s&p industry surveys
DESCRIPTION
Industry Surveys on RestaurantsTRANSCRIPT
October 18, 2007
Industry SurveysRestaurants
THIS ISSUE REPLACES THE ONE DATED APRIL 12 , 2007 .THE NEXT UPDATE OF THIS SURVEY IS SCHEDULED FOR APRIL 2008 .
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Mark BashamRestaurants Analyst
Justin MenzaFinancial Writer
CURRENT ENVIRONMENT..................................................................1Challenges persist
Mergers and sales across the industry Operating costs on the rise Casual dining sales under pressure Value and convenience bolster quick service restaurants
INDUSTRY PROFILE...............................................................................8Satisfying the consumer’s appetite
Industry segments INDUSTRY TRENDS ...............................................................................10
Some chains undertake aggressive financial policies Competing for customers Fast-food chains move overseas Industry focuses on health Food safety concerns hurt industry Industry susceptible to new federal, state, and local regulations Americans love to eat out
HOW THE INDUSTRY OPERATES .............................................................17Restaurants: from take-out to full-service Low entry barriers, high risk/return Franchising: a quick way to grow Restaurant management and training Cost structure Creating and testing new foods
KEY INDUSTRY RATIOS AND STATISTICS ...................................................23HOW TO ANALYZE A RESTAURANT COMPANY .........................................24
Quantitative issues Qualitative issues
GLOSSARY .............................................................................................29
INDUSTRY REFERENCES.....................................................................30
COMPARATIVE COMPANY ANALYSIS .............................................32
Executive Editor: Eileen M. Bossong-MartinesAssociate Editor: Joseph M. CodaCopy Editor: Brandon WilkersonStatistician: Sally Kathryn NuttallProduction: GraphMedia
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VOLUME 175, NO. 42, SECTION 1 THIS ISSUE OF INDUSTRY SURVEYS INCLUDES 2 SECTIONS.
Standard & Poor’s Industry Surveys
A number of restaurant chains have beensubject to acquisitions or have sold off un-derperforming concepts in 2007, as activistshareholders have put more pressure onfirms to increase shareholder value. These ac-quisitions and disposals have taken place inboth the casual dining and quick-service seg-ments of the industry.
While poor strategy and execution arepartly behind the increase in restaurantmerger and acquisition (M&A) activity, theoverall operating environment for the indus-try has become increasingly challenging aswell. Restaurants are facing rising costs forboth food commodities and labor, which isundermining profitability. This trend lookslikely to persist into 2008.
While menu price increases may offset someof the margin pressure, sales trends also haveweakened. The high price of gasoline and con-cerns about the US housing market have forced
many consumers to scale back the portion ofthe household budget allocated toward diningout. While Americans are still eating out, inmany cases they are choosing quick-servicerestaurants over casual dining establishments.
Mergers and sales across the industry
Declining sales and weaker margins havepressured a number of restaurant operatorsto sell either the whole business or individualrestaurant concepts in an attempt to turnaround the brands. In many cases, sales werespurred on by activist shareholders lookingfor a better return on their investments.While private equity buyers have been in-volved in a number of restaurant mergers inrecent years, strategic buyers have reassertedthemselves in 2007.
IHOP to buy Applebee’sApplebee’s International Inc. has been
struggling, as same-store sales fell in 2005,2006, and early 2007. Customer traffic hasbeen declining, as higher gasoline priceshave, in general, reduced the amount ofmoney consumers spend when dining outand as Applebee’s has been unsuccessful indifferentiating itself from competitors. Mar-gins also have been shrinking, as the compa-ny’s strategy of owning many of its rest-aurants resulted in higher costs, due to highreal estate prices and construction costs.
After coming under fire from investors —in particular, Richard Breeden of BreedenCapital Management — Applebee’s beganweighing a sale in February 2007. Activist in-vestors had raised concerns about the casualdining chain’s strategy, highlighting the impactthat owning and operating so many restau-rants was having on profitability. Breeden waselected to the Applebee’s board of directors inApril, and the company began to review itsstrategy and the possibility of a sale.
In July 2007, pancake house operatorIHOP Corp. agreed to buy Applebee’s for$2.1 billion in cash, with much of the fund-
CURRENT ENVIRONMENT
Challenges persist
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FASTEST-GROWING US RESTAURANT CHAINS(Ranked by percentage increase in foodservice revenues)
% CHG. IN REVENUESFISCAL PREVIOUS CURRENT YR. END YEAR YEAR
Zaxby's Dec-06 36.0 35.6 Buffalo Wild Wings Grill & Bar Dec-06 28.4 32.4 Chipotle Mexican Grill Dec-06 33.3 30.8 Starbucks Sep-06 21.6 21.9 Red Robin Burgers & Spirits Emporium Dec-06 19.1 21.1 Panera Bread Co. Dec-06 29.7 20.3 Panda Express Dec-06 24.3 19.7 Ruth's Chris Steak House Dec-06 10.4 19.6 Quiznos Sub Dec-06 19.9 16.4 LongHorn Steakhouse Dec-06 15.2 16.2 Cold Stone Creamery Dec-06 43.3 16.2 Texas Roadhouse Dec-06 22.3 15.2 Chick-fil-A Dec-06 13.1 15.2 California Pizza Kitchen Dec-06 9.4 13.7 Bojangles' Famous Chicken 'n Biscuits Dec-06 6.5 13.1 P.F. Chang's China Bistro Dec-06 10.4 12.1 Little Caesars Dec-06 7.4 12.0 Carrabba's Italian Grill Dec-06 20.1 11.9 Chartwells Sep-06 12.0 11.8 Whataburger Sep-06 11.5 11.7
Source: Nation's Restaurant News.
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ing of the acquisition coming from an in-crease in debt financing. The deal will helpdiversify IHOP’s business, which still catersprimarily to a breakfast crowd, with a chainthat offers lunch and dinner. (As of mid-September, the deal was expected to close inthe fourth quarter of 2007, pending regulato-ry approval.)
To save costs and generate better cashflow to service a higher debt level, IHOPplans to franchise most of Applebee’s 508company-operated restaurants, sell the un-derlying real estate, and enter into leasebackarrangements on those locations. By fran-chising, IHOP will be able to shift more ofthe chain’s operating costs to the individualrestaurants and will reduce the amount ofmoney spent on constructing new locations.
Franchising the restaurants also will allowIHOP to undertake a whole-business securiti-zation of Applebee’s assets in order to gener-ate the cash needed to fund the purchase.(For more information on securitizations inthe restaurant industry, see the “IndustryTrends” section of this Survey.) Holders ofthe bonds created through the securitizationwould be paid through the franchise licenseroyalties that the company will receive fromits new and existing franchisees. Royalty rev-enues generally represent a stable source ofcash for the firm, making it easier to meet itsobligations to bondholders.
IHOP spent several years restructuringits own operations and reinvigorating itsbrand, and it hopes that undertaking asimilar process at Applebee’s will help toturn around the company’s flagging same-store sales and boost profitability. IHOPchief executive officer Julia Stewart hadrun Applebee’s domestic operations fromOctober 1998 to November 2001 and isfamiliar with both the brand and the com-pany’s business.
Not all Applebee’s investors have beenhappy with the announced acquisition. SardarBiglari, chairman of The Lion Fund LP, be-lieves that IHOP’s offer of $25.50 a share forApplebee’s is below fair market value anddoes not reflect the benefits of the franchis-ing strategy. Although Biglari owns only1.4% of Applebee’s shares, he has been ableto pressure other companies to change strate-gy. He successfully forced Friendly Ice CreamCorp. to put itself up for sale in March2007, for instance.
Shareholders pressure Wendy’sApplebee’s has not been the only restau-
rant chain to come under fire from its share-holder base demanding changes in strategy.Like Applebee’s, fast-food chain Wendy’s In-ternational Inc. has been unable to keep pacewith its competitors, in this case McDonald’sCorp. and Burger King Holdings Inc.
The No. 3 hamburger chain formed acommittee in April 2007 to review a poten-tial sale after investor Nelson Peltz, who con-trols three seats on the Wendy’s board, beganto show signs that he was considering a pur-chase of the chain. Other shareholders, in-cluding Highfields Capital Management LP(which owns 8.5% of the company), alsohave put pressure on Wendy’s to sell.
Previously, activist shareholders were suc-cessful in forcing Wendy’s to spin off its TimHortons Inc. donut chain and sell its BajaFresh Mexican grill chain. The Tim Hortonsinitial public offering and the Baja Fresh salewere both completed in 2006.
In late July 2007, Peltz said that his TriarcCos. Inc., which owns the Arby’s RestaurantGroup chain, is willing to buy Wendy’s forbetween $3.2 billion and $3.6 billion. A dealcould allow Arby’s, primarily a regionalrestaurant chain, to expand its operations, asWendy’s reduces the number of its locations.
After credit conditions turned more nega-tive in August and September 2007, it becamesomewhat more difficult for Triarc or anothersuitor to mount a successful bid for Wendy’s.The volatility in the credit markets has made itmore expensive for some strategic buyers toraise funds, and private equity funds also haveseen their borrowing costs rise. Still, Triarcand Wendy’s entered into a confidentialityagreement in late August, which suggests adeal may yet get done. If Wendy’s were unableto find a buyer, however, it could follow an-other trend in the industry and undertake a re-capitalization and share buyback program toboost shareholder returns.
Outback Steakhouse operator taken privateAlthough more of the recent M&A activi-
ty in the restaurant industry has been amongstrategic buyers, private equity funds havebeen active in the restaurant industry in re-cent years because of restaurant chains’ pre-dictable cash flows and thus their greatercapacity for debt. In July 2007, an investorgroup led by Bain Capital Partners LLC and
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Catterton Management Co. LLC took OSIRestaurant Partners Inc. private through aleveraged buyout worth $3.5 billion.
The buyout, which was announced in No-vember 2006, came after activist hedge fundPirate Capital LLC raised concerns about thecasual dining chain’s strategy earlier in 2006and began advocating a breakup. OSI hadbeen suffering from falling sales as highergasoline prices reduced consumer spendingand from higher costs associated with develop-ing its brands, which include Outback Steak-house, Carrabba’s Italian Grill, Bonefish Grill,and Fleming’s. Pirate Capital tried to pressuremanagement to spin off many of these brands.
Ultimately, Pirate Capital was unable toforce management into taking action on itsproposal and the hedge fund eventually soldits entire position in the restaurant chain.OSI Restaurant Partners agreed to a privateequity buyout three months later. The buyoutis likely to dampen the company’s growthprospects in the short term, but being privatewill allow the company to focus on reener-gizing the brands and become more competi-tive without any external shareholderpressure to immediately enhance value.
Other chains shed underperforming unitsSome restaurant chains have been selling
off noncore assets in order to address flag-ging sales in certain brands and boost theprofitability of the overall firms. McDonald’shas sold off its noncore restaurant brands,while Brinker International Inc. and DardenRestaurants Inc. also have divested underper-forming units.
In the third quarter of 2007, McDonald’scompleted the sale of its struggling BostonMarket chain to Sun Capital Partners. Thesale follows McDonald’s spinoff in 2006 ofMexican chain Chipotle Mexican Grill. Mc-Donald’s will now focus exclusively on ex-panding its core McDonald’s brand globally.
In May 2007, casual dining-chain opera-tor Darden announced plans to sell itsSmokey Bones Barbecue & Grill due to slowsales in the broader casual dining market.The chain’s menu also did not cater to awide enough clientele to make it successful.Despite the difficult operating environmentfor casual dining chains in general, Dardenwasted little time in replacing the brand. Thecompany announced in August 2007 that itwas acquiring RARE Hospitality Internation-
al Inc., which operates the LongHorn Steak-house chain, for $1.4 billion. The deal willallow Darden to continue to operate a rangeof different restaurant concepts, which offerseconomies of scale in purchasing and in at-tracting workers.
In August 2007, Brinker put its MacaroniGrill operations up for sale, as the unit strug-gled to attract customers in the crowded ca-sual dining segment. Macaroni Grill isBrinker’s second-largest brand after Chili’sGrill & Bar, but it failed to compete effec-tively against Darden’s Olive Garden chain.Same-store sales were flat or lower for everymonth in the company’s fiscal year endedJune 2007.
Like Darden, Brinker hopes to maintain arange of casual dining brands and has saidthat it may look to purchase another conceptto replace the Macaroni Grill if the opportu-nity arises. In addition to Chili’s, it also runsMaggiano’s Little Italy and On the BorderMexican Grill & Cantina.
Operating costs on the rise
As some of these deals highlight, bothquick-service restaurants and casual diningchains face ongoing challenges related to ris-ing costs. Food prices and labor costs, in ad-dition to rent and utility costs, have beenrising throughout 2007, which has put pres-sure on the industry’s operating margins.
Although many restaurant chains are ableto use forward pricing to lock in their foodbills for an extended period of time, com-modity prices continue to rise. According tothe US Bureau of Labor Statistics, a divisionof the US Department of Labor, wholesalefood prices rose 6.2% in the 12 monthsthrough July 2007. Chicken prices were up17.7% in the period, while dairy prices rose29.8%. Beef and veal prices slipped 2.6%,while pork prices rose a slight 0.5%.
The increase in chicken prices can be part-ly attributed to a rise in the price of corn,which is used as a feed. Corn prices havebeen rising due to increased production ofthe biofuel ethanol, which utilizes corn as afeedstock. Higher corn prices also have ledto higher prices for corn syrup, which is usedas a sweetener in soda. The popularity ofchicken items for both casual dining andquick-service firms, and the inability of manyfirms to increase prices significantly, mean
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that many restaurant chains are likely to ab-sorb much of the increase in chicken prices.
Rising dairy and cheese costs are squeez-ing margins at pizza chains. This has forcedsome chains, such as Domino’s Pizza Inc., tocut back on their promotions and may ulti-mately force the industry to raise pizza pricesin order to cope with the higher cheese costs.
Labor costs are climbing for the restau-rant industry, following the passage of newlegislation raising the federal minimum wage.In July 2007, the minimum wage for non-tipemployees rose $0.70 to $5.85 an hour, andit will rise $0.70 more in both 2008 and2009, bringing the minimum wage to $7.25an hour. Since most chains compete for thesesame unskilled minimum-wage employeeswith many other employers, the increase inthe minimum wage has put upward pressureon wages. Hourly wages in the leisure andhospitality industry rose 7.0% in the 12months through August 2007, according tothe Bureau of Labor Statistics.
