expenses may be higher in the casual dining segment than for the fast-food chains because of higher real estate costs. However. utensils. however. can keep wage costs from escalating. and direct operating costs (such as uniforms. 30 RESTAURANTS / MARCH 3. and.70 increments on July 24 in 2007. although fees charged by the company to the franchisees are often incorporated. product mix. many companies do not regularly report on the details of this expense. and decoration). rather than to boost margins. menus. Companies often pay managers short-term cash bonuses as performance incentives. sales volumes. Another source of wage pressure is legislated increases in the minimum wage. After having remained at $5. as sit-down dining requires more space both in the restaurant and for parking than high-volume fast-food chains. The Cheesecake Factory Inc. For instance. to an ending $7. it indicates how adept a company is at making a profit on its sales dollar. 2011 INDUSTRY SURVEYS . which can then be divided by sales to give the operating margin. Labor costs also affect margins. significantly more. labor.25 an hour. The total cost figure is subtracted from restaurant sales. put pressure on wages further up for employees who are beyond entry level or have attained seniority. some restaurant companies may have “managed” how and when they accrue bonuses.Systemwide sales This measures the total revenues from restaurants operated by the company. Applebee’s. Many restaurant companies rely more on expansion than same-store sales growth to achieve earnings growth. We think that many restaurant employees. in recent periods. To arrive at this figure. and competitive pricing pressures. and 2009. making periodic comparisons more difficult. the same-store sales growth at its restaurants tends to be fairly moderate. The minimum wage subsequently rose in three $0. plus direct hourly pay of a minimum of $2. in some cases.

(operator of Chuck E. but it also operates Italian. pursues a multi-concept strategy via the 2007 acquisition of RARE Hospitality Inc. 2011 31 .and Mexican-themed restaurants. as a company’s concepts mature. When comparing the financial results of companies that have different ownership profiles. In evaluating a restaurant company’s management team... require external sources. many chains are hedging their bets on the success of one format and developing or acquiring other restaurant formats. However. However. We look for seasoned management teams that have performed well in both good times and bad. Brinker International Inc. with the ability to fund their capital expenditure programs from internally generated funds. INDUSTRY SURVEYS RESTAURANTS / MARCH 3.(operated by DineEquity Inc. Although these factors do not lend themselves to numerical analysis. however. For example. Cash flow A corporation’s financial flexibility reveals much about its health. making the company more likely to return cash to its stakeholders.7 billion in revenue owns Chili’s Grill & Bar as its largest chain. If a company believes that its concepts have significant growth potential and high returns on investment. Cheese’s restaurants) have consistently large remodeling requirements that should be factored into the overall analysis. Return on assets A company’s decision on whether to purchase or rent its locations can affect its reported operating margins. Companies such as CEC Entertainment Inc. is the current management capable of executing it? What is management’s record for working together as a team? The quality of management often spells the difference between success and failure. While funds for expansion are intended to increase future funds available for shareholders. return on assets (ROA) is a useful tool in analyzing relative performance. Capital expenditures should be analyzed. For the large publicly held chains. Many more. amounts required to renovate. Reviewing a company’s ROA over a multiyear period can reveal trends regarding the success of recent investments and may be a valuable guide in estimating prospects for future growth. In addition. a company that purchases property must invest more capital in its stores. to separate funds being used to expand a company’s business from investments required simply to maintain existing business. Companies may choose to grow via internal unit expansion or via acquisitions. maintenance.) and Red Lobster (operated by Darden Restaurants Inc. and maintain existing structures can be recurring. QUALITATIVE ISSUES The key qualitative issues affecting a restaurant business are management’s expertise and its design and execution of the business strategy. Darden Restaurants Inc. Free cash flow (cash flow from operations less capital expenditures) can measure a company’s present ability to return funds to its shareholders and debt holders. acquisition. an analyst should first ask whether its strategy makes sense in light of current and long-term industry trends. plus noncash items such as depreciation and amortization—can be compared with expected cash needs. Capital resources are needed primarily to undertake the construction. they are nonetheless crucial to success. and should be seen as a consistent drain on cash from operations. capital is generally provided via public stock offerings and debt financing. its return on new investments tends to slow. Some companies are self-financing. If the strategy is a good one. operator of the Longhorn Steakhouse and Capital Grille chains. remodel. whereas a company with declining or low returns might reevaluate how it invests its capital. A company’s expansion strategy is key to its long-term profitability potential. with about $3. it is more likely to use its cash from operations to fund capital expenditures.) are particularly known for seasonal promotions. A company is more likely to reinvest in its current business if its ROA is either high or trending upward. Chains that own their restaurants tend to have higher profit margins. as the depreciation expense is often less than what they would pay for rent. and refurbishing of restaurants. Projected cash flow—net income. it also may be a measure of a company’s maturity.