This change will affect some chains morethan others. Thirty states already have a mini-mum wage rate in excess of the new federalminimum wage, which may limit the impact tothose chains operating in states where the fed-eral rate prevails. Additionally, some larger na-tional chains, such as McDonald’s, alreadyoffer wages in excess of the mandated mini-mums. Some chains, such as Texas RoadhouseInc., operate in regions where the average in-come is somewhat lower than the national av-erage; these companies are likely to see laborcosts rise more in line with the increase in thefederal minimum wage.
A number of companies have reportedthat these higher commodity and labor costs
are eating into profitability. Wendy’s sawmargins come under pressure from higherfood costs in the first half of 2007, whileBrinker International’s margins were pres-sured by various state minimum wage in-creases during its fiscal year ended June2007. Domino’s Pizza reported that highercommodity, labor, and utility costs have beensqueezing its margins in 2007.
Some firms have been able to overcomethese challenges with higher pricing. Accord-ing to the National Restaurant Association,an industry trade group, average menu pricesincreased 3.1% in 2006, the same rate of in-crease as in 2005, continuing a trend inwhich menu prices have risen at their highestrate since 1991. The industry group forecaststhat menu prices will rise by 2.9% in 2007.However, we note that a growing number ofchains were attempting to put through addi-tional price increases in late summer, suggest-ing to us that there is a bias toward evenhigher price increases in the industry.
Chipotle Mexican Grill was able to offsethigher food costs with menu price increases,while Burger King’s rapid sales growth mini-mized cost concerns. Still, these commodityprice trends are likely to continue to plaguethe restaurant industry into 2008.
Casual dining sales under pressure
In addition to higher costs, casual diningchains are suffering from decreased customertraffic. Consumers are spending less moneyon dining out as gasoline prices remain highand take up a more significant portion of thehousehold budget. Those consumers thatcontinue to eat at casual dining chains maybe forgoing appetizers and pricey beveragesas a way to cut down on their expenses. Ad-ditionally, the slowdown in the housing mar-ket and tighter borrowing conditions arelikely to continue pressuring consumerspending and may result in weaker sales forsome casual dining chains during the remain-der of 2007 and into 2008.
Competition has been fierce, and manycompanies have had a hard time distinguish-ing themselves in the market place. Theslowdown at Applebee’s and the inability of the Macaroni Grill to gain traction againstthe Olive Garden chain are examples of themore challenging competitive environment. Inaddition, many of these chains expanded too
PORK AND POULTRY PRICES CLIMB (Index, 1982=100)
Source: US Bureau of Labor Statistics.
170
160
150
140
130
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100
90
80
701997 98 99 00 01 02 03 04 05 06 2007
ChickenBeef & veal
Pork
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rapidly, at a time when diners were beginningto cut back on casual-dining outings.
Overall, the National Restaurant Associa-tion is forecasting a 5.1% increase in sales atfull-service restaurants in 2007, after a 4.7%increase in 2006. On an inflation-adjustedbasis, sales are expected to rise 2.1% after again of 1.4% in the prior year. Much of thisincrease is likely to be attributed to highermenu prices and not to any increase in cus-tomer traffic.
◆ Darden Restaurants. Darden has faredsomewhat better than its competitors so farin 2007. The country’s largest casual diningchain (based on sales) reported that its over-all sales rose 4% in the fiscal year endedMay 2007, helped along by increased same-store sales at its Olive Garden and Red Lob-ster chains. Net earnings from continuingoperations were up 8% in the fiscal year.
The company’s current fiscal year is off toa relatively strong start. In the first quarterof fiscal 2008, same-store sales at its RedLobster chain rose 7.0%, reflecting both anincrease of 3% in guest traffic and an in-crease of 4% in check average. The increasein check average was a result of higher pricesand changes to the menu. In the first quarterof fiscal 2007, Red Lobster saw a 2.1% de-cline in same-store sales. To combat anyslowdown in sales, the chain has launched anew marketing campaign and has introduceda daily rotating menu of fresh fish options.
At the Olive Garden chain, same-storesales climbed 4.8%, reflecting increases ofabout 3.5% in check average and 1% to1.5% in guest traffic. Most of the highercheck averages at the Olive Garden stemmedfrom higher prices.
Darden is looking for same-store salesgrowth of 2% to 4% for its Red Lobster andOlive Garden chains in fiscal 2008. Netearnings per share growth is expected to be10% to 12%. Much of this growth willcome from an increase in the number ofOlive Garden restaurants that the companyplans to open in fiscal 2008.
◆ Brinker International. Brinker Interna-tional reported declining same-store salesfor its fiscal year ended June 2007. The op-erator of Chili’s said that same-store salesfell 2.7% in the period, after rising 1.5% infiscal 2006. These declines came despite an
increase in pricing, which had a positive1.6% impact on same-store sales. Much ofthe weakness was at Brinker’s MacaroniGrill chain, which saw a decline of 3.2% insame-store sales. As discussed previously,the company plans to sell off this underper-forming chain.
The company’s same-store sales weresomewhat more mixed in July 2007. Overallsame-store sales were down only 0.1% in themonth, compared with a 2.7% decline inJuly 2006. Same-store sales were down 1.9%in June 2007. Higher menu prices, and notincreased traffic, were primarily behind theimprovement in same-store sales in July.
◆ Applebee’s. The casual dining chainsaid that its systemwide domestic salesdropped 2.5% during the first half of its fis-cal year ended July 1, 2007, compared witha 0.4% decline in the first half of its fiscal2006. The decline was attributed to an ongo-ing slump in customer traffic, which morethan offset a higher average check level. Ap-plebee’s, like many of its competitors, has in-creased menu prices to make up for decliningcustomer traffic.
Value and convenience bolster quickservice restaurants
Quick-service restaurants have faredsomewhat better than their casual-diningcounterparts in 2007, as consumers look forvalue and as fast-food chains introduce inno-vative menu items and longer hours to at-tract more customers. Still, the fast-foodindustry takes the risk that customers willtrade down from premium menu items to-ward the value menu items, which would putmore pressure on sales.
The National Restaurant Association isforecasting an increase in fast food restau-rant sales in 2007 of 5.0% (2.1% on an inflation-adjusted basis). Growth has beenrelatively steady, with sales rising 5.1% in2006 and 5.0% in 2005.
The battle for breakfastFast-food chains have been focusing on
the underserved breakfast market to increasecustomer traffic and sales in 2007, and tochallenge the dominance of McDonald’s inthe segment. During the year, Burger Kinglaunched a breakfast value menu nationally
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that includes 10 menu items priced at about$1.00. The breakfast offering was a follow-up to the company’s 2006 value menu, whichfeatured 10 items, including the Whopper Jr.,priced between $1.00 and $1.39.
Wendy’s International wants to introducebreakfast at 20% to 30% of its locations(including both franchises and store-ownedrestaurants) in 2007, and have breakfast inmore than half of its stores in 2008. In lateAugust 2007, the firm said that it was offer-ing its breakfast menu in 500 restaurantsand that it was on track to expand into 750restaurants by the end of the third quarter.The company has said that breakfast sales atexisting units could add $160,000 per yearto average sales per restaurant in a fewyears’ time.
Even Starbucks Corp., the coffee titan, isserving hot breakfast sandwiches at a limitednumber of outlets across the country. Yum!Brands plans to introduce breakfast items atits Taco Bell chains, and Subway (operatedby Doctor’s Associates Inc.) plans a breakfastmenu as well. Jack in the Box Inc. also con-tinues to introduce new breakfast items, in-cluding a Sirloin Steak and Egg Burrito.
McDonald’s has vowed to fight its com-petitors. The chain plans to introduce itsown $1 morning menu items and is pushingto get all its US restaurants open by 5 a.m.New coffee flavors, iced coffee, and cinna-mon rolls also have been introduced to ex-tend the chain’s lead in the breakfast market.
Sales results vary by chainWhile the trends have been generally more
favorable for quick-service chains than forcasual-dining restaurants, as consumers lookto stretch their dining dollars, there remainssome variation among individual companyresults due to their strategy and execution.International sales also are helping a numberof the larger chains.
◆ McDonald’s. Since 2003, McDonald’shas been one of the strongest performingquick-service restaurant chains. Having shedits Chipotle Mexican Grill and Boston Mar-ket units, the firm is now focused exclusivelyon growing its core hamburger chain.
During the first half 2007, the company’srevenues increased 12% (8%, excluding cur-rency benefits), helped along by its focus onthe breakfast market, menu innovation, and
growth in its overseas markets. Net income,excluding the impact of the sale of 1,600company-owned restaurants in Latin Americato a franchisee, also climbed 12%. Thestrength has continued into July, with same-store sales rising 6.5% overall. US same-storesales climbed 4.3%, while European same-store sales rose 7.7%. Its Asian operationsreported same-store sales growth of 9.9%.
In addition to selling its noncore brands,McDonald’s has sold certain company-owned restaurants in foreign markets, name-ly Latin America, to licensees, thus reducingfuture capital requirements and raising cash.This will enhance its ability to meet its goalof deploying $15 billion to $17 billion overthe 2007 to 2009 period on dividends andstock buybacks. In September 2007, it raisedits annual dividend by 50% to $1.50.
◆ Yum Brands. Yum Brands has beenbenefiting from strong international growth,which is offsetting sluggish sales in the USmarket. In the first half of 2007, same-storesales systemwide fell 2%, after rising 3% inthe year-earlier period, due primarily to weaksales at its Taco Bell unit following more than70 cases of E. coli poisoning at some NewYork City metro area restaurants. Operatingprofits were also weak in the United States,due to higher commodity and labor costs.
Although growth was weak in the USmarket, Yum Brands has aggressively ex-panded overseas, which has helped offset theslump in US sales. Its international opera-tions reported a 5% increase in same-storesales in the second quarter of 2007, spurredon by 7% growth in China.
◆ Burger King. No. 2 hamburger chain op-erator Burger King Holdings reported that itssales for the fiscal year ended June 2007 rose9% to $2.2 billion, as same-store sales climbed3.4%. The chain attributed the strong growthto breakfast and late-night sales, as well as tonew menu promotions such as the WesternWhopper. Strong growth in Europe alsohelped results in the period, as the companyopened 107 new restaurants in the region.
The chain’s restaurant margin as a percent-age of sales decreased 0.2 percentage points inthe year, due to promotion costs and higherfood and packaging costs. The company wasable to offset some of the higher costs in theUS with reduced labor expenses.
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◆ Wendy’s. As highlighted previously,Wendy’s International has been strugglingwith its strategy in the US market. LikeMcDonald’s, it has shed noncore restaurantbrands in order to focus on the core ham-burger business. Still, Wendy’s has had trou-ble competing.
In June, the company cut its 2007 earn-ings forecast due to weaker-than-anticipatedsame-store sales and quickly rising com-modity costs. The company said that same-store sales climbed 3.8% in the US in thefirst quarter, but rose only 0.7% in the sec-ond quarter. ■
The US foodservice industry comprises alarge and varied range of away-from-homeeating facilities: everything from commercialeating and drinking places (restaurants, bars,cafeterias, and so forth) to food contractors
and institutional providers. The NationalRestaurant Association, an industry tradegroup, estimates that overall US foodserviceindustry sales were $511.2 billion in 2006,up 5.0% from 2005. Forecasts are for salesof $536.9 billion in 2007. (For additional de-tails and industry breakdowns, see the tabletitled “Projected US foodservice industrysales.”) This Survey focuses on the restaurantsector of the foodservice industry.
Industry segments
The publicly traded companies that domi-nate the restaurant industry are varied. Theyrange from fast-food operators, such asMcDonald’s Corp., Burger King HoldingsInc., and Wendy’s International Inc., to com-panies that run full-service chains, such asDarden Restaurants Inc. (operator of RedLobster and Olive Garden restaurants),Brinker International Inc., and Applebee’s In-ternational Inc. (expected to be acquired byIHOP Corp. in the fourth quarter of 2007).High-priced fine-dining restaurants are notcovered by this Survey, although they are in-cluded in the aggregate data presented earlier.Such restaurants usually are run by individuals,families, or limited partnerships, are typicallylocated in the larger cities, and cater to a smallbut growing group of affluent Americans.
Fast foodQuick counter service, meals to eat in or
take out, low prices, and plain décor are fea-tures common to fast-food (or limited-service)restaurants. These outlets tend to specialize ina few menu items: hamburgers, pizza, sand-wiches, and/or chicken. According to estimatesby the National Restaurant Association, salesat limited-service establishments in the UnitedStates rose 5.2% in 2006, to $142.9 billion(roughly 28% of total US foodservice industrysales). The fast-food industry is less fragment-ed than its full-service counterpart. This ispartly a result of the segment’s focus on quickservice and price. Larger chains tend to have
INDUSTRY PROFILE
Satisfying the consumer’s appetite
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PROJECTED US FOODSERVICE INDUSTRY SALES(In billions of dollars)
2006 2007
Commercial foodservice, total 466.7 491.2 Commercial eating & drinking places1 360.4 379.1
Full-service restaurants 172.8 181.6 Limited-service restaurants 142.9 150.1 Commercial cafeterias 5.2 5.4 Social caterers 5.7 6.1 Ice cream, frozen custard, yogurt stands 18.5 20.2 Bars/taverns 15.3 15.8
Food contractors 34.0 36.0 Lodging places 25.4 26.8 Other commercial sales 46.9 49.2
Institutional foodservice2 42.6 43.8 Military foodservice3 1.8 1.9TOTAL US FOODSERVICE SALES 511.2 536.9
Note: Totals may not add due to rounding. 1Only for establishments with payroll.2Sales by institutional organizations (including businesses) operating their own food-service. 3Continental United States only. Source: National Restaurant Association.
RESTAURANT MARKET SHARES — 2006
Source: Nation’s Restaurant News.
Sandwich40.6%Chicken 6.3%
Family 5.4%
Coffee 3.1%
Contract 10.5%Casual dining 15.9%
Bakery café 1.0%
TOTAL: $191.6 BILLION
Convenience store 1.1%
Snack 2.6%
Hotel 2.9%
Buffet 1.6%
Pizza 6.5%
Other 2.5%
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an advantage because their economies of scaleallow them to develop the operational exper-tise to improve efficiency and speed transac-tions, and to purchase supplies more cheaply.
◆ Sandwich chains. The main attractionat a sandwich chain is the hamburger. How-ever, many chains offer a choice of maincourse items, such as toasted sandwiches andpita sandwiches filled with chicken or vege-tarian mixtures. Tacos also fall into the sand-wich category. Salads are offered at manychains as a popular and healthy alternativeto sandwiches.
Several large competitors with chains thatare generally recognizable throughout the na-tion dominate the sandwich chain category.With $27.1 billion in US sales in 2006, Mc-Donald’s is the largest fast-food chain by awide margin. However, the concept facesstrong competition from Burger King (rough-ly $8.3 billion in sales in the fiscal year end-ed June 2007), Wendy’s (approximately $7.8billion), Subway (operated by Doctor’s Asso-ciates Inc.; $7.7 billion), and Taco Bell, a di-vision of Yum! Brands Inc. ($6.0 billion).
In 2006, average per-unit annual sales forthe 10 largest sandwich chains were $1.1million, according to data from company re-ports and industry publication Restaurants &Institutions (R&I). However, company re-
sults varied widely. McDonald’s was theleader, with an average of about $1.8 millionin annual per-unit sales, followed by Jack inthe Box Inc. ($1.34 million), Chipotle Mexi-can Grill Inc. ($1.3 million), Wendy’s ($1.3million), and Carl’s Jr. (a unit of CKERestaurants Inc.; $1.2 million).
◆ Pizza. The nation’s largest purveyor ofpizza is Pizza Hut, a division of Yum Brands(sales of $5.2 billion in 2006), followed byDomino’s Pizza Inc. ($3.2 billion). PapaJohn’s International Inc. ($1.9 billion) andLittle Caesars (a division of Ilitch HoldingsInc.; about $830 million) also are large, na-tionally known pizza concepts. These fouraccount for more than 90% of the aggregatesales in the pizza chain restaurant segment;each is significantly larger than the No. 5chain, Chuck E. Cheese’s (operated by CECEntertainment Inc.; about $588 million).
In 2006, the pizza chain industry saw a risein customer traffic, as the economic pressurescaused by higher gas prices forced consumersto pare back their casual dining visits. Thiswas likely only an aberration from a longer-term trend, in which the growth of take-outfood capabilities at full-service restaurants andthe creation of more diversified menus at fast-food competitors led consumers to pursue oth-er options. In response, competition amongpizza chains has recently centered on newproduct offerings and pricing.
◆ Chicken. KFC Corp. (a division ofYum Brands) towers over all other chickenchains, with US systemwide sales totaling anestimated $5.2 billion in 2006. The nextlargest competitors are Chick-fil-A Inc.($2.3 billion), Popeye’s Chicken & Biscuits(operated by AFC Enterprises Inc.; $1.5 bil-lion), and Church’s Chicken (operated byCajun Operating Co.; $772 million).
Revenue growth at Chick-fil-A has in-creased more quickly than at its competitorsover the past several years, fueled by aggres-sive expansion and high customer satisfac-tion scores, especially for speed of service.The latter is a category in which the compa-ny maintains the highest scores in the fast-food industry.
Full serviceAll full-service restaurants offer sit-down
service for dinner, though their price points
LARGEST US RESTAURANT CHAINS(Ranked by US systemwide foodservice sales)
US SALES (MIL.$) US UNITS
CHAIN 2005 2006 % CHG. 2005 2006 % CHG.
McDonald's 25,643 27,144 5.9 13,727 13,774 0.3 Burger King 8,448 8,428 (0.2) 7,207 7,136 (1.0)Wendy's 7,780 7,805 0.3 6,018 5,948 (1.2)Subway 7,170 7,710 7.5 19,620 20,755 5.8 Taco Bell 6,200 6,300 1.6 5,845 5,608 (4.1)Starbucks 4,935 6,017 21.9 7,188 8,472 17.9 KFC 5,200 5,300 1.9 5,443 5,394 (0.9)Pizza Hut 5,300 5,200 (1.9) 7,566 7,532 (0.4)Applebee's 4,192 4,543 8.4 1,732 1,841 6.3 Dunkin' Donuts 3,850 4,300 11.7 4,815 5,370 11.5 Chili's Grill & Bar 3,270 3,515 7.5 1,085 1,210 11.5 Sonic Drive-In 2,995 3,318 10.8 3,031 3,186 5.1 Domino's Pizza 3,317 3,224 (2.8) 5,092 5,143 1.0 Arby's 2,930 3,090 5.5 3,376 3,458 2.4 Jack-in-the Box 2,700 2,810 4.1 2,049 2,079 1.5 Olive Garden 2,611 2,801 7.3 576 608 5.6 Outback Steakhouse 2,599 2,619 0.8 775 786 1.4 Red Lobster 2,502 2,548 1.8 651 651 0.0 Dairy Queen 2,400 2,405 0.2 4,752 4,728 (0.5)Denny's 2,245 2,290 2.0 1,503 1,468 (2.3)
Source: Nation’s Restaurant News.
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range from low to high. These restaurantshave much higher per-unit sales volume onaverage than do fast-food outlets. Accordingto estimates from the National RestaurantAssociation, sales at full-service restaurantstotaled an estimated $172.8 billion in 2006,up 5.2% from 2005.
◆ Casual dining. Casual dining chains en-compass a host of restaurant types, includingseafood, Asian, and Italian. The top 10 casu-al dining chains posted average per-unit salesof $3.8 million in 2006, according to datafrom company reports and Restaurants &Institutions (R&I).
Ranked by sales per unit, The CheesecakeFactory Inc. was No. 1 in 2006, with $10.1million sales per unit; total sales were $1.1billion. P.F. Chang’s China Bistro Inc. fin-ished second ($5.3 million per unit; $675million in total sales), followed by OliveGarden ($4.2 million; $2.5 billion in the fis-cal year ended May 2007) and Red Lobster($3.6 million; $2.5 billion).
Applebee’s Neighborhood Grill & Bar ledthe segment in 2006 with $4.5 billion in totalsystemwide sales, followed by Chili’s Grill &Bar (operated by Brinker International; $3.5billion in the fiscal year ended June 2007)and Outback Steakhouse (operated by OSIRestaurant Partners Inc.; $2.6 billion).
◆ Family restaurants. A family restaurantaims to appeal to customers of all ages by of-fering a relaxed atmosphere, low prices, andmenus geared to both children’s and adults’palates. These restaurants are sometimes re-ferred to as “midscale.” The Denny’s chain(a division of Denny’s Corp.) retained itsleading position in 2006, with systemwidesales of $2.3 billion. International House ofPancakes (a division of IHOP; $2.0 billion)and Cracker Barrel Old Country Store (a di-vision of CBRL Group Inc.; $1.75 billion)were in second and third place, respectively.
Cracker Barrel restaurants contain giftshops that contribute more than 20% ofsales. As a result, sales per unit averaged anestimated $3.8 million in fiscal 2006 (endedJuly 2006). This was well ahead of BobEvans restaurants (operated by Bob EvansFarms Inc.; $1.54 million per unit; $1.07billion total sales in the year ended April2007), Perkins Restaurant and Bakery (a di-vision of Perkins & Marie Callender’s Inc.;
$1.24 million; $594 million), and Internation-al House of Pancakes ($303 million per unit).
◆ Grill/buffet restaurants. Grill/buffetrestaurants are casual locations that special-ize in grilled items such as steak and chicken.Typically, they feature self-service bars withselections of salads and desserts. GoldenCorral Corp. (a division of Investors Man-agement Corp.) and Ryan’s Family SteakHouses (a division of Ryan’s RestaurantGroup Inc., itself owned by Buffets HoldingsInc.) are the largest grill buffet restaurantchains, with systemwide US sales of $1.4 bil-lion and about $825 million, respectively, in2006. Ponderosa Steakhouse (a division ofprivately owned Metromedia Co.’s Metrome-dia Restaurant Group) held the No. 3 spot,with $406 million in sales. Golden Corralsurpassed Ryan’s for the highest averagesales per unit: $2.9 million versus $2.4 mil-lion, respectively.
SpecialtyWithin the restaurant industry, there are
chains that do not easily fit into specific cate-gories, due to the kind of product they sell orthe way in which they serve the product. Ex-amples include bars and taverns, caterers,and snack and beverage bars. These loosecategories accounted for sales of approxi-mately $44.7 billion in 2006, up by nearly6% from 2005.
Starbucks Corp. is perhaps the best exam-ple of a restaurant chain thriving in the spe-cialty area of the industry. With more than8,830 locations in the United States andaround 12,440 worldwide, Starbucks report-ed revenues of approximately $7.8 billion inits fiscal 2006 (ended October 1, 2006).While Starbucks does sell food, the companyspecializes in selling coffee products. Otherexamples of chains specialized by product in-clude Dunkin’ Donuts and Baskin-Robbins(both owned by Dunkin’ Brands Inc.) andKrispy Kreme Doughnuts Inc.
INDUSTRY TRENDS
The restaurant industry is highly competi-tive. This has forced operators to find waysto continue to boost market share, to findand retain employees, and to control costs,as they strive to maximize profits.
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Some chains undertake aggressive financial policies
Many restaurant chains have undertakenbusiness securitizations in 2006 and 2007 thatmay leave them susceptible to financial dis-tress due to tougher business conditions forthe industry. Several of these restaurant opera-tors were already struggling with strainedcash flows, and the aggressive financial poli-cies have only added to the difficulties.
Companies such as Sonic Corp., Dunkin’Brands Inc., Domino’s Pizza Inc., and IHOPCorp. have completed or announced “whole-business” or corporate securitizations, whichare structured much like traditional securiti-zations in the mortgage market. The compa-ny takes a revenue stream, such as franchiselicense fees, and securitizes it in order to usethe funds to either buy back stock or raisefunds to take the company private through aleveraged buyout.
Securities backed by all types of assets,ranging from mortgages and auto loans tocredit card receivables, have evolved over thelast two decades to become standard corpo-rate financing practice. The restaurant indus-try and its bankers now have extended thefinancing technique to franchise fees, and eventhe power of company brands, by issuingbonds with future licensing and royalty pay-ments slated to help pay off the interest andprincipal. At the extreme, this type of transac-tion is essentially a securitization of most ofthe company’s business, leaving it with limitedfunds for expansion and liquidity needs.
In August 2006, Sonic, the regional fast-food operator with locations in the South-east, Southwest, and Midwest, announced a$560 million share repurchase program thatit intended to fund through bank loans ofaround $775 million, while also paying offsome existing debt. Sonic ended up buyingback slightly more than $405 million of itsstock, but it still had significant debt fromthe bank loans. To repay those, the companyraised $600 million in December by sellingnotes backed by Sonic’s franchising assetsand real estate. The notes have an expectedlife of around six years. The securitization ef-fectively allowed Sonic to extract future cashflows from the business, as interest and theamortization of principal on the notes wouldbe serviced by the cash flows from Sonic’sfranchising businesses.
Another example of a corporate securiti-zation was the $1.7 billion transaction thatDunkin’ Brands completed in June 2006.Proceeds of the bonds were used to paydown around $1.5 billion in debt that waspart of the financing for the $2.4 billion buy-out of Dunkin’ Brands in December 2005 bythe Carlyle Group, Thomas H. Lee PartnersLP, and Bain Capital LLC. The five-yearbonds, which pay interest only and have a fi-nal principal payment at maturity, arebacked by various revenue streams from thecompany’s franchised restaurants under theDunkin’ Donuts, Baskin-Robbins, and Togo’sbrands. Real estate payments from fran-chisees and licensing fees paid by outsidecompanies (to make Baskin-Robbins icecream) are additional collateral that back thebonds. Most of the bonds are ‘AAA’-ratedbecause of the quality of the cash flows andan insurance guaranty provided by Ambac Assurance Corp. This allowed Dunkin’Brands to save substantial debt financingcosts because its corporate credit rating (‘B–’)is well below investment grade.
Domino’s also undertook a securitizationof its franchise revenues. On March 12,2007, the pizza chain purchased 2.242 mil-lion shares under a “Dutch auction” tenderoffer, for $30 each. To fund the share repur-chase and debt repayments, Domino’s tookout a $1.35 billion bridge loan from banks.
In a plan similar to the two-step processundertaken by Sonic, Domino’s paid off thebridge loan through a $1.85 billion asset-backed securitization in April. Those bondsare backed by cash flows from the company’sfranchise-related agreements, product distrib-ution agreements, and license agreements onits intellectual property. The securitized rev-enue streams represent substantially all of thecompany’s existing revenue-generating assets.
Domino’s returned much of the $1.85 bil-lion in proceeds to shareholders. The compa-ny also gave existing shareholders theopportunity to sell if they felt uncomfortablewith the amount of leverage Domino’s wasassuming. The company was willing to ten-der up to 15 million shares at a premium towhat was in the market, but only 2,242shares were tendered.
Finally, IHOP, which is planning to acquireApplebee’s, is considering raising $2 billion incash for its purchase of the casual dining chainby securitizing Applebee’s business. Pending
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regulatory approval, the deal is expected toclose in the fourth quarter of 2007.
Competing for customers
To improve or simply maintain marketshare in the competitive restaurant industry,companies employ strategies to improve con-sumer choice, convenience, and value. Tech-niques include adding cuisine types,discounting prices to attract customers, ex-panding takeout service, and using technolo-gy to improve customer satisfaction.
Driven by demographic changes, manyrestaurants have begun to diversify theirmenus across various cuisine types. For in-stance, with the Hispanic and Asian-Americansegments growing at a faster pace than theoverall US population, many restaurants aredeveloping new products to target thosegroups’ tastes, often attracting other cus-tomers in the process.
The Hispanic market has become an in-creasingly important focus for the restaurantindustry, reflecting this community’s risingimportance in the US economy. According tothe US Census Bureau, 14% of the US popu-lation (about 40 million people) descendsfrom Spanish-speaking countries or regions.At recent growth rates, the group is expectedto rise to 25% of the population by 2050. Asa result, many concepts have adjusted theirmenu selections to cater to this group.
Jack in the Box Inc. recently introducedtaquitos to its predominantly western US mar-ket, where they are likely to appeal to the re-gion’s large Mexican-American population aswell as to non-Hispanic diners. Yum! BrandsInc. and Jack in the Box have stepped up pur-suit of the Hispanic market through theirTaco Bell and Qdoba chains, respectively.