These strategies allow a company to develop expertise it might not gain from a split focus.  Enterprise value to EBITDA. If a chain was once touted as key to the company’s future growth. some companies prefer to focus on one concept or several similar concepts. It is also important to take into account how management is performing and how well it is using the company’s capital such as by examining the profitability on various assets. Standard & Poor’s believes prospects for future profit growth are paramount in determining a company’s worth. for example. VALUATION MEASURES Restaurant stocks generally tend to be somewhat volatile. Rather than diversify. wide swings in the valuation ratios can occur over the business cycle. caution must be exercised in the interpretation of these metrics.  Price-to-earnings (P/E) ratio. taxes. A company that appears cheap relative to its peers. the price-to-earnings (P/E) ratio is calculated as the share price divided by net earnings per share (EPS). are among companies that have either divested or closed down chains that were not part of their core business or key to their future growth. as the sector’s earnings are affected by changing economic conditions. McDonald’s Corp. several fast-food chains have purchased concepts in the fast-casual segment to augment growth. to name a few reasons.Management’s selection of an industry segment for expansion is a key strategic decision. In addition. valuations of a particular company should be compared with those of similar companies in the same industry. higher debt levels. Common valuation measurements include multiples of earnings per share and cash flow. and to better evaluate a company’s operating performance. A change in management can lead to an increase in the value of a company’s stock if investors perceive that steps will be taken to produce higher returns. Thus. to eliminate distortions caused by differing tax rates and leverage. 2011 INDUSTRY SURVEYS .. other investors may place a lower valuation on the shares of such a company. as well as by the sector going into and out of favor with investors. such as a relative lack of attractive restaurant concepts. it may signal that the company has financial or managerial weaknesses. and the extent to which future earnings seem predictable. analysts compare the company’s enterprise value (combination of net debt and stock market value) to its earnings before interest. Finally. An analyst should also examine a company’s or industry’s historical valuations relative to a benchmark price-to-earnings ratio. and amortization (EBITDA). Certain segments may have lower levels of competition or higher potential growth. success in the quick growing bar-and-grill and seafood segments may lead to more favorable results than in other areas of casual dining. As an alternative to the standard P/E ratio. Because every management team portrays its operations in the best possible light. for either the past 12 months or projected EPS for a specified future period. but the company later determines that this is no longer the case. and Brinker International Inc. depreciation. industry and economic conditions. In recent years.. For the restaurant industry. As is the case with other measures. as discussed earlier in this section. comparing this rhetoric with a company’s actual results is helpful in predicting the firm’s future prospects. For instance. an examination of a company’s financial performance in the context of the industry environment and the competition is important.  32 RESTAURANTS / MARCH 3. Wendy’s International Inc. Keep in mind that valuations depend on various factors. The most common means of valuing equities. including overall investor sentiment. or lower profit margins. partly reflecting the underlying cyclicality of the industry. may be at certain competitive disadvantages. the level of interest rates. As a result.

and then makes royalty payments based on gross receipts from restaurant operations. like airports or within large retail stores. salads. License—A contract similar to a franchise agreement. This category bridges the full-service and limited-service segments. with specified minimum payments.GLOSSARY Fast-food restaurants—Also called limited-service or quick-service restaurants. 2011 33 . with or without seating (table service is generally not available). such as airports and gas stations. often at least 18 months.  INDUSTRY SURVEYS RESTAURANTS / MARCH 3. royalty payments are generally 4%–5% of total receipts. In the US. Systemwide sales—A figure comprising sales by restaurants operated by the company. and an initial fee may not be required. This contract gives the licensee the right to use the licenser’s name for a fee. Refranchising gains—Gains arising to a company from the purchase and resale of franchised units. and take-out orders account for a large portion of this business. Franchise contracts vary in length. except that the contractual period is shorter. and sandwiches. Food packaging is often disposable. Satellite restaurants are often located in unique retail settings. and affiliates operating under joint venture agreements. including gourmet soups. Total revenues—A comprehensive figure consisting of sales by company-operated restaurants and fees from restaurants operated by franchisees and affiliates. Full-service restaurants—Restaurants that generally feature moderate to high prices (the average check is generally at least $10) and sit-down service. Satellite restaurants—Small. these outlets specialize in rapid food preparation and low prices (the average check is almost always less than $7). Franchise agreement—A business contract between two companies: a franchisor (or parent company) and a franchisee (or individual business operator). and alcoholic beverages may be available. It gives the franchisee the right to construct and operate a restaurant on a site accepted by the franchisor. the rights are not as broad. low-volume units of a restaurant chain whose menu is an abbreviated version of the chain’s full menu. The franchisee pays the franchisor a one-time franchise fee. Meals are often served with flatware and china. Licensing is often used for nontraditional points of distribution. but may be for periods of 10 to 20 years. Quick casual restaurants—Limited-service or self-service restaurants that serve upscale or specialty foods. Same-store sales—Year-to-year sales changes at units open for a specified period. franchisees. with the average check generally falling between $7 and $10. and to use the franchisor’s operating and management systems.

restaurant. and services to members. and annual data on Weekly. covers the quick-service sector of the restaurant industry. co-published with Deloitte & Touche) and an annual Restaurant Industry Forecast. MARKET RESEARCH FIRMS NPDFoodworld: CREST http://www. part of the US Department of Commerce. TRADE ASSOCIATIONS International Franchise Association Source of weekly.npd. Restaurant Business Published 18 times a A market research firm concerned with the restaurant industry. detailed study of restaurant Published 11 times a Part of market research firm NPD Group Inc. and A membership organization of franchisors. and trends. part of the US Department of Technomic Inc. and consumer behavior and attitudes at commercial restaurants. franchisees. spotlights various industry segments.ers. production.nrn. US Census Bureau Annual publication.technomic. 34 RESTAURANTS / MARCH 3. US Bureau of Labor Statistics http://www. and segmented look at industry market shares.census. that tracks chain and independent restaurants. 2011 INDUSTRY SURVEYS . QSR http://www. income.qsrmagazine. products. bls. part of the US Department of Trade organization that works to promote the foodservice industry. wages. Technomic Top 500 http://www. including the Restaurant Industry Operations Report (annual. contains articles on a variety of restaurant industry topics. Publishes industry data and Source of annual US statistics regarding food consumption. GOVERNMENT AGENCIES Economic Research Service http://www.franchise. and suppliers. provides information. monthly.INDUSTRY REFERENCES PERIODICALS Nation’s Restaurant News http://www. Restaurants USA http://www. National Restaurant Association Published 10 times Source of annual and monthly retail and foodservice sales. http://www. focuses on trends and issues of importance to the restaurant industry. and to protect and educate its members. customizable website.