Besides menu development, each of thesecompanies has increased its sophisticationwith respect to marketing, hiring, and re-cruiting franchisees with advanced knowl-edge of the broad and diverse Hispaniccommunity. Wendy’s is actively pursuing His-panic customers in its marketing programthrough media sources that are popular withthis group. Jack in the Box offers classes forEnglish as a second language to attract His-panic employees.
Restaurants are extending their menus todraw in both value-conscious and premiumcustomers. More fast-food chains are offer-
ing breakfast options, and many are cateringto a late-night clientele by extending operat-ing hours.
Multibrand companies proliferateMany companies are developing portfo-
lios of restaurants for growth and diversity.Of the top 100 restaurant companies, asmeasured by industry trade consultant Tech-nomic Information Services, 17 managedthree or more restaurant concepts in 2006.In 1980, about six companies in the top 100did so.
There are two main reasons for the expan-sion into new chains. First, adding new con-cepts is a strategy designed to boost long-termgrowth in sales and earnings. Because cus-tomer tastes are fickle, companies must comeup with new ideas to stimulate demand. Sec-ond, the strategy gives a company the advan-tages of diversification, as success in some ofits concepts can provide a buffer against therisk of poor performance in others.
Full-service chains are trying to capitalizeon their popularity by opening new concepts,but success has varied. Darden RestaurantsInc. opened its first Smokey Bones Barbeque &Grill in late 1999, but it put the concept upfor sale in 2007 as it failed to gain tractionin the marketplace. The company plans toacquire RARE Hospitality International Inc.,which operates LongHorn Steakhouse, to re-place Smokey Bones. Darden Restaurantsalso operates 23 Bahama Breeze units, a con-cept it first tested in 1997.
Some fast-food purveyors are developingmulticoncept operations in an attempt to di-versify their businesses, mainly through ac-quisitions of quick-casual concepts. Results,however, have been mixed. In 2002, Jack inthe Box took over Qdoba, a quick-casualconcept specializing in Mexican-style foods.Same-store sales growth at Qdoba rose 5.9%for the year ended October 1, 2006, and by4.2% for the nine-month period ended July 8,2007. In contrast, Wendy’s acquisition in 2002of Baja Fresh, another quick-casual Mexi-can concept chain, failed to produce strongsales results. Wendy’s, which paid about$245 million for Baja Fresh, sold the chainin 2006 to an investor consortium for onlyabout $31 million.
Yum Brands has taken the multiconceptidea a step further, seeking to “multibrand”individual restaurants by incorporating more
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than one concept under a single roof. Thecompany believes that by combining two ormore of its five major concepts (Taco Bell,KFC, Pizza Hut, Long John Silver’s, andA&W), it will draw customers to its loca-tions by creating more choice. It also expectsto leverage additional sales against each loca-tion’s fixed costs, especially real estate. YumBrands believes that multibranded sitesachieve 20% to 30% higher sales, on aver-age, and derive at least a 30% increase in av-erage cash flow per site.
While many restaurant companies chooseto pursue a multibrand strategy, it is impor-tant to note that, in recent years, some com-panies have abandoned this strategy. Inorder to simplify operations and to improvefocus on core brands, they have insteadchosen to divest some chains. One exampleis McDonald’s Corp.; several years ago, itacquired Donato’s Pizza, Boston Market(formerly Boston Chicken), and ChipotleMexican Grill, in order to augment growthprospects. Since changing managementteams in 2003, however, the company hasdecided to focus on improving its existingMcDonald’s units. The company has sincesold its interests in Donato’s. In 2006, itcompleted the initial public offering (IPO)of Chipotle and subsequently spun off itsremaining Chipotle interest. The companyalso sold its Boston Market business to pri-vate equity firm Sun Capital Partners in2007. Similarly, in addition to the sale ofBaja Fresh, Wendy’s sold 18% of its TimHortons Inc. concept in an IPO in March2006 and spun off its remaining interest inTim Hortons in September 2006.
In the past two years, while still pursuinga multibrand strategy in casual dining,Brinker International Inc. sold its Cozymel,Big Bowl, and Corner Bakery concepts. Thecompany will focus its energies on its re-maining “core” brands, especially Chili’s.
Easier than home cookingThe home meal replacement (HMR) mar-
ket is of particular interest to restaurant op-erators. The strong demand for takeout food,prepared and packaged for busy customersto eat at home, should continue to growsolidly over the next few years. According toTechnomic, takeout sales account for about60% of total sales at limited-service chains.Fast-food titan Wendy’s has been experi-
menting recently with a drive-through-onlyprototype restaurant.
Although takeout food has always been afocus for quick-service restaurants, it has re-ceived similar attention from casual-diningoperators only in recent years. The constantdrive to increase their return on assets hasled full-service chains to invest significantsums to improve pick-up access, packaging,and menu development. According to Tech-nomic, takeout food has been growing at anannual rate of 10% over the past three years,about twice the average rate of growth of theoverall restaurant industry. Leading in thiscategory was Outback Steakhouse, whichhas aggressively sought takeout customers byretrofitting all of its units to serve them.Since 2004, Applebee’s has developed signifi-cantly improved takeout packaging androlled out curbside delivery service at itsrestaurants. It also has begun to test technol-ogy that would enable it to accept creditcards for payment with handheld remote de-vices. In 2006, takeout sales accounted for9.7% of Applebee’s systemwide sales.
The buffet restaurant segment is also be-ginning to experiment with takeout. GoldenCoral Corp. is testing takeout stations at 34franchised locations, charging customers bythe pound. Luby’s Inc., where takeout ac-counts for about 15% of systemwide sales,rolled out a curbside-to-go prototype in oneof its Texas restaurants in 2007. BuffetsHoldings Inc., which owns the Ryan’s Grill &Buffet Bakery chain and others, is lookingfor ways to introduce takeout to its all-you-can-eat buffet formats. The challenge formany of these chains is to not undermine theexisting concept by cannibalizing sales or dis-rupting the normal operating flow of therestaurant.
Although an increasing number of restau-rants are seeking ways to win in the growingand lucrative carryout market, success in thissector is not guaranteed, and pitfalls are mani-fold. Competition is everywhere — from localfood stands to casual restaurants to supermar-kets that offer takeout and delivery.
In serving the takeout market, supermar-kets have some advantages: a successful for-mula that they have used for years, andexperience in managing food spoilage andwastage to avoid hurting profitability. Incontrast, restaurants are inexperienced in thisbusiness segment and are bound to have dif-
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ficulty in gauging demand, average ordersize, and quantity of food to order and pre-pare. They also have the disadvantages ofhigher cost structures and labor costs thatcomprise a higher percentage of sales. Thehigher labor costs and food wastage canerode their profitability in the takeout sector.
Standard & Poor’s anticipates that, overtime, full-service casual dining and fast-growing quick-casual chains will gain a largershare of this market. However, they will re-main second to limited-service chains, wheretakeout has always been a significant part ofthe business. Supermarkets will remain majorplayers in takeout food and a potent threat torestaurants, given their numerous regular cus-tomers and convenient locations.
Fast-food chains move overseas
Quick-service restaurants have been ex-panding rapidly overseas. Yum Brands gener-ated 41.6% of revenues from overseasmarkets in 2006, with 17.1% of total salescoming from the Chinese market. McDon-ald’s revenue base is even more diversified. In2006, only about one-third of total revenuescame from its US operations; Europe ac-counted for about 35%, followed by Asia(14%) and Latin America (nearly 8%).
Nevertheless, success in the global mar-kets has not been without difficulty. In Eu-rope, for example, chains found that salesgrowth from 2003 through 2005 was not al-ways robust enough to cover increases infood, labor, and utility costs. Sales growthdid return in 2006 and early 2007. Localpreferences and finicky consumer tastes areother hurdles that must be overcome.
The markets still offer great opportunities.McDonald’s planned to invest about $800 mil-lion in its European business in 2007, nearlyas much as it will invest in its US operations.The fast-food chain also plans to allow indi-vidual restaurants to cater more to local tastesand plans to shift more from company-ownedto franchise-owned restaurants.
Companies are increasingly targeting thegrowing Chinese market. About half of Mc-Donald’s planned 800 store openings for2007 will be in Asia. In China, the companyis currently focusing on drive-through out-lets, which it says are critical to its long-termdevelopment there. About 50 of its newrestaurants in China will be drive-throughs;
10 of those are the result of the strategic al-liance that McDonald’s struck in 2006 withSinopec Shanghai Petrochemical Co. Ltd.,China’s largest gas retailer. McDonald’shopes to play into the trend of rising carownership in China.
The dominant overseas player in Chinaremains Yum Brands. (Yum’s China divisionincludes mainland China, Thailand, and itsKFC Taiwan business.) Brisk expansion ofYum’s KFC chicken and Pizza Hut brands inmainland China (with unit growth of 18% in2006) drove a 23% increase in sales to $1.6billion for the China division in 2006.Growth in China continued into 2007, withsame-store sales growth of 7% for the sec-ond quarter of 2007.
Numbers such as these have attracted oth-er chains, including Dunkin’ Donuts. Thecompany said in January 2007 that it wouldopen its first store in Taiwan as part of anexpansion that will also target mainlandChina. Dunkin’ Brands said that its Taiwanoutlet would include a selection of items forlocal tastes, such as green apple and pineap-ple donuts, along with its standard fare ofcoffee and baked goods.
Regulatory challenges in China persist.Both Yum Brands and McDonald’s came un-der fire in 2007 for their employee pay prac-tices due to the ambiguous labor regulations.As a result, both firms were forced to in-crease pay for part-time employees.
Industry focuses on health
Over the past several years, the fast-foodindustry has been hit with lawsuits allegingthat specific corporations are responsible forobesity-related health problems faced by con-sumers — particularly children. Plaintiffshave sought remedies such as menu changes,nutritional labeling, advertising restrictions,and monetary damages.
These lawsuits reflect an American culturethat has become significantly more health-conscious and litigious over the last severaldecades. This is a result of rising obesityrates, skyrocketing healthcare costs, andgrowing concerns about the impact of obesi-ty on overall health. Customers who mighthave paid lip service to healthy diets in thepast are now beginning to practice what theypreach. An important driver in the new health-conscious trend has been the popularity of low-
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carbohydrate diets, such as the Atkins Diet andthe less intense South Beach Diet.
In response to strong customer demand,and perhaps to help insulate themselves frompotential liabilities, many restaurant chainshave made significant changes to their menuofferings. In the casual dining industry, forinstance, Brinker International announced anew menu at its Chili’s unit that includes sig-nificant low-fat and low-carbohydrate op-tions. Ruby Tuesday Inc. dedicates a sectionof its menu to “Smart Eating” foods. Somerestaurant companies have sought to distin-guish themselves by combining with brandsassociated with the new trends. For instance,Applebee’s International now dedicates a seg-ment of its menu to items that were devel-oped with, and approved by, WeightWatchers International Inc.
The fast-food industry has seen even moredramatic changes, perhaps because it has themost to lose from consumer perceptions aboutthe healthfulness of its food offerings and frompotential lawsuits. For instance, Wendy’s haspromoted four meal combinations (whichwere already on its menu) with less than 10grams of fat, added fruit and more salad offer-ings to its menu, and changed its combo mealoffering to allow customers to substitute (inplace of French fries) chili, a baked potato, ora side salad at no additional cost. The compa-ny also has promoted its corporate Web site asa source of nutritional information about itsmenu items.
McDonald’s has developed a wide rangeof “Healthy Lifestyle” programs, includingthe addition of menu offerings that the com-pany believes will attract health-consciousconsumers. The company has put its market-ing muscle behind its salad offering and de-veloped new Happy Meals that includeyogurt, milk, vegetables, or fruit, dependingon the location of the end market. It also de-cided to discontinue the “supersize” Frenchfries and soda offerings that had once been astrong focus of its marketing.
McDonald’s has sought to promote nutri-tional education and awareness among itscustomers. In 2003, the company formed itsGlobal Advisory Council on HealthyLifestyles, which includes experts in fitness,nutrition, and active lifestyles; some of theseexperts are prominent doctors, educators,and athletes. The group will help to guidethe company on activities to promote bal-
anced, healthy lifestyles among its customers.In March 2005, the company announced anew marketing campaign focused on pro-moting a balanced lifestyle and nutritionalhealth. McDonald’s has collaborated withthe World Health Organization and the USDepartment of Health and Human Servicesto educate consumers on the importance ofnutrition and fitness. Finally, the companyhas moved to educate consumers by printingbrochures that direct them to nutritional in-formation on its corporate Web site.
In the latest health initiative, fast-foodchains are now scrambling to comply withrules that are being considered in variouscities across the United States to ban transfats from the food they serve. In December2006, the New York City Board of Healthpassed a regulation requiring restaurants inthe city to remove most trans fats by July2008. The measure is being phased in, begin-ning with frying oil; restaurants had toswitch to oils that allow food to have lessthan one-half gram of trans fat for each serv-ing by July 2007.
Companies such as Burger King andWendy’s International have begun testingnew oils or have already reduced the amountof trans fat in the oils they use for frying andcooking. A notable hold-out has been Mc-Donald’s, which is searching for an oil blendthat will not compromise the taste of its pop-ular French fries, though the company hasreduced trans fat in other menu items.
Food safety concerns hurt industry
Over the past few years, concerns overfood safety have affected the restaurant in-dustry, driving up food prices in the UnitedStates, and cutting customer traffic abroad.Mad cow disease (bovine spongiform en-cephalopathy) has been of particular con-cern. The human form of this disease, whichcan be contracted by eating certain parts ofan infected animal, can be lethal. While thedisease is not contagious among animals, it isusually contracted through animal feed; thisleads to the concern that, when one animal isinfected, there are generally more.
In late 2003, a cow infected with the dis-ease was found in Canada. Many foreigngovernments immediately shut their bordersto Canadian beef. The interrupted flow ofthe beef supply created a ripple effect on
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food prices throughout the restaurant indus-try, as demand surged for substitute productssuch as pork and chicken.