7 347.6 2.870.0 117.7 2007 654.5 (0.6 1.4) 31.278.4 1.6 D 6.5 7.2 (2.1 317.2 A 768.2 440.0 A.0 2.243. **Not calculated.6 (0.561.5 A 735.194.7 1.Some or all data are not available.3) 0.416.3 A 9.701.8 15.3 319.822.3 7.2 (2.626.0 NA NA 501.567.1 D 1.1) (0.7 479.5) (1.8 10.3 302.3) 9.5 D 623.6 D 23. §Company included in the S&P SmallCap 600.765.9 C 479.228.1) 10.0 C 126.1 1.353.315.4 2006 638.0 426.4 5.3 822.1 1.4 (1.6 27.8 (0. A .726.8 727.001.110.8 869.6 A 3.294.0 422.4 D 989.580.3 (3.5 308.5 NA 257.462.2 F 1.8 238.C 7.5 4.1 (1.9 2.369.620.217.6 210.446.4 5.1 374.This year's data reflect a major merger resulting in the formation of a new company.3 16.774.6 D 1.8 1.106.C 2.8 344.6 2. D .1 NA 854.744.1 A 1.6 21.4 931.4 964.5 2.5 NA 6.7 880.4 145.518.531.Includes other (nonoperating) income. []Company included in the S&P 500.0 22.1 284.306.876.5 (4.511.2 640.1 814.329.6 1.6 14.5 11.1 A 1.0 15.4) 1.349.2 271.1 23.606.0 (5.8 6.522.5 937.3) NA 12.4) 11.2 37. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 627.1 D 349.5 10.9 209.376.2) 2009 172 1.7 129.1 1.6 942.000 181 226 ** 378 185 462 ** 156 195 591 174 177 308 782 758 141 420 ** 157 ** 312 618 ** 213 144 ** ** 63 2007 180 845 180 234 ** 353 178 435 ** 154 179 177 197 172 324 713 622 132 368 ** 171 ** 298 560 ** 148 133 ** ** 64 2006 175 639 172 222 ** 309 176 379 ** 173 150 128 190 163 327 612 484 124 310 ** 177 ** 269 463 ** 146 122 ** ** 65 2005 167 477 164 209 NA 268 165 340 NA 168 155 127 172 154 308 528 374 120 258 NA 164 NA 242 379 NA 85 120 NA NA 64 4.2 1.5 A 1.4 (12.507.786.868.471.6 538.654.6 (3.3 7.4 805.360.5 1.6 A 9.235.8 9.8) 6.Data exclude discontinued operations.0 1.6 726.2 20.7 2.5 A 484.5) (0.7 1.6 348.5 16.9) NA 21.0 1.0 4.5 4. B .460.5) NA 25.1 1.2 3.0 2.5 A 1.2 4. 5.8 1.0 1.6 322.8 3.380.6 D 2005 606.248.4 763. CAGR-Compound annual growth rate.8 804.113.085.5 4.This year's data reflect an accounting change.5 NA 1.425.9 178.2 1.1) (7.3 23. data for base year or end year not available.1 3.0 (10.8 3.1 A 22.9 597.8 27.602.1 1.2 C 809.7) 3.367.680.2 930.707.5 D 693.539.0 3.411.456.1 359.2 (5. G .786. F .0 14.584.9 664.2) 61.6) (1.5 1.0 A 880.822.5 728.9 1.2 422.9 5.0 9.5 (12.4 2.5 2.2 16.7 632.4 0.8 D 1999 364.8) Note: Data as originally reported.3 A 67.410.0 5.6 DPZ DOMINO'S PIZZA INC DEC 1.0 7.2 A 1.4 706.2 470.9 5. †Company included in the S&P MidCap 400.3 192.298.0 110.3 968.7 871.3 D 278.351.5 9.0 1. H .7 2.5 171.141 179 194 ** 371 186 461 ** 155 192 517 170 172 291 801 790 137 459 ** 150 ** 279 582 ** 419 139 ** ** 58 Index Basis (1999 = 100) 2008 168 1.720.586.7 D 1.263.8 27.5 (1.7 2.322.5 618.7) 6.2 A 3.437.750.4 3. C .2 214.7 818.1 6.7 409.2 D 536.737.5) (14.0 969.8 2.3 D 9.1 1.0 2008 610.4 677.8 NA 797.383.063.511.613.5 (3.4) 6.3 841.6 NA 179.460.5 5.6 1.6 D 1.6 A.3 273.8 17.567.0 1.2 1.Includes sale of leased depts.This year's data reflect an acquisition or merger.0 A 311.7 23.3 13.0 3.3 458.7 A 1.4 19.COMPARATIVE COMPANY ANALYSIS — RESTAURANTS Operating Revenues Million $ Ticker Company Yr.0 2.9 1.7 10. #Of the following calendar year.7) 19.3 324. 5-Yr.384.6 1.6 2.6 829.9 329.0 A 328.8 D 175.7 10.9 F 13.9 785.8 A 554. ‡S&P 1500 index group.0 134.Includes excise taxes.9 320.6 D 718.2 486.6 405.6 249.0 135.643.2 D 2004 553.286. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .6 D 977.6 774.1 1.5 RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § § † § § § § § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC P F CHANGS CHINA BISTRO INC PANERA BREAD CO PAPA JOHNS INTERNATIONAL INC PEET'S COFFEE & TEA INC RED ROBIN GOURMET BURGERS RUBY TUESDAY INC RUTHS HOSPITALITY GROUP INC SONIC CORP STARBUCKS CORP TEXAS ROADHOUSE INC CAGR (%) 10-Yr.1 942.7) † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC 118.151.2 153.1 6.066.3) NA 26.3 NA NA (5.9 1.4 (15.4 due to a fiscal year change.3 171.1 LUB LUBYS INC AUG 292.912. 1-Yr.3 1.5 1.1 627.3 3.9 1.2 363. E .1 316.3 1.2 1.4 2.