Chicken prices have been affected by out-breaks of avian influenza, or bird flu. Thedisease has been spreading for three years; itbegan in Southeast Asia and then spread toaffect countries throughout the Eastern hemi-sphere. Cases of the bird flu were found inthe mid-Atlantic states in 2004, sending ascare throughout the market. The industrynotes that, in its current form, the avian flucannot be spread if poultry is thoroughlycooked, but an increasing incidence of thedisease is likely to have a negative impact onconsumer attitudes.
An outbreak of E. coli at Yum Brands’Taco Bell stores in December 2006 hurt thecompany’s sales and added to expenses. InFebruary 2007, Yum Brands was hit with an-other health incident when an infestation ofrats at a Greenwich Village (New York City)location prompted negative publicity. A NewJersey–based franchisee also closed at least20 Taco Bell, KFC, and Pizza Hut outlets inNew York City until health inspections couldbe made. Yum said in early March 2007 thatit had hired a pest control expert to reviewthe standards that the company sets for itsfranchise operators in New York City.
Lingering food safety fears may continueto contribute to relatively high food costsover the next few years. Additionally, anynew outbreak or health-related concerncould result in reduced customer traffic at anaffected chain.
Industry susceptible to new federal,state, and local regulations
Over the past several years, several stateand local governments have set new regula-tions that threaten to hurt the restaurant in-dustry. For instance, 22 states have bannedsmoking in bars, restaurants, and work-places. Some restaurant owners believe thatthese laws dampen traffic and hold downsales of items such as after-dinner drinks, asguests may choose to leave an establishmentto light up a cigar or cigarette.
Another concern for restaurant operatorsinvolves emerging laws regulating employ-ment compensation. For instance, San Fran-cisco passed a living wage law that requiresemployers to pay a significantly higher wage
than the federal or state minimum, and itdoes not permit employers to credit tips to-ward minimum wage compliance. Addition-ally, several states and some localjurisdictions have contemplated legislationthat would add health insurance mandates,which would add to compensation costs.
On the federal level, new legislation wentinto effect in July 2007 that raised the mini-mum wage from $5.15 per hour to $5.85 perhour. The minimum wage will rise in incre-ments of $0.70 each year until 2009, whenthe minimum wage will be $7.25 an hour.
Although the federal minimum wage willrise, many states currently have minimumwage rates in excess of the federal minimum,which may blunt some of the impact on therestaurant industry. As of July 2007, 30states had minimum wage rates higher thanthe federal rate of $5.85 an hour, accordingto the US Department of Labor, meaningthat many restaurant chains have alreadybeen dealing with higher labor costs.
These and other legislative actions are in-dicative of trends that add to the cost of do-ing business, either nationwide or inparticular areas of the country. Any potentialnew legislation and regulation could add tothe cost of running a restaurant in the UnitedStates and may undermine profitability andcorporate expansion plans.
Americans love to eat out
The restaurant industry is benefitingfrom a long-term trend toward eating out.According to the US Department of Agri-culture, consumption of food away fromthe home accounted for 48.5% of totalfood expenditures in 2005 (latest avail-
CONSUMER PRICE INDEX FORFOOD AWAY FROM HOME(Year-to-year percent change)
Source: US Bureau of Labor Statistics.
5
4
3
2
1
01986 88 90 92 94 96 98 00 02 04 2006
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able), up from 44.9% in 1990 and 26.3%in 1960.
This trend has been propelled by factorsthat should continue to support demand inthe future. One of the linchpins in the trendtoward eating out is steady growth in dis-posable income: Americans can more readi-ly afford to eat out. According to the USDepartment of Commerce, chain-weightedUS disposable personal income per capitaincreased at a compound annual growthrate (CAGR) of 1.2% between 2000 and2006. (Nominal disposable personal incomeper household grew at a CAGR of 3.2%.)With the aging of the baby boom genera-tion, demographic trends point to an olderand wealthier population, which shouldsupport restaurant traffic growth for manyyears. (Baby boomers are the approximately77 million Americans born between 1946and 1964.)
The increases in personal income have faroutpaced price increases in the restaurant in-dustry and for food in general. From 1985 to
2005, total food expenditures fell from11.7% of disposable personal income to9.9%. Food away from home rose to 48.5%of total food expenditures, from 41.3%, dur-ing this 20-year period.
Further boosting the dining-out trend isthe decline in free time. More than 50% ofUS families were dual-earner households in2006, according to the Bureau of Labor Sta-tistics, an agency of the US Department ofLabor. In many families, both parents holdfull-time jobs, which leaves less time to pre-pare meals at home. With the rise of dual-income and single-parent families, and withnumerous moderately priced restaurants tochoose from, dining out is often the mostconvenient choice.
The National Restaurant Association, atrade group, estimates that total annual salesin the restaurant industry will exceed $577billion by 2010. At that time, consumersmay spend 53% of every food dollar onmeals, snacks, and beverages prepared awayfrom home (including food eaten in restau-rants and taken out).
HOW THE INDUSTRY OPERATES
Over the last half century, eating out hasgradually become a way of life for manyAmericans. As a percentage of total food ex-penditures in the United States, meals eatenaway from home rose to an estimated 49%in 2005 (latest available) from 26% in 1960,according to the US Department of Agricul-ture. According to the National RestaurantAssociation, a trade group, the industry’s di-rect sales account for 4% of the US gross do-mestic product. With an estimated 12.8million employees, the industry is the na-tion’s largest private-sector employer.
Contributing heavily to this trend hasbeen the rise of fast-food dining — beginningin the 1950s with industry trendsetters Jack inthe Box Inc. and McDonald’s Corp. —offering drive-through service and revolu-tionizing work flow processes that signifi-cantly improved customer satisfaction whilelowering wait times. The establishment oflarge chains, in both the fast-food and casualdining categories, has helped to furtherstreamline operations and lower costs.
Economic trends have played an impor-tant role in the popularity of eating out.
US FOOD SALES GROWTH (In billions of dollars)
*Change in data compilation from SIC categories to NAICS categories.Source: US Department of Commerce.
600
500
400
300
200
100
01978 80 82 84 86 88 90 92 94 96 98 00 02 04 2006
Eating & drinking places
All food stores
*
PURCHASED MEALS & BEVERAGES AS % OF DISPOSABLE INCOME
Source: Economic Research Service.
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
4.30
4.25
4.20
4.15
4.10
4.05
4.00
3.95
3.901986 88 90 92 94 96 98 00 02 04 2006
Disposable income (bil. $, left scale)Purchased meals & beverages as %of disposable income (right scale)
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With the rise in single-parent and dual-income households, domestic life has becomemore time-pressured. Restaurants provide aquick option for feeding the family. In addi-tion, median household income has contin-ued to increase. Rising household incomeboosts the propensity to eat out. The conve-nience of eating out and the large number ofreasonably priced options mean that restau-rant meals will likely remain an integral partof daily life in America.
Restaurants: from take-out to full-service
Foodservice businesses are a highly di-verse group, ranging from corner pubs andfast-food franchises to such deluxe restau-rants as New York’s famed Four Seasons.The industry is divided into three generalcategories: commercial, institutional, andmilitary. (A more detailed breakdown of thevarious categories and some recent sales dataare listed in the table entitled “Projected USfoodservice industry sales” in the “IndustryProfile” section of this Survey.)
Commercial restaurant service, whichcomprises everything from restaurants andcafeterias to ice cream parlors, bars, andcafes, is by far the largest category; its salesin 2006 were an estimated $446.7 billion,according to the National Restaurant Associ-ation, up 5.2% from 2005. Sales are forecastto total $491.2 billion in 2007. Institutionalfoodservice, consisting of sales by institution-al organizations and businesses operatingtheir own foodservice, totaled about $42.6billion, and military foodservice was worthan estimated $1.8 billion. For 2007, institu-tional foodservice sales are expected to be$43.8 billion, while military sales are expect-ed to come in at $1.9 billion. (Institutionaland military foodservice are not covered bythis Survey.)
In the commercial foodservice business, thelargest segments are full-service and limited-service restaurants. Full-service restaurantsusually feature moderate to high prices andsit-down service. Average check prices gener-ally exceed $10. Meals are served with flat-ware and china, and alcoholic beverages areoften available. Limited-service (also calledfast-food or quick-service) restaurants typi-cally offer rapid food preparation and lowprices, with or without seating. Food packag-
ing is often disposable, and the averagecheck price is usually less than $7. Take-outorders account for a large portion of thisbusiness. In recent years, another concept,aptly named “quick casual,” has emerged tobridge the two categories. Quick-casualrestaurants have a higher average check pricethan fast-food concepts, generally $7 to $10,presumably in exchange for higher qualityfood and service.
Low entry barriers, high risk/return
Small operators run more than 70% ofall restaurants, according to the NationalRestaurant Association. The restaurant busi-ness’s low barriers to entry are partly respon-sible for its popularity among small-scaleentrepreneurs. Some of these ventures suc-ceed, but as a result of the industry’s intensecompetition and high fixed costs, many fail.For restaurants that do succeed, however, thepayback on investment can be considerable.Once sales reach the break-even point, a rel-atively high percentage of incremental rev-enues can become profit.
In recent years, casual dining chain con-cepts have taken market share from inde-pendent operators through geographicalexpansion. Fast-food chains have long usedproliferation to their advantage: McDonald’snow has more than 13,750 units in the Unit-ed States and more than 31,700 worldwide.Now, however, casual dining chains, such asApplebee’s Neighborhood Grill & Bar (ex-pected to be acquired by IHOP Corp. in thefourth quarter of 2007) and Outback Steak-house (operated by OSI Restaurant PartnersInc.), have come to dominate the mid-pricesegment.
Large restaurant chains have been able torealize economies of scale that have madecompetition extremely difficult for small op-erators. Advantages include purchasing pow-er in negotiating food and packaging supplycontracts, as well as increased sophisticationin real estate purchasing, location selection,menu development, and marketing.
Franchising: a quick way to grow
Many restaurant chains choose to growtheir concepts by franchising. Franchising per-mits restaurant companies to expand theirbrand-name recognition rapidly, without bear-
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ing the full cost of acquiring land, buildings,and equipment. In a typical franchise relation-ship, such costs are borne by the franchisee,which also pays a royalty to the parent com-pany for the right to be part of its chain.
The practice of franchising involves abusiness contract between two companies: afranchisor (or parent company) and a fran-chisee (or individual business operator). Itgives the franchisee the right to constructand operate a restaurant on a site acceptedby the franchisor and to use the franchisor’soperating and management systems.
Under these arrangements, the franchisorcharges the franchisee a one-time fee, whichmay include, for instance, an initial nonre-fundable fee of about $5,000 and other tech-nical assistance fees of about $25,000 to$40,000. Most also require franchisees tocontribute 2% to 5% of sales to cover bothlocal and national advertising. In addition,the franchisee makes royalty payments basedon gross receipts from restaurant operations,with specified minimum payments. In theUnited States, royalty payments are generally4% or 5% of total receipts. Franchise con-tracts vary in length but may be for periodsof 10 to 20 years.
Franchising is a widespread phenomenonaround the world, but it is especially preva-lent in the restaurant industry. According toa 2004 Price Waterhouse study commis-sioned by the International Franchise Association, an independent trade group,franchisees operated more than 183,300restaurant locations in the United States in2001, with a combined payroll of $39.1 bil-lion for their nearly 3.7 million employees.Franchisees operated more than 56% of allquick-service units in the United States andmore than 13% of all full-service units. Still,many entrepreneurs prefer to own and oper-ate restaurants themselves to reap store-levelprofits, which can be substantial.
The percentage of franchised versuscompany-operated units varies widely amongindividual chains. For example, at the end of2006, fast-food giants Wendy’s InternationalInc., McDonald’s, and Yum! Brands Inc.each franchised between 70% and 80% oftheir units, versus only 29% at Jack in theBox. At McDonald’s, franchised restaurantsaccounted for nearly 72% of systemwidesales and 25.5% of the company’s total rev-enues in 2006.
Why franchise?Many restaurant chains opt to franchise
their businesses to enjoy superior returns.Franchising eliminates the need to focus onthe day-to-day concerns of operating units,while generating a steady stream of royaltyfees. Furthermore, since franchise royaltiesare based on a percentage of sales, ratherthan profits, they can ensure a steady streamof revenue even in a difficult operating envi-ronment. In return, the franchisee enjoys thebenefits of brand-name recognition and, of-ten, training and marketing support from theparent company. The franchisee also can par-ticipate in cooperative purchasing, enablingit to sell food at a lower price than an inde-pendent operator can.
While franchisors avoid some of the haz-ards of expansion, they face other risks. Li-censing and franchising involve some loss ofcontrol of the business. With the day-to-dayoperating decisions made by franchisees, onepoorly run franchised unit can reflect badlyon the whole chain. Individual franchiseesdepend on the overall success of the entirechain to maintain their own standing.
Strong and vital franchisees are essential tothe continued success of many restaurantchains, particularly in the fast-food segment.Companies that employ the franchise businessmodel rely on maintaining successful fran-chisees and attracting new, entrepreneurial-minded franchisees to assure long-term successand safety. A company that tries to profit atthe expense of its franchisees — for example,by charging high prices for supplies — candamage the trust needed to have a goodworking relationship between franchisor andfranchisee.
Successful refranchisingSome companies, such as Yum Brands and
IHOP, regularly buy and sell restaurants as ameans of strengthening their operations, apractice known as refranchising. Acquiredrestaurants, which may be underperforming,can be improved and then operated prof-itably by the company or sold to anotherfranchisee. In other cases, restaurants may beacquired due to geographic or operationalbenefits to existing company-operated units.Selling restaurants generates cash that canthen be used to fund new development, ac-quisition, and remodeling programs. Thegains can be substantial.
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Refranchising frees up invested capitaland generates franchise fees. While this tacticcan improve overall returns, its ultimate suc-cess depends on a company’s ability to findqualified franchisees to purchase its restau-rants. Nonetheless, in an industry that re-quires relatively high capital expenditures,the popularity of these cash-generating pro-grams is easy to understand.
Restaurant management and training
There is a strong correlation between thequality of restaurant management and thelong-term success of a concept. Restaurantmanagement structure varies by concept andsales volume. Every restaurant typically em-ploys a general manager, an associate manag-er, and one to five assistant managers.General managers are primarily responsiblefor the day-to-day operations in one restau-rant, overseeing customer relations, foodser-vice, cost controls, restaurant maintenance,personnel management, implementation ofcompany policies, and the restaurant’s prof-itability. Associate and assistant managerssupport the general manager’s duties and fillin when needed.