2 672.6 6.6 56.1 72.7 27.981 114 251 ** 389 154 374 ** 166 213 139 143 147 117 551 NM 133 NM ** 251 ** 287 572 ** (128) 131 ** ** 74 2005 162 1.6 21.5 213.0 70.8 52.7 56.8 NM 2009 32 2.7 NA 70.1 76.7 86.0 18.3 371. §Company included in the S&P SmallCap 600.8 126.9 NM 2.0 18.5 19.0 NA NA 28.2 (482.Net Income Million $ Ticker Company Yr.5 2.0 4.7 1. []Company included in the S&P 500.1 2.0) 964.3 8.3 2.0 (7.2 35.6) 8.3 10.7 2.3) 15.3 79.3 (18.7 LUB LUBYS INC AUG (26.4 NM 11.1) 33.551.3 (0.3 58.5 NM 24.7 26.9 7.5 (47.0) 23.2) 5.680 104 188 NA 361 168 405 NA 180 191 137 120 134 75 626 NM 94 NM NA 276 NA 275 486 NA (674) 122 NA NA 30 † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC (11.6) 3.8 11.3 26.0 2.5 NA NA NM RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § § † § § § § § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC P F CHANGS CHINA BISTRO INC PANERA BREAD CO PAPA JOHNS INTERNATIONAL INC PEET'S COFFEE & TEA INC RED ROBIN GOURMET BURGERS RUBY TUESDAY INC RUTHS HOSPITALITY GROUP INC SONIC CORP STARBUCKS CORP TEXAS ROADHOUSE INC CAGR (%) 5-Yr.5 NM 10.8 47.8 82.4) 83. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 6.1 57. †Company included in the S&P MidCap 400.313.2 (132.3 377.6 23.1) NM NM (18.5) 126.2 1. CAGR-Compound annual growth rate.0 369.8 60.9 17.6 (23.2 43.2 57. NM 26.9 33.355 123 270 ** 274 126 340 ** 108 209 (2) 165 120 45 584 NM 69 NM ** 72 ** 234 661 ** 173 145 ** ** 39 2006 150 1.1 44.9 85.0 17.5 1.9 16.7 (0.8) (8.5 (0.8 29.9 16.7 8.2 27.4 63.0 (12.7 14.1 64.2 8.8 (154.4 101.9) (53.5 52.0 13.1 38.0 7.3 1.2 NA 5.0 31.623 133 93 ** 85 138 197 ** 94 230 98 171 234 (45) 724 NM 122 NM ** 124 ** 180 384 ** 40 171 ** ** (92) Index Basis (1999 = 100) 2008 (123) 2.8 11.1 NM 1-Yr.9 (0.0 (16.2 NA 6.0 NA (0.0 9.278.4 44.7 32.1 (17.8 63.947.0 (0.0) (16.2) 60.9 NM 21.873.2) 11.5 3.9 14.4 36.2) Note: Data as originally reported.5 1.5 38.4 102.5 74.4 21.0 (13.7) NA (1.4 131.5) 37. data for base year or end year not available.0 (15.2 21.0 (1.1 909.9) 54.7 126.8 66.4 54.8 55.9 24.3 21.2 176.0 150.5 8.1 111.1) 8.0 NM NA 2.8) (5.7 23.4 18.3 315.7 NA 8.3 6.8 160.4 (35.0) 7.3 78.5) 118.7 78.0) 10.0 10.3 (58.7 27.6 10-Yr.3 81.2 65.6 2.7 87.1 6.2 30.4 NA (8.9 1999 18. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .4 101.4 74.6 109.071.335.0 9.7) 0.3 17.3 (5.6 33.7 0.0 7.1) 108.3 7.5 23.2 8.5 49.9 11.9 74.2) 47.1) 51.4 390.5 34.6 2004 27.9 290.1 2005 30.4 8.8 23.7 (12.3 2.3) 43.9 19.8) 38.5) 35.5 NM 53.2 4. (26.1 NM 47.4) 62.5 NA 27.0 37.0 67.7 627.5) (15.8 13.9 230.0 (5.074 (10) 61 ** 160 127 241 ** 93 210 (481) 155 221 (823) 580 NM 78 NM ** (49) ** 220 310 ** NM 154 ** ** 9 2007 63 2.5 32.2) 824.1) DPZ DOMINO'S PIZZA INC DEC 79.9 37.0 19.0 2008 (23.2 44.3 41.2 2006 28. **Not calculated.3) 106.9) 762.5 52.3 (10.4 91.0 68.7) 5.7 4.7 24.7 NM 5.0 (11.0 70. #Of the following calendar year.2 42.6 45.7 581.4 30.1) 62.6 338.2 12.4 494.1 14.3 15.5 740.9 5. ‡S&P 1500 index group. (10.9 17.4 116.602.6 76.9 7.6 39.0 390.2 8.6 61.5 2007 11.0 407.8 NM 10.2 17.3 37.1 25.5 66.5 6.6 75.9 91.5 30.7 64.0 (18.9) (4.4 19.1) NA 36.