For chain restaurants, general managersreport to district managers, who in turn re-port to regional managers. The regionalmanagement is responsible to the corporateexecutive management.
Training takes a variety of forms. For em-ployees who have development or superviso-ry responsibilities, extensive restaurantoperations training courses are standard atmost companies. CBRL Group Inc., whichoperates Cracker Barrel Old Country Stores,sends new managers through an 11-weektraining program, consisting of eight weeksof in-store training and three weeks at corpo-rate headquarters. In addition, training isconducted for all restaurant employees.Brinker International Inc.’s training programincludes a four- to five-month period formanagers and supervisors. Training teamsalso instruct employees on opening a newrestaurant, remaining on location for two tothree weeks to ensure a smooth transition tooperating personnel.
Franchisers such as Applebee’s Interna-tional Inc., McDonald’s, and Wendy’s oper-ate extensive training programs in a class-room setting. These companies also give peri-
odic training to their restaurant employees.McDonald’s dubs its school “HamburgerUniversity.”
Since 2004, several companies haveidentified higher staffing levels as a key toimproving service. In a competitive envi-ronment, customer satisfaction levels can bean important determinant in improvingsales volumes. If a company can utilize itsincreased manpower to speed service times,fast-food restaurants may serve more cus-tomers at the register over a period of time,while casual diners may increase the speedin which tables turn.
During this time, Applebee’s, Tim HortonsInc., and Papa John’s International Inc., gen-erally considered service leaders in their in-dustry segments, increased their staffinglevels with great success. While labor costsrose in real terms, the expenditure was morethan offset by higher volumes of traffic, ac-cording to the companies.
Cost structure
The costs of owning and operating arestaurant vary by format. Obviously, largerunits cost more than smaller ones, as do up-scale formats with a greater investment in in-terior design and higher spending on costlyfood items. To justify the expense, large unitsare typically located in areas with greaterpopulation density or that have a larger geo-graphic draw than smaller units do. Theygenerally see greater revenues than smallerunits, though this is not always the case. Inany event, if a unit’s volume does not reachthe company’s revenue projections, its prof-itability also will be below plan, and it is li-able to be shut down.
Food and beverages, labor, and real estateconstitute the restaurant owner’s largest costcategories. (The table entitled “The restau-rant industry dollar” breaks out these andother costs as a percentage of sales for differ-ent industry sectors.)
Food and beveragesNot surprisingly, the cost of food and bev-
erages is one of a restaurant’s largest expensecategories. Companies negotiate directly withnational and regional suppliers to ensure con-sistent quality, freshness, and competitiveprices. The larger the customer, the greater thebargaining power that it has over suppliers.
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Many companies engage in forward pric-ing to stabilize food costs. Forward pricing isa hedging strategy whereby a company nego-tiates with a supplier to purchase a certainamount of a product at a given price. Somesupply contracts signed by larger chains canlock in less volatile food products, such asbeef, at stable prices for an entire year. Someof the products subject to the greatest pricevariability, especially dairy products, can belocked in only for shorter periods.
LaborLabor is the restaurant industry’s second
largest expense, though the proportion oftotal cost varies by restaurant type. We esti-mate that, at full-service restaurants (aver-age meal prices of $15.00 to $24.99), sala-ries, wages, and employee benefits repre-sented about one-third of sales; at majorfast-food restaurant chains, these factorsaccounted for less than 30% of sales.
Restaurant sales and profits can be greatlyinfluenced by the efforts of general managersand area managers. In recent years, compa-nies have placed a premium on retainingtheir best operators. In many cases, man-agers’ pay relies on incentives and often istied to restaurant-level profit performance.Stock option grants are awarded to person-nel from the highest levels of managementdown to the restaurant-level manager. Star-bucks Corp., Brinker International, and theCBRL Group all issue significant amounts ofoptions to compensate management.
Real estateA restaurant owner can purchase or lease
an existing space, or build a new one. Manychain operators choose to build their ownunits, so that individual restaurants all con-form to the same design concept. The land on
which a restaurant is built can be purchased orleased. Both options have pros and cons.
When a company purchases real estate, itmust cover the purchase price. To financesuch a purchase, the company must havegood financial resources, with cash on itsbalance sheet and borrowing power. Oncereal estate is purchased, the company canbenefit from appreciation. If real estate val-ues decline, however, so does the value of thecompany’s investments.
Brinker International estimates that theaverage cost for land, or the value of thelease for the land when capitalized (valued asan asset on the balance sheet), is $817,000for a Chili’s unit and $3.4 million for its up-scale Maggiano’s Little Italy chain. Purchasesare either financed with loans or paid out ofcurrent funds.
Leasing requires less capital and offersgreater flexibility than do outright pur-chases. Leases are finite in duration andeventually expire; thus, they give restau-rant operators the option of relocating orclosing units, if site selection is poor andthe units are not drawing enough volume.On the other hand, leasing leaves operatorsvulnerable to rising rents or the loss of alucrative location.
Whether owned or leased, site selection iscritical to the success of a new restaurant.Companies devote significant time and re-sources to analyzing each prospective site.The main criteria are customer traffic levelsand convenience. Proximity to sites thatdraw large crowds, such as retail centers, of-fice complexes, and hotel and entertainmentcenters, is desirable. Some chains, such asSubway (operated by privately held Doctor’sAssociates Inc.), choose to locate units instrip malls or malls to increase visibility.Other chains, such as McDonald’s, preferfreestanding locations in high-traffic areas,so as to better control their costs. Accessibili-ty concerns, such as the availability of park-ing and ease of entry, are also important. Inaddition, a company will review potentialcompetition in a trade area, local market de-mographics, and site visibility.
The bottom lineAfter food, labor, occupancy, and other
expenses are subtracted, what is left is oper-ating profit. Profitability, however, varieswidely among the various industry segments
THE RESTAURANT INDUSTRY DOLLAR — 2005*(As a percentage of total)
FULL- LIMITED-SERVICE SERVICE
RESTAURANTS RESTAURANTS
Cost of food and beverages 33 31 Wages & benefits 33 30 Restaurant occupancy costs 6 7 Other 24 25 Income before income tax 4 7
*Latest available.Source: National Restaurant Association.
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and even among individual units in a chain;the level of sales at a given establishment is akey determinant. Expense structures alsovary from company to company. Some busi-nesses are simply better than others at rein-ing in costs.
It’s a cash businessBecause virtually all sales in the restaurant
industry are transacted in cash or equivalents(such as credit cards), many restaurant com-panies operate with negative working capital.(Working capital equals current assets minuscurrent liabilities. It is sometimes referred toas net working capital, as current assets canbe considered working capital needed to sup-port the business.) A working capital defi-ciency occurs when current liabilities exceedcurrent assets.
Inventory, financed from normal tradecredit, turns rapidly in the restaurant busi-ness. This is also one reason why debt levelsare relatively low compared with other in-dustries, especially those that must supporthigh levels of slow-moving inventory, such asretailers.
Creating and testing new foods
In recent years, competition has fosteredinnovation as restaurants have sought toboost volume. In the process, they have madenew product introductions an important partof the equation. Although customers may notbe aware of it, most fast-food and restaurantchains spend a great deal of time researchingand developing new products.
Menu offerings evolve along with con-sumer taste. To develop prototype products,restaurant chains conduct consumer researchand keep up on the latest trends in food.When a new product is introduced, three keyelements determine its success. The productmust meet consumer expectations and thusgenerate incremental sales. Its day-to-daypreparation should be compatible with com-pany standards and operations. Finally, itshould deliver financial benefits.
The type of new product introduced —sandwich, salad, main course, dessert, and soforth — must fit clearly into the chain’s menuand meet its customers’ expectations. Thus,while a chain such as Wendy’s would be un-likely to unveil a new pizza topping, it couldbe expected to create a new sandwich item.
In the highly competitive fast-food catego-ry, new menu items can be crucial to drivingsales as they can help to raise traffic — with-out the margin pressure of price discounting.Price wars are common throughout the in-dustry and favor well-financed behemothsMcDonald’s and Burger King Corp. Smallerregional companies, such as Jack in the Box,focus on new product development to differ-entiate themselves from competitors, therebyreducing the potential impact of large-scaleindustry discounting.
Over the past several years, McDonald’shas had great success in driving sales throughnew product introductions. Items such as theMcGriddle and Premium Chicken sandwich-es have helped both to drive customer trafficand to raise the average check. The compa-ny’s product development process is drivenpredominantly by customer feedback. Ap-proximately every six weeks, the companygathers 80 to 100 customers at a selectedMcDonald’s unit to get input on new ideas,as well as existing menu items. New menuitem ideas are categorized by food category,price sensitivity, and health concerns.
Armed with an increased understanding ofcustomer trends, the company can experi-ment with various food ideas at McDonald’sHamburger University campus in OakBrook, Illinois. Products are chosen for teststo be run in select markets, and then selectregions, and often can last for six months toensure marketability. Testing often is sup-ported by advertising, which can take any-where from several weeks to three months toarrange.
Before an item can be rolled out acrossthe McDonald’s restaurant system, the com-pany must arrange for a supply of ingredi-ents. In some cases, this may take severalmonths due to the vastness of the company’sneeds. For instance, when the company de-cided to promote its Apple Dippers productin 2005, the company became the largest sin-gle user of apples in the country. A full grow-ing season was actually needed to create asupply equal to the demand.
Given the rigors of the McDonald’s test-ing process, and the operational and procure-ment efforts needed to support a rollout overthe company’s 15,000 North Americanrestaurants, the company’s new product in-troduction process generally takes from sixmonths to two years to complete.
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KEY INDUSTRY RATIOS AND STATISTICS
Restaurant sales are driven by consumerspending, which in turn is influenced by thehealth of the overall economy. To gainknowledge of the economy’s current and an-ticipated state of health, and its potential im-pact on the restaurant industry, analystsconsult the following indicators.
� Real growth in gross domestic product(GDP). Reported quarterly by the Bureau ofEconomic Analysis, part of the US Depart-ment of Commerce, inflation-adjusted (orreal) GDP growth is a measure of the healthof the overall US economy. The Bureau ofEconomic Analysis also issues advance andpreliminary estimates of GDP before report-ing the final GDP figure for the quarter.Most major economies are cyclical, advanc-ing and contracting with the business cycle.The business cycle dating committee of theNational Bureau of Economic Research es-tablishes the official beginning and end ofrecessions.
Real GDP grew 2.9% in 2006, downfrom 3.2% in 2005. As of September 2007,Standard & Poor’s was forecasting real GDPgrowth to cool moderately in 2007, to 2.0%,reflecting the slowdown in the housing sectorand some softening in consumer spending.
� Disposable personal income. Reportedeach month by the Bureau of EconomicAnalysis, disposable personal income is ameasure of aggregate consumer income, mi-nus taxes and adjusted for inflation. Changesin this measure are important, because theyinfluence the level of consumer spending thatcan be expected.
When personal income is growing, con-sumers are more willing to loosen their pursestrings. Conversely, when it is stagnant orweak, consumers are less willing to spend.They may shift to eating at less-expensiverestaurants or at quick-service chains or tocooking at home.
Disposable income growth has acceleratedsince 2005, with real disposable incomeclimbing 3.1% in 2006 after growth of only1.7% in 2005, due to higher oil prices andtepid wage growth. Standard & Poor’s ex-pects real disposable personal income to in-crease 3.5% in 2007.
� Consumer confidence. This index iscompiled monthly by the Conference Board,a private research organization, which polls5,000 representative US households to gaugeconsumer sentiment. Its two components —the present situation index and the expecta-tions index — reflect consumers’ views ofcurrent and future business and economicconditions, and consumers’ expectationsabout how they will be affected. This quali-tative measure of consumer attitudes is ex-pressed as an index, with 1985 used as abase year (1985=100). According to the Con-ference Board, any reading above 90 is con-sidered a strongly positive outlook on theeconomy.
Factors that influence the index includeperceptions of employment availability andcurrent and projected income levels. Whenconsumer confidence is high or rising, it isusually accompanied by increased spendingand borrowing. Conversely, consumers whoare uncertain about the future are likely topare or postpone their expenditures.
The Conference Board’s consumer confi-dence index hit its lowest point in 2006 dur-ing August, declining to 99.6, from 107.0 inJuly — the lowest monthly level since Hurri-cane Katrina in 2005. It has recovered sincethen and stood at 112.6 in July 2007, com-pared with 105.3 in June.
� The consumer price index (CPI). TheCPI is released monthly by the Bureau ofLabor Statistics (BLS), an agency within theUS Department of Labor. The index, whichserves as an inflation indicator, measureschanges in the price of commodities, fuel oil,electricity, utilities, telephone services, food,and energy. The “core” CPI smoothes outthe index by removing the volatile food andenergy categories. Restaurants, like mostcompanies, try to pass on increased costs forsupplies and labor to customers. Given thehighly competitive environment, though,restaurant chains are generally reluctant toraise menu prices.
Driven by significantly higher prices foroil and gasoline, the overall CPI increased atan average rate of 3.4% in 2005. With ener-gy and transportation costs down significant-ly in the final six months of 2006 comparedwith spikes throughout 2005, the overall CPIincreased by a more moderate 3.2% in 2006.The increase in core CPI was 2.2% in 2005
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and 2.5% in 2006. Standard & Poor’s cur-rently forecasts that easing energy prices willlimit the CPI rise to 2.6% in 2007, with thecore CPI rising 2.3%.
� Commodity costs. Food commoditycosts are one of the largest input costs of arestaurant company; they can significantlyaffect profitability. Rising costs can erodeprofit margins if the company cannot passthe added expense on to the customer in theform of a price increase.
� Unemployment rate. Wages are oftenthe largest single expense at restaurants.Restaurants rely heavily on the availability ofa dependable work force at the low end ofthe national pay scale. Employee turnoverrates are relatively high, especially at quick-service restaurants, where annual turnoveroften exceeds 200% for nonmanagement po-sitions. A steady stream of acceptable re-placements is needed. When unemploymentrates are relatively low, restaurants oftenhave to raise pay levels to attract and retainworkers.
Released monthly by the BLS, the unem-ployment rate tracks the number of working-age people currently searching for employ-ment as a percentage of those employed orlooking for work. After reaching an eight-year high of 6.4% in June 2003, the unem-ployment rate has since dropped steadily. InJuly 2007, the rate stood at 4.6%. As ofSeptember 2007, Standard & Poor’s wasforecasting the unemployment rate to aver-age 4.6% for the year.
� Industry expansion rates. The growthrate of overall restaurant locations should be
in line with increases in demand to ensure ahealthy overall business. In the early 1990s,restaurant industry expansion caused supplyto significantly outpace demand. This situationled to store closings and concept failures.
Recent industry expansion, while robust,has been sustainable, given the growing de-mand for eating out. According to Technom-ic Information Services, a market researchfirm, unit growth for the top 500 chain com-panies in 2006 averaged 5.8% for limited-service chains and 6.0% for full-servicechains. Given a somewhat more difficult op-erating environment, higher real estate andconstruction costs, and the increasing matu-ration of large restaurant chains, we expectunit growth to cool somewhat in 2007.
� Interest rates. Many growth companiesare unable to finance expansion strategieswholly from current cash flow; they musttherefore access capital markets. If a compa-ny chooses debt financing, prevailing interestrates may affect corporate profitability. Ten-year Treasury notes often are seen as themost reliable indicator of long-term interestrate trends. These Treasuries are traded dailyon secondary bond market exchanges.
Reflecting Federal Reserve policy, short-term rates have been increasing, with the fed-eral funds rate steadily rising from 1.0% inearly 2004 to 5.25% in June 2006. The Fed-eral Reserve cut rates by 50 basis points onSeptember 18, 2007.
Volatility in the credit markets sparked byconcerns about subprime mortgage defaultshave pushed down 10-year Treasury yields inrecent months. After jumping to a recentpeak of 5.25% in June 2007, the rate on the10-year Treasury note fell to 4.65% as ofSeptember 24, 2007, following the FederalReserve’s interest rate cut.
HOW TO ANALYZE A RESTAURANT COMPANY
After surveying the big picture, the analystcan consider how individual companies fitinto it. A range of factors, both quantitativeand qualitative, should be evaluated. Impor-tant financial metrics include trends in sales,profitability, and cash flow.
Although absolute numbers are critical tothe assessment of any company, compara-
US UNEMPLOYMENT RATE(In percent)
Source: US Bureau of Labor Statistics.
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3.52001 2002 2003 2004 2005 2006 2007
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tive analysis is needed to measure the rela-tive success of a company under given in-dustry conditions. If a restaurant’ssame-store sales are declining while the restof the industry is showing gains, clearlythere is cause for concern and further inves-tigation. But if the rest of the industry is do-ing badly, the company may not be anyworse off than its competitors. Conversely,if a company’s sales increases are stellar ver-sus its peers, the analyst should questionwhether the growth is sustainable.
Quantitative issues
Aspects of a restaurant’s business that canbe quantitatively measured include same-store sales, systemwide sales, operating mar-gin, return on assets, and cash flow. Thesehard numbers are the basis for analyzingcompany trends over time, in order to deter-mine whether the business is achieving im-provements in its performance. In addition,comparing the company’s results with thoseof its peers is useful in determining relativeperformance.
Same-store salesThe most closely watched quantitative in-
dicator is same-store sales, defined as year-to-year sales changes for units open at least18 months. A company is losing marketshare if it experiences declining same-storesales while the rest of the industry postsstrong revenue gains. The reasons for its lossof share need to be closely examined. It isimportant to note that some chains comparesame-store sales for units open only 13months — a less reliable indicator of salesstrength than the 18-month period. Stores of-ten take several months, if not years, toreach the maturity necessary to make mean-ingful comparisons.
Gains in same-store sales can be achievedthrough increases in prices or customercount, or through changes in product mix.Price increases are often necessary to offsetwage and commodity cost inflation. From2001 through the first half of 2004, manyoperators raised prices only modestly (1% to2% annually), due to benign wage inflationand relatively low food costs. However, inthe second half of 2004 and throughout2005, significantly higher costs for food, es-pecially beef, and utilities led many restau-
rant chains to raise menu prices 3% to 4%per year. Although food cost inflation wasless than 1% in 2006, menu prices rose byan average of 3.1%. We expect price increas-es to continue at a moderate pace through2008, with possible cost hikes foreseen incertain key commodities like corn and wheat,which could push through to higher chicken,beef, and dairy prices.
Changes in product mix can reflect menuchanges, advertising and promotions, orshifts in customer preferences — any factorsthat affect the size of the average check, oth-er than price increases. Restaurants can raisethe amount of the average check by addinghigher-priced items to the menu, such as anincreased assortment of appetizers and alco-holic beverages, or lower it by featuring val-ue products in an advertising campaigndesigned to spur traffic. Consumer choicesalso can alter product mix. In difficult eco-nomic times, for example, customers tend toavoid ordering desserts and after-dinnerdrinks.
Traffic gains often reflect customer satis-faction. Diners are the ultimate judges ofwhether a restaurant’s food, price, and ser-vice meet their needs. If a chain fails toplease customers and to report sufficientsales gains, its long-term growth, and evenits survival, can be in doubt. A company thatis expanding rapidly by adding new units canboost overall sales growth, but it is impor-tant to monitor sales trends at existing unitsto be sure the concept is doing well.
The same-store sales trends of a companyshould be considered within the context ofthe demographic and geographic markets itserves. A key issue facing the industry head-ing into 2008 is how to respond to the nega-tive effect of declining home prices and risingforeclosures. The circumstances of the cur-rent difficulty in housing are unusual, in thatrestaurant sales have begun to weaken instates where the economy remains healthyexcept for housing. These states include Ari-zona, California, Florida, and Nevada. Inother regions, such as the Midwest, weakoverall economic conditions are having anegative impact on the sales trends of restau-rants located in those areas.
Other nonrecurring factors can influencesame-store sales comparisons. These may in-clude the inclusion of an extra 14th week ina quarter or 53rd week in a year. Often these
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extra weeks are at the end of the year, andthe week between Christmas and New Year’sDay is one of the strongest sales weeksthroughout the year. Whether this weeks fallsinto the fourth quarter of the current fiscalyear or the first quarter of the next can skewcomparisons.
Average weekly salesSome chains report the average weekly
sales of their restaurants. For companies thatare expanding rapidly, average weekly salesmay be preferable to same-unit sales as anindicator of sales trends. Units that havebeen in operation for at least 18 months maynot comprise a large enough percentage ofthe store base to give a true indication of thestate of the business. Also, if average weeklysales growth is significantly lower (or higher)than same-store sales growth, it may indicatethat new locations are opening to lower(higher) volumes than existing stores.
Systemwide salesThis measures the total revenues from
restaurants operated by the company, itsfranchisees, and, in some cases, its licenseesand affiliates. Sales from franchisees, and fromaffiliates that are less than 50% company-owned, are not recorded in a company’s rev-enues, although fees charged by the companyto the franchisees are often incorporated.
Systemwide sales growth is an importantfactor in projecting the top-line growth po-tential of a company. It can occur throughexpansion of sales capacity or through same-store sales growth. Many restaurant compa-nies rely more on expansion than same-storesales growth to achieve earnings growth. Forinstance, The Cheesecake Factory Inc. is anoperator that has experienced consistentlystellar restaurant traffic, but because it al-most always increases prices only in responseto cost inflation, rather than to boost mar-gins, the same-store sales growth at itsrestaurants tends to be fairly moderate.However, Cheesecake Factory has been ableto consistently outperform the industry interms of sales of unit and has generally re-ported higher same-store sales than its peers.
Operating marginOperating margin is arguably the most
important profitability measure in assessing arestaurant company; it indicates how adept a
company is at making a profit on its salesdollar. To arrive at this figure, the analystmust first calculate the company’s total costof restaurant sales, including such line itemson the income statement as food, beverage,labor, and direct operating costs (such as uni-forms, linen, china, utensils, menus, and dec-oration), plus occupancy, and allocatedgeneral and administrative expenses. The to-tal cost figure is subtracted from restaurantsales; the result is operating profit, which canthen be divided by sales to give the operatingmargin.
Operating margin can be affected by anumber of variables, including food and bev-erage costs, product mix, sales volumes, andcompetitive pricing pressures. Labor costsalso affect margins. A lack of qualified work-ers can put upward pressure on salaries andbenefits. Conversely, an ample supply of peo-ple in the 16-to-24 age category, the tradi-tional source of labor for restaurants, cankeep wage costs from escalating.
When analyzing operating margins, a com-pany’s policy with respect to stock optiongrants also should be reviewed. Restaurant-level managers are regarded as vital employ-ees who can greatly influence earningsresults, and their compensation packages aregenerally tailored to reward strong perfor-mance. Stock options often are used to createincentives in the compensation structure. Pri-or to 2006, most companies in the restaurantindustry did not expense stock options. Yetexercised stock option grants could poten-tially dilute a company’s future earnings —perhaps significantly. Therefore, a review ofa company’s profitability before 2006 wouldbe incomplete without a review of the com-pany’s stock option grants.
Companies often incentivize managerswith short-term cash bonuses, which varyfrom year to year depending on how perfor-mance measures up against various internallyset sales and profitability targets. However,many companies do not regularly report onthe details of this expense, making periodiccomparisons more difficult.
Margin analysis should always be consid-ered within the context of the segment of therestaurant industry that the company serves.For example, operating expenses may behigher in the casual dining segment than forthe fast-food chains because of higher realestate costs, as sit-down dining requires more
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space both in the restaurant and for parkingthan high-volume fast-food chains.
More recently, chains have sought to im-prove margins by rotating menu selectionsto take advantage of the food products thatcan be acquired cheaply. For instance, at atime of declining seafood prices, Applebee’sInternational Inc. (expected to be acquired byIHOP Corp. in the fourth quarter of 2007) andRed Lobster (operated by Darden RestaurantsInc.) may seek to run promotions for fish orshrimp dishes at discounted prices to drive traf-fic without eroding margins.
Return on assetsA company’s decision on whether to pur-
chase or rent its locations can affect its re-ported operating margins. Chains that owntheir restaurants tend to have higher profitmargins, as the depreciation expense is of-ten less than what they would pay for rent.However, a company that purchases propertymust invest more capital in its stores. Whencomparing the financial results of companiesthat have different ownership profiles, returnon assets (ROA) is a useful tool in analyzingrelative performance.
Reviewing a company’s ROA over a mul-tiyear period can reveal trends regarding thesuccess of recent investments and may be avaluable guide in estimating prospects for fu-ture growth. A company is more likely toreinvest in its current business if its ROA iseither high or trending upward, whereas acompany with declining or low returns mightreevaluate how it invests its capital.
Cash flowA corporation’s financial flexibility reveals
much about its health. Projected cash flow —net income, plus noncash items such as depre-ciation and amortization — can be comparedwith expected cash needs. Capital resourcesare needed primarily to undertake the con-struction, acquisition, maintenance, and refur-bishing of restaurants. Some companies areself-financing, with the ability to fund theircapital expenditure programs from internallygenerated funds. Many more, however, requireexternal sources. For the large publicly heldchains, capital is generally provided via publicstock offerings and debt financing.
Free cash flow (cash flow from operationsless capital expenditures) can measure a com-pany’s present ability to return funds to its
shareholders and debtholders; it also may bea measure of a company’s maturity. If a com-pany believes that its concepts have signifi-cant growth potential and high returns oninvestment, it is more likely to use its cashfrom operations to fund capital expenditures.However, as a company’s concepts mature,its return on new investments tends to slow,making the company more likely to returncash to its stakeholders.
Capital expenditures should be analyzed,to separate funds being used to expand acompany’s business from investments re-quired simply to maintain existing business.While funds for expansion are intended toincrease future funds available for sharehold-ers, amounts required to renovate, remodel,and maintain existing structures can be re-curring, and should be seen as a consistentdrain on cash from operations. Companiessuch as CEC Entertainment Inc. (operator ofChuck E. Cheese’s restaurants) have consis-tently large remodeling requirements thatshould be factored into the overall analysis.
Qualitative issues
The key qualitative issues affecting arestaurant business are management’s exper-tise and its design and execution of the busi-ness strategy. Although these factors do notlend themselves to numerical analysis, theyare nonetheless crucial to success.
In evaluating a restaurant company’s man-agement team, an analyst should first askwhether its strategy makes sense in light ofcurrent and long-term industry trends. If thestrategy is a good one, is the current manage-ment capable of executing it? What is man-agement’s record for working together as ateam? The quality of management oftenspells the difference between success and fail-ure. We look for seasoned managementteams that have performed well in both goodtimes and bad.
A company’s expansion strategy is key toits long-term profitability potential. Compa-nies may choose to grow via internal unit ex-pansion or via acquisitions. In addition,many chains are hedging their bets on thesuccess of one format and developing or ac-quiring other restaurant formats. For exam-ple, Brinker International Inc., with about$4.0 billion in revenue, owns Chili’s Grill &Bar as its largest chain, but it also operates
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Italian- and Mexican-themed restaurants.Similarly, OSI Restaurant Partners Inc.’sCarrabba’s Italian Grill chain gives thatcompany another long-term growth businessbesides its core Outback Steakhouse restau-rants. The company also has several otherconcepts at earlier stages of development, in-cluding Fleming’s Prime Steakhouse, BonefishGrill (specializing in seafood), and Cheese-burger in Paradise.
Management’s selection of an industrysegment for expansion is a key strategic deci-sion. Certain segments may have lower levelsof competition or higher levels of potentialgrowth. For instance, several fast-food chainshave purchased concepts in the fast-casualsegment to augment growth. In addition, thelikelihood for success in the quick growingbar-and-grill and seafood segments may leadto more favorable results than in other areasof casual dining.
Rather than diversify, some companiesprefer to focus on one concept or severalsimilar concepts. These strategies allow acompany to develop expertise it might notgain from a split focus. In recent years,McDonald’s Corp., Wendy’s InternationalInc., and Darden Restaurants are amongcompanies that have either divested or closeddown chains that were not part of their corebusiness or key to their future growth strate-gy. If the chain was once touted as key to thecompany’s future growth, but the companylater determines that this is no longer thecase, it may signal that there are financial ormanagerial weaknesses at the company.