7 8.8 8.9 4.2 NM 13.9 4.1 29.9 5.3 5.7 12.4 7.2 4.1 10.2 5.7 0.7 3.7 6.3 13.4 11.8 11.4 5.1 18.4 2009 2.9 12.8 7.5 NM NA 13.1 6.5 11.6 7.2 10.1 8.5 NM 187.2 5.5 6.5 7.8 5.6 10.9 2.0 10.8 NM NM NA 13.9 3.3 8.2 6.3 8.6 6.4 4.8 10.2 5.1 NM 11.8 NM 1.8 9.4 7.6 19.3 9.3 7.4 5.7 15.6 Return on Equity (%) 2008 NM 4.2 10.8 0.9 16.3 5.7 10.0 6.7 8.3 NM 2.4 5.3 4.1 3.3 20.7 2006 4.5 41.5 14.0 4. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 1. #Of the following calendar year.7 21.4 6.9 19.8 19.0 2.7 33.2 Note: Data as originally reported.4 10.3 1.8 3.4 5.1 57.9 5.1 4.1 1.2 2.8 5.9 13.8 8.6 13.1 2.7 5.5 2007 1.4 15.4 2.7 3.2 9.8 8.3 11.6 7.3 10.0 21.1 6.2 5.1 9.0 4.7 6.2 13.2 5.5 15.8 13.0 5.3 7.6 13.4 16.7 5.9 3.1 4.4 15.3 45.0 6.0 9.8 12.5 7.0 13.Return on Revenues (%) Ticker Company Yr.1 7.5 14.6 19.9 NM NA NM NM NA 1.3 NM NA 6.5 3.6 2006 10.0 17.1 11.3 3.6 2005 5.7 5.7 12.9 13.7 7.1 233.5 7.9 5.6 4.8 6.0 18.1 6.8 32.3 10.8 9.8 6.4 29.3 26.7 NM 8.5 NM 14.3 7. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .7 NM NM 7.0 4.1 5.9 8.0 0.2 12.6 24.0 43.9 15.4 4.4 3.2 13.4 32.3 70.1 15.8 3.6 13.9 6.1 12.0 1.7 6.5 NM 7.4 10.5 NA 21.2 7.2 3.1 19.3 28.3 1.6 NM 8.2 11.6 9.3 NM 13.0 13.1 4.1 14.2 2009 1.6 11.7 4.4 2006 5.8 7.2 7.5 4.8 5.2 0.7 9.1 4.8 13.7 29.9 NM 5.5 1.1 7.5 5.2 9.8 5.2 5.8 3.6 6.2 NM 4.6 8.7 16.8 10.8 NM 2.5 41.6 6.7 15.3 6.6 NM 8.3 8.5 6.2 3.6 NM 7.5 NM 6.9 0.1 2.4 0.1 3.1 2.6 NM NA 6.9 6.9 18.3 17.2 7.3 NM 2.4 17.5 9.0 5.4 15.1 11.4 NM NM 11.2 2.2 3.6 6.9 1.0 1.5 NM 22.5 27.6 5.4 NM 57.7 11.9 14.6 NM 4.1 § P F CHANGS CHINA BISTRO INC † PANERA BREAD CO § PAPA JOHNS INTERNATIONAL INC § PEET'S COFFEE & TEA INC § RED ROBIN GOURMET BURGERS § RUBY TUESDAY INC § RUTHS HOSPITALITY GROUP INC § SONIC CORP [] STARBUCKS CORP § TEXAS ROADHOUSE INC † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC NM DPZ DOMINO'S PIZZA INC DEC 5.4 14.5 NM 7.0 NM 3.3 NM 25.8 1.2 14.7 3.1 0.4 9.8 23.1 2005 12.0 5.7 2.4 10.9 7.2 6.3 6.3 8.1 13.4 6.1 NM 8.2 4.1 15. §Company included in the S&P SmallCap 600.9 5.7 NM 8.0 3.9 3.4 19.4 8.3 4.8 11.5 8.1 5.0 7.9 14.1 5.0 12.2 9.2 8.0 1.9 NM 13.7 8.2 NM 23.3 24.6 11.4 5. []Company included in the S&P 500.1 30.6 7.7 5.0 NM 50.1 2.9 12.7 3. ‡S&P 1500 index group.1 9.8 11.2 3.8 37.7 NM 17.8 6.3 4.4 6.2 5.9 5.7 6.7 3.8 24.4 11.2 14.1 NM NM 7.2 1.9 12.2 0.6 3.7 1.7 2.7 12.8 12.1 5.6 4.1 2.7 18.5 2.0 4.7 26.0 9.8 0.6 5.6 10.3 NM 8.6 3.0 8.3 3.7 LUB LUBYS INC AUG NM NM 3.3 6.5 3.3 15.4 12.5 9.8 20.7 10.1 3.4 NA 14.6 6.1 7.0 2007 2.7 RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC Return on Assets (%) 2008 NM 3.9 2008 NM 2.1 7.1 23.7 9.5 4.0 4. †Company included in the S&P MidCap 400.7 NM 27.4 12.4 14.7 8.3 8.4 7.6 37.3 53.3 7.3 10.7 2005 6.2 5.2 66.1 14.0 2007 4.4 7.5 3.

8 2.5 0.8 4.3 1.1 66.6 53.7 0.0 34.7 0.8 17.8 0.5 64.8 66.1 1.7 NM NM 0.0 48.2 NM NM 0.7 31.2 1.9 4.5 1.6 NM Debt as a % of Net Working Capital 2008 NM NM NM NM 0.0 NM NM 99.0 26.3 71.3 0.0 16. †Company included in the S&P MidCap 400.0 0.8 2.8 0.9 1.0 27.2 NM NM NM NM NM 492.6 0.5 1.8 1.Current Ratio Ticker Company Yr.7 27.2 0.4 NM NM Note: Data as originally reported.3 19.5 0.5 0.8 0.8 1.0 22.0 NM NM NM 1.2 0.7 120.6 1.2 1.4 0.9 0.3 32.8 0.5 1.1 1.3 0.1 47.0 0.7 0.2 669.8 0.9 2.9 1.2 422.5 2009 30.2 81.2 0.4 NM 2005 NM 0.4 0.7 2008 0.0 51.5 42.9 0.5 0.6 0.3 57.6 42.6 26.6 2.6 2007 0.5 3.3 0.4 0.4 39.4 0.0 1.4 0.7 0.9 NM NM NM NM NM NM NM 0.7 0.8 0.2 0.2 106.0 24.0 NM 0.5 0.5 0.5 0.7 35.2 367.7 0.3 0.0 37.1 0.1 NM NM NM NM NM NM NM 307.2 19.1 0.5 0.2 3.4 0.0 4.6 15.7 2.0 NM NM 0.2 0.7 0.9 18.4 1. ‡S&P 1500 index group.0 33.3 56.1 31.0 0.5 1.0 NM NM NM 3.0 609.7 0.2 9.5 3.7 0.2 0.0 755.8 0.4 1.4 0.0 NM NM NM NM NM NM 435.9 1.0 NM 0.5 2005 37.7 0.1 61.9 NM 0.3 49.6 0.8 0.3 0.7 0.0 0.0 0.1 14.6 0.5 1.0 31.5 4.1 17.2 0.4 2.0 27. []Company included in the S&P 500.1 37.8 0.6 18.3 0.7 0.8 0.0 38.9 0.7 1.1 34.9 1.4 27.0 0.0 NM NM NM NM NM NM NM NM 2007 NM 0.6 0.0 0.3 NM NM NM NM NM NM NM NM NM 0.5 0. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .1 30.1 3.5 0.1 0.8 0.5 1.5 0.7 0.9 1.7 0.1 RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC Debt / Capital Ratio (%) 2008 34.9 40.0 NM NM NM 2.5 2005 0.5 2.0 0.8 50.4 75.7 0.7 0.8 69.2 1.3 15.8 0.5 0.0 21.5 41.0 2.4 0.0 18.9 0.9 NM NM NM NM NM NM NM 0.4 0.8 0.9 27.4 0.8 0.4 1.4 77.3 0.7 20.5 33.8 NM 371.7 2.0 NM NM 66.0 NM 0.4 NM NM NM 395.8 73.3 44.4 40.9 2.7 2006 0.1 0.0 10.7 1.6 1.0 0.2 2.0 40.0 NM NM NM NM NM NM 301.5 0.0 0.5 0.4 0.0 1.8 0.4 0.2 20.1 0.8 1.3 0.6 0.9 1.8 38.4 101.8 73.6 0.6 0.2 0.9 0.1 0.4 48.2 1.8 NM § P F CHANGS CHINA BISTRO INC † PANERA BREAD CO § PAPA JOHNS INTERNATIONAL INC § PEET'S COFFEE & TEA INC § RED ROBIN GOURMET BURGERS § RUBY TUESDAY INC § RUTHS HOSPITALITY GROUP INC § SONIC CORP [] STARBUCKS CORP § TEXAS ROADHOUSE INC † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC 0.2 2.3 LUB LUBYS INC AUG 0.7 1.0 3.8 1.2 0.9 NM 65.0 32.6 0. §Company included in the S&P SmallCap 600.6 DPZ DOMINO'S PIZZA INC DEC 1. #Of the following calendar year.5 1.2 0.9 1.8 0.6 51.0 29.0 8.0 0.0 NM NM NM NM NM NM NM NM 2006 NM 0.5 76.3 115.0 96.6 3.8 2.9 0.2 23.9 0.2 0.1 2006 35.0 52. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 1.9 1.4 26.4 20.6 0.9 NM NM NM 0.9 60.5 52.2 31.6 0.7 58.0 29.2 2009 857.0 57.2 52.1 0.5 0.9 0.7 32.9 50.0 47.3 50.0 NM NM NM 805.1 0.1 1.1 78.8 0.0 NM NM 0.0 NM NM 0.7 0.0 1.0 44.8 0.6 0.7 0.4 1.4 0.6 2007 33.3 73.8 0.6 84.7 82.7 0.0 NM 0.0 20.4 2.8 1.

0 0.0 0. §Company included in the S&P SmallCap 600.0 - 0.0 0.36 NM .0 3.NM 45 .0 0.0 0.8 0.0 1.0 0.0 0.0 0.6 2.0 0.0 0.10 NM .0 1.0 0.9 2.0 0.0 0.0 0. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .4 0.0 .8 0.0 0.0 0.0 0.8 2.0 0.1 0.0 0.2 .6 0.0 0.0 6.0 3.NM 23 6 49 .37.0 2.0 0.1 1.0 0.0 0.0 0.0 0.0 0. %) 2008 0.0 0.0 0.0 0.11 50 16 28 63 14 15 5 6 15 4 2007 43 55 20 19 43 49 24 29 72 18 24 36 13 10 20 28 13 21 25 12 2006 21 65 21 19 31 32 20 38 53 18 17 22 21 19 28 43 40 19 57 30 21 24 27 53 37 13 42 14 13 16 23 13 21 31 12 13 18 11 14 18 22 25 15 43 18 13 17 20 38 20 2005 20 65 17 23 40 15 34 13 18 24 RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § § † § § § § § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC P F CHANGS CHINA BISTRO INC PANERA BREAD CO PAPA JOHNS INTERNATIONAL INC PEET'S COFFEE & TEA INC RED ROBIN GOURMET BURGERS RUBY TUESDAY INC RUTHS HOSPITALITY GROUP INC SONIC CORP STARBUCKS CORP TEXAS ROADHOUSE INC Dividend Payout Ratio (%) 2009 0 0 30 56 0 0 0 0 0 27 34 0 0 49 NM 0 0 0 0 0 0 0 0 0 0 600 34 2008 NM 0 NM 84 0 0 0 0 0 25 30 NM 0 42 NM 0 0 0 0 0 NM NM 0 0 0 NM 33 2007 0 0 29 16 0 0 0 0 0 20 27 NM 0 77 58 0 0 0 0 0 49 0 0 0 0 225 30 2006 0 0 32 12 0 0 0 0 0 19 17 41 0 43 0 0 0 0 0 0 31 0 0 0 0 NM 18 2005 0 0 31 0 0 0 0 0 0 22 18 44 0 33 0 0 0 0 0 0 3 0 0 0 0 NM 16 2009 0.13 32 .0 0.0 0.6 2007 0.0 0.4 0.0 0.0 2.0 0.0 0.0 2.0 2.4 0.15 NM .6 0. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 83 39 14 26 26 92 13 31 25 13 23 18 7 10 13 42 7 9 12 5 2008 NM .10 39 .0 0.13 20 .0 0.3 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 0.NM 16 .22 20 .0 0.42 34 35 32 50 24 60 29 28 41 30 NM 23 16 18 20 38 17 19 11 21 22 20 49 16 NM .4 0.0 3.9 0.5 0.15 NM 0 NM NM 0 0 NM NM 0 NM 29 0 NM 25 0 0.0 - 0.0 0.0 0.0 - 0.0 4.0 0.0 0.5 0.0 0.0 4.9 0.0 0.0 2.0 0.0 0.3 0.2 0.8 0.9 0.7 2.0 3.2 0.0 .14 34 .3 1.0 0.20 28 .0 2.NM 20 .0 0.0 0.0 0.0 NA 1.0 0.7 0.0 1.4 0.0.4 1.2 0.5 3.0 0.0 0.1 1.3 2006 0.0 0.0 0.0 0.0 4.0 0.0 2.5 15.0.1 0.4 0.0 0.0 0.0 1.0 2.NM NM .0 0.0 0.0 0.0 0.16 23 8 NM .1 17.NM 21 .0 0.0 2.0 0. ‡S&P 1500 index group.3 0.0 0.26 NA .5 1.9 0.0 0.4 0.5 1.6 0.NM 21 .0 0.0 0.0 0.0 0.8 0.0 Note: Data as originally reported.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.NM 21 25 14 29 23 13 43 16 45 19 9 15 7 13 8 1 6 7 15 10 14 5 NM .10 NM .0 0.1 1.0 0.NM 17 .0 0.0 0.8 34 .2 0.0 0.0 0.0 0.6 1.0 10.0 0.2 0.0 0.0 0.0 0.3 1.8 0.8 1.0 0.4 2.3 0.2 0.0 0.0 1.7 3.NM 15 6 17 .2 0.0 0.0 0.0 0.0 0.8 0.0 0.0 3.12 NM .3 1.0 0.6 0.7 1.NM 21 .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 0.0 0.4 0.0 1.0 2.4 0.0 0.7 0.10 12 7 16 .12 17 22 16 17 43 45 43 23 48 37 16 77 29 52 43 11 17 11 13 24 30 23 12 30 24 12 54 21 35 29 14 8 63 .0 2.0 0.11 † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC NM .0 0.0 1.NM 48 8 33 .1 0.5 0.0 2.0 0.0 110.NM 16 .0 0.0 1.0 5.6 1.0 0.0 1.8 0.8 2005 0.NM 16 3 NM .0 0.2 5.7 6.0 2.0 2.0 0.17 NM .7 1.0 0.22 76 .0 0.0 0.0 6.17 OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC NM .0 0.4 1.0 1.0 0.0 0.0 0.NM 22 29 23 37 26 10 14 10 22 4 18 .0 4.0 1.1 Dividend Yield (High-Low.0 0.0 0.1 2.8 1.0 0.8 10.0 0.NM 58 .0 - 0.0 0.0 0.5 0.0 0.10 NM .0 0.0 0.0 2.8 1.NM NM .0 0.NM DPZ DOMINO'S PIZZA INC DEC 73 LUB LUBYS INC AUG NM .0 2.0 0. †Company included in the S&P MidCap 400.0 0.Price / Earnings Ratio (High-Low) Ticker Company Yr.0 2.8 0.8 0.0 0.21 NM .NA 17 . []Company included in the S&P 500.0 0.0 0.2 0.0 0.2 0.12 NM .0 1.0 0.0 1.0 0.0 0. #Of the following calendar year.0 1.0 0.0 0.0 2.0 0.0 0.0 1.0 NA 1.2 4.

55 11.71 2.72 0.68 3.57 24. End SEP DEC # APR JUN DEC DEC DEC DEC DEC JUL # MAY DEC SEP DEC DEC DEC DEC DEC DEC DEC # MAY DEC AUG SEP DEC DEC DEC 2009 4.56 (2.81 1.32) 1.47 4.53 1.50 1.46 (25.21 11.68 0.44 (0.13) 1.20) 0.88 0.02 19.50 18.13 20.09) 2.63 98.83 55.70 27.29 32.66 4.24 15.40 10.35 67.63 0.36 12.78 37.96 4.31) 6.40 8.80 36.63 29.92 2.94 16.27 0.69 22.07 39.29 0.68 0.84 0.02 10.46 19.61 31.39 0. RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .12.80 23. []Company included in the S&P 500.57 8.20) 0.03 32.22.77 30.65 7.84 16.66 4.30 15.12 0.33 0.96 1.68 27.96 (86.31 13.41 3.49 50.37 0.87 43.86 22.35 0.56 2.42 1.09 2.74 2006 20.70 20.03 65.50 12.55 40.43 0.31 0.60 30.58 22.19 16.87 37.59 8.16 33.42 6.92 8.00 .45 10.59 32.01 11.23.81 1.72 3.78 17.96 0.24 20.65 39.58 6.98 28.69 7.01 17.16 12.00 30.43 8.73 12.43 0. The accuracy and completeness of information obtained from third-party sources.28) 2007 202.83 16.16 1.32 2.91 .31 1.50 362.84 20.68 1. #Of the following calendar year.05 62.11.49 9.88 25.55 (10.44 34.58 9.90 .00 30.52 18.93) 0.28 67.83 15.20 0.76 24.74 7.21 5.57 68.85 .93) 5.52 0.81 1.70 2.79 7.00 27.90 44.38 0.36 11.75 40.67 0.90 5.40) DPZ DOMINO'S PIZZA INC DEC 1.95 0.40 16.02 .60 71.40 0.75 .84 0.57 1.05 8.10 0.14 28.94 29.01 2.23 6.43 54.36) 7.39 2.72 32.31 2.64 34.80 23.10 62.67 7.88 37.06 10.68 5.00 .82 2.46 15.74 8.73 14.74 3.15 7.28 1.Earnings per Share ($) Ticker Company Yr.67 13.83 0.06 4.02 0.91 14.71 1.70) 0.50 2006 422.09 1.96 98.44 7.90 14.25 9.11 26.90 2.18 11.09 7.76 52.77 22.40 10.09 16.56 7.74 0.22.59 5.77 35.28 .21 28.27 19.19 36.78 1.61) 2.65) 6.01 3.84 46.29 12.17.16 4.20 0.42) 0.65 .80 9.00 24.83 .38 1.70 9.06 24.45 1.61 3.94 2008 (16.81 (0.22 (22.09 44.265.00 23.13 1.38 1.91 28.39.48 16.37 21.19.21 34.17) 0.53 (2.59 50.02 7.27 .68 1.98 31.19 8.89 10.51 16.27 2006 192.77 63.61 1.39 (0.328.81 2005 174.50 5.45 (7.94 0.99 11.36 15.06 0.24.01 8.28 24.00 19.79 1.77 47.92 47.11 41.98 16.20 9.58 8.80 .53 50.33 RESTAURANTS‡ BH § BIGLARI HOLDINGS INC BJRI § BJ'S RESTAURANTS INC BOBE † BOB EVANS FARMS EAT † BRINKER INTL INC BWLD § BUFFALO WILD WINGS INC CPKI CEC CAKE CMG CBRL DRI DIN JACK MCD CHUX PFCB PNRA PZZA PEET RRGB RT RUTH SONC SBUX TXRH WEN YUM § § † † § [] § § [] § § † § § § § § § [] § CALIFORNIA PIZZA KITCHEN INC CEC ENTERTAINMENT INC CHEESECAKE FACTORY INC CHIPOTLE MEXICAN GRILL INC CRACKER BARREL OLD CTRY STOR DARDEN RESTAURANTS INC DINEEQUITY INC JACK IN THE BOX INC MCDONALD'S CORP O'CHARLEY'S INC P F CHANGS CHINA BISTRO INC PANERA BREAD CO PAPA JOHNS INTERNATIONAL INC PEET'S COFFEE & TEA INC RED ROBIN GOURMET BURGERS RUBY TUESDAY INC RUTHS HOSPITALITY GROUP INC SONIC CORP STARBUCKS CORP TEXAS ROADHOUSE INC Tangible Book Value per Share ($) 2009 186.25 42.93 1.51 3.25 150.50 8.25 28.86 10.50 41.93 3.92 72.20 17.01 12.44 (0.84 7.05 7.75 5.26 1.88 14.59 11.18.99 29.26 (9.12 6.33 21.68 29.98 24.24 16.34) 1.33 6.14 0.65 5.29 9.63 (0.203.38 4.65 2.20 0.99 2.99 15.31 19.28 2.28) 1.14 38.34 10.42.90 0.93 75.49 21.75 43.23 3.00 12.43 2.21 5. The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s.58 35.24 12.69 21.39 10.85 0.72 3.30 8.21 10.60 26.09 (0.53 1.40.35 (3.34 26.46 (0.93 (94.00 26.86 7.77 22.81 1.44 23.01) (3.53 0.05 14.52 2.05 20.50 20.23 43.22.75 Note: Data as originally reported.24 1.88 1.90 18.02 6.26 2.67 11.59 23.15 2.50 .67) 1.17 11.53 0.56 2.58 3.91 0.28 1.29 (1.82 26.78 0.97 5.16 2.06 (1.16.22 54.26 - 0.29 2.68 0.20 24.29 6.61 0.67 37.49 0.45 47.12 1.99 8.70 23.63 21.91 10. J-This amount includes intangibles that cannot be identified.17 3.43 (0.29 32.67 2.35) (6.44 9.63 11.20 26.51 1.30 0.13.80 - 4.33 21.07 5.63 12.95 12.37 2008 218.72 2.52) 3.38) 1.70 39.32 29.29 NA 33.81 (24.61 9.07 1.81 .75 11.14.38 8.15 3.95 44.51 42.18 10.38 6.76 22.51 30.90 16.60 1.78 34.02 2.96 32.32 0.19 2.47 8.45 (89.03 4.04 32.13) 1.00 .90 1.49 3.02 12.41 39.60 14.72 9.90 35.20.73 0.44 1.00 0.39) 6.03 19.96 0.86 23.00 .74 12.93 LUB LUBYS INC AUG (0.69 1.56 31.56 1.70 0.45 .61) 4.95 21.78 8.57 1.52 3.26 2.49 8.61 16.58 31.31 54.16) 2008 181.42 21. Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s.61 24.37 44.68 22.83 (0.91 43.11 0.51 32.89 10.69 13.00 11.33 10.30 44.04 2009 350.91 39.51 8.44 1.70 6.57 6.65 † WENDY'S/ARBY'S GROUP INC [] YUM BRANDS INC 16.10 2005 439.60 12.05 10.55 9.85) 5.00 0.71 28.17 22. ‡S&P 1500 index group.81 2.98 35.71 0.82 27.00 38.60) 2.82 45.77 0.13 20.78 1.92 10.78 155.81 (2. and the opinions based on such information.76 0.38 7.65 11.88 - 0.86 30.36) 6.13 9.62 0.04 1.49 NA 44.00 41.76 16.35) (2.00 65.70 (0.09 - 4.97 13. §Company included in the S&P SmallCap 600.81 0.35 64.03 4.81 1.46 1.63 7.03 10.39 25.19 14.32 5.47 34.60 39.20 21.87 2007 8.83 - 2. $) 2007 58.35 1.57 9.64 10.96 36.28 (2.69 23.63 2.74 .09 46.17 .49 2.75 2.02) 2.80 17.00 15.84) 1.14 (0.11 25.74 47.14 7.15.48 1.27) (0.60 16.80 23.91 .92 5.95 0.21 0.71 42.30 33.51 7.14 39.83 29.10 16.37 OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS COSI COSI INC DEC (0. In this regard.12 .40 2.73 - Share Price (High-Low.77 1. †Company included in the S&P MidCap 400.45) (1.34 2.03 16.55 23.66 39.41 5.81 32.40 6.13 .47 2.51 0.78 7.51 2005 22.14 10. are not guaranteed.66 0.30 17.22.