Finally, an examination of a company’s fi-nancial performance in the context of the in-dustry environment and the competition isimportant. Every management team portraysits operations in the best possible light; com-paring its rhetoric with the company’s actualresults is helpful in predicting the firm’s fu-ture prospects. ■
GLOSSARY
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FFaasstt--ffoooodd rreessttaauurraannttss — Also called limited-service orquick-service restaurants, these outlets specialize inrapid food preparation and low prices (the averagecheck is generally $5 to $7), with or without seating.Table service is generally not available.
FFrraanncchhiissee aaggrreeeemmeenntt — A business contract betweentwo companies: a franchisor (or parent company)and a franchisee (or individual business operator). Itgives the franchisee the right to construct and oper-ate a restaurant on a site accepted by the franchisor,and to use the franchisor’s operating and manage-ment systems. The franchisee pays the franchisor aone-time franchise fee, and then makes royalty pay-ments based on gross receipts from restaurant oper-ations, with specified minimum payments. In theUnited States, royalty payments are generally 4% or5% of total receipts. Franchise contracts vary inlength, but may be for periods of 10 to 20 years.
FFuullll--sseerrvviiccee rreessttaauurraannttss — Restaurants that generallyfeature moderate to high prices (the average checkis generally at least $10). Meals are often servedwith flatware and china, and alcoholic beveragesmay be available.
LLiicceennssee — A contract similar to a franchise agreement,except that the contractual period is shorter, therights are not as broad, and an initial fee may not berequired. This contract gives the licensee the right touse the licenser’s name for a fee. Licensing is oftenused for nontraditional points of distribution, such asairports and gas stations.
QQuuiicckk ccaassuuaall — Limited-service or self-service restau-rants that serve upscale or specialty foods, includinggourmet soups, salads, and sandwiches. The aver-age check generally falls between $7 and $10.
RReeffrraanncchhiissiinngg ggaaiinnss — Gains arising to a company fromthe purchase and resale of franchised units.
SSaammee--ssttoorree ssaalleess — Year-to-year sales changes atunits open for a specified period, often at least 18months.
SSaatteelllliittee rreessttaauurraannttss — Small, low-volume units of arestaurant chain whose menu is an abbreviated ver-sion of the chain’s full menu. Satellite restaurantsare often located in unique retail settings, like air-ports or within large retail stores.
SSyysstteemmwwiiddee ssaalleess — A figure comprising sales byrestaurants operated by the company, franchisees, andaffiliates operating under joint venture agreements.
TToottaall rreevveennuueess — A comprehensive figure consisting ofsales by company-operated restaurants and fees fromrestaurants operated by franchisees and affiliates.
INDUSTRY REFERENCES
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PERIODICALS
NNaattiioonn’’ss RReessttaauurraanntt NNeewwssLebhar-Friedman Inc.425 Park Ave., New York, NY 10022(212) 756-5000Web site: http://www.lf.comWeekly; contains articles on a variety of restaurant in-dustry topics.
QQSSRRJournalistic Inc.4905 Pine Cove Dr., Ste. 2, Durham, NC 27707(919) 489-1916Web site: http://www.qsrmagazine.comPublished 10 times annually; covers the quick-servicesector of the restaurant industry.
RReessttaauurraanntt BBuussiinneessssIdeal Media LLC90 Broad St., Ste. 402, New York, NY 10004(646) 708-7300Web site: http://www.restaurantbiz.comPublished 18 times a year; spotlights various industrysegments.
RReessttaauurraannttss && IInnssttiittuuttiioonnss ((RR&&II))Reed Business Information Inc.2000 Clearwater Dr., Oakbrook, IL 60523(630) 288-8242Web site: http://www.rimag.comPublished 18 times a year; focuses on trends and issuesof importance to the restaurant industry.
RReessttaauurraannttss UUSSAANational Restaurant Association1200 17th St. NW, Washington, DC 20036(202) 331-5900Web site: http://www.restaurant.orgPublished 11 times a year; focuses on trends and issuesof importance to the restaurant industry.
TTeecchhnnoommiicc TToopp 550000Technomic Information Services300 South Riverside Plaza, Ste. 1200, Chicago, IL 60606(312) 876-0004Web site: http://www.technomic.comAnnual publication; detailed study of restaurant trends,and segmented look at industry market shares.
TRADE ASSOCIATIONS
IInntteerrnnaattiioonnaall FFrraanncchhiissee AAssssoocciiaattiioonn1501 K St. NW, Ste. 350, Washington, DC 20005(202) 628-8000Web site: http://www.franchise.orgA membership organization of franchisors, franchisees,and suppliers. It provides information, products, andservices to members.
NNaattiioonnaall RReessttaauurraanntt AAssssoocciiaattiioonn1200 17th St. NW, Washington, DC 20036(202) 331-5900Web site: http://www.restaurant.orgTrade organization that works to promote the foodser-vice industry, and to protect and educate its members.Publishes industry data and research, including theRestaurant Industry Operations Report (annual; copub-lished with Deloitte & Touche) and an annual Restau-rant Industry Forecast.
MARKET RESEARCH FIRMS
NNPPDDFFooooddwwoorrlldd:: CCRREESSTTThe NPD Group Inc.900 West Shore Rd., Port Washington, NY 11050(516) 625-0700Web site: http://www.npd.comA market research firm that tracks chain and indepen-dent restaurants, and consumer behavior and attitudesat commercial restaurants.
TTeecchhnnoommiicc IInncc..300 South Riverside Plaza, Ste. 1200, Chicago, IL 60606(312) 876-0004Web site: http://www.technomic.comA market research firm concerned with the restaurantindustry.
GOVERNMENT AGENCIES
EEccoonnoommiicc RReesseeaarrcchh SSeerrvviicceeUS Department of Agriculture1800 M St. NW, Washington, DC 20036(202) 694-5050Web site: http://www.ers.usda.govSource of annual US statistics regarding food con-sumption, production, and trends.
UUSS CCeennssuuss BBuurreeaauuUS Department of Commerce1401 Constitution Ave. NW, Washington, DC 20230(202) 482-4883Web site: http://www.census.govSource of annual and monthly retail and foodservicesales.
Operating revenuesNet sales and other operating revenues. Excludesinterest income if such income is “nonoperating.”Includes franchised/leased department income forretailers and royalties for publishers and oil and miningcompanies. Excludes excise taxes for tobacco, liquor,and oil companies.
Net incomeProfits derived from all sources, after deductions ofexpenses, taxes, and fixed charges, but before anydiscontinued operations, extraordinary items, anddividend payments (preferred and common).
Return on revenues Net income divided by operating revenues.
Return on assets Net income divided by average total assets. Used inindustry analysis and as a measure of asset-use efficiency.
Return on equity Net income, less preferred dividend requirements,divided by average common shareholder‘s equity.Generally used to measure performance and to makeindustry comparisons.
Current ratioCurrent assets divided by current liabilities. It is ameasure of liquidity. Current assets are those assetsexpected to be realized in cash or used up in theproduction of revenue within one year. Current liabilitiesgenerally include all debts/obligations falling due withinone year.
Debt/capital ratioLong-term debt (excluding current portion) divided bytotal invested capital. It indicates how highly “leveraged”a company might be. Long-term debt includes thosedebts/obligations due after one year, including bonds,notes payable, mortgages, lease obligations, andindustrial revenue bonds. Other long-term debt, whenreported as a separate account, is excluded; this accountgenerally includes pension and retirement benefits. Totalinvested capital is the sum of stockholders’ equity, long-term debt, capital lease obligations, deferred incometaxes, investment credits, and minority interest.
Debt as a percent of net working capitalLong-term debt (excluding current portion) divided by thedifference between current assets and current liabilities.It is an indicator of a company’s liquidity.
Price/earnings ratio The ratio of market price to earnings, obtained bydividing the stock’s high and low market price for theyear by earnings per share (before extraordinary items).It essentially indicates the value investors place on acompany’s earnings.
Dividend payout ratioThis is the percentage of earnings paid out in dividends.It is calculated by dividing the annual dividend by theearnings. Dividends are generally total cash paymentsper share over a 12-month period. Although payments areusually calculated from the ex-dividend dates, they mayalso be reported on a declared basis where this has beenestablished to be a company’s payout policy.
Dividend yield The total cash dividend payments divided by the year’shigh and low market prices for the stock.
Earnings per shareThe amount a company reports as having been earnedfor the year (based on generally accepted accountingstandards), divided by the number of shares outstanding.Amounts reported in Industry Surveys excludeextraordinary items.
Tangible book value per shareThis measure indicates the theoretical dollar amount per common share one might expect to receive shouldliquidation take place. Generally, book value isdetermined by adding the stated (or par) value of thecommon stock, paid-in capital, and retained earnings,then subtracting intangible assets, preferred stock atliquidating value, and unamortized debt discount. Thisamount is divided by the number of outstanding shares to get book value per common share.
Share price This shows the calendar-year high and low of a stock’smarket price.
In addition to the footnotes that appear at the bottom ofeach page, you will notice some or all of the following:NA—Not available.NM—Not meaningful.NR—Not reported.AF—Annual figure. Data are presented on an annualbasis.CF—Combined figure. In this case, data are not availablebecause one or more components are combined withother items.
DEFINITIONS FOR COMPARATIVE COMPANY ANALYSIS TABLES
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OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
32
COMPARATIVE COMPANY ANALYSIS — RESTAURANTS
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 1,337.9 1,216.7 1,111.6 990.1 826.8 744.3 413.1 12.5 12.4 10.0 324 294 269 240 200 BOBE † BOB EVANS FARMS # APR 1,654.5 1,584.8 1,460.2 A 1,198.0 1,091.3 1,061.8 C 822.2 7.2 9.3 4.4 201 193 178 146 133 EAT † BRINKER INTL INC JUN 4,151.3 D 3,912.9 3,707.5 3,285.4 2,887.1 2,473.7 A 1,163.0 13.6 10.9 6.1 357 336 319 283 248 CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 554.6 479.6 422.5 359.9 306.3 249.3 NA NA 17.3 15.6 ** ** ** ** NACBRL † CBRL GROUP INC JUL 2,643.0 2,567.5 2,380.9 2,198.2 2,066.9 1,963.7 943.3 10.9 6.1 2.9 280 272 252 233 219
CEC § CEC ENTERTAINMENT INC DEC 774.1 726.1 728.0 654.5 601.8 562.0 292.9 10.2 6.6 6.6 264 248 249 223 205 CAKE † CHEESECAKE FACTORY INC DEC 1,315.3 1,182.1 969.2 773.8 652.0 539.1 160.3 23.4 19.5 11.3 821 737 605 483 407 CKR § CKE RESTAURANTS INC # JAN 1,588.4 1,518.3 1,519.9 1,413.4 D 1,363.4 D 1,438.1 614.1 A 10.0 2.0 4.6 259 247 248 230 222 DRI * DARDEN RESTAURANTS INC # MAY 5,567.1 D 5,720.6 5,278.1 5,003.4 4,655.0 4,368.7 3,171.8 5.8 5.0 (2.7) 176 180 166 158 147 IHP § IHOP CORP DEC 349.6 348.0 359.0 404.8 365.9 F 324.4 F 181.6 6.8 1.5 0.4 192 192 198 223 201
JBX § JACK IN THE BOX INC SEP 2,765.6 2,507.2 2,322.4 2,058.3 A,F 1,966.4 1,833.6 C,F 1,062.8 F 10.0 8.6 10.3 260 236 219 194 185 LNY § LANDRYS RESTAURANTS INC DEC NA 1,254.8 A 1,167.5 1,105.8 894.8 746.6 236.1 B NA NA NA NA 531 494 468 379 MCD * MCDONALD'S CORP DEC 21,586.4 D 20,460.2 19,064.7 17,140.5 15,405.7 14,870.0 10,686.5 7.3 7.7 5.5 202 191 178 160 144 CHUX § O'CHARLEY'S INC DEC 989.5 930.2 C 871.4 759.0 A 499.9 444.9 164.5 A 19.7 17.3 6.4 601 565 530 461 304 PFCB § P F CHANGS CHINA BISTRO INC DEC 937.6 809.2 706.9 C 559.2 422.1 318.8 NA NA 24.1 15.9 ** ** ** ** NA
PNRA § PANERA BREAD CO DEC 829.0 640.3 479.1 355.9 277.8 201.1 236.9 13.3 32.7 29.5 350 270 202 150 117 PZZA § PAPA JOHNS INTERNATIONAL INC DEC 1,001.6 968.8 D 942.4 917.4 C 946.2 A 971.2 A 360.1 10.8 0.6 3.4 278 269 262 255 263 PEET § PEET'S COFFEE & TEA INC DEC 210.5 175.2 145.7 119.8 104.1 94.4 NA NA 17.4 20.1 ** ** ** ** NARARE § RARE HOSPITALITY INTL INC DEC 986.9 D 839.3 D 812.6 680.8 584.5 C 533.2 215.7 A 16.4 13.1 17.6 457 389 377 316 271 RRGB § RED ROBIN GOURMET BURGERS DEC 618.7 A 486.0 409.1 328.6 274.4 A 224.5 NA NA 22.5 27.3 ** ** ** ** NA
RT † RUBY TUESDAY INC # MAY 1,410.2 1,306.2 1,110.3 1,041.4 913.8 833.2 654.5 8.0 11.1 8.0 215 200 170 159 140 RUTH § RUTHS CHRIS STEAK HOUSE DEC 271.5 D 214.5 D 192.2 D NA NA NA NA NA NA 26.5 ** ** ** ** NASONC § SONIC CORP AUG 693.3 623.1 536.4 446.6 400.2 330.6 151.1 16.5 16.0 11.3 459 412 355 296 265 SBUX * STARBUCKS CORP SEP 7,786.9 6,369.3 5,294.2 4,075.5 3,288.9 2,649.0 696.5 27.3 24.1 22.3 1,118 914 760 585 472 SNS § STEAK N SHAKE CO SEP 638.8 606.9 553.7 499.1 459.0 445.2 226.9 10.9 7.5 5.3 282 267 244 220 202
TXRH § TEXAS ROADHOUSE INC DEC 597.1 A 458.8 363.0 A 286.5 232.8 NA NA NA NA 30.2 ** ** ** ** NATRY.B § TRIARC COS INC DEC 1,243.3 D 727.3 A 328.6 A 293.6 D 97.8 92.3 989.2 A 2.3 68.2 70.9 126 74 33 30 10 WEN * WENDY'S INTERNATIONAL INC DEC 2,439.3 D 3,766.7 3,635.4 3,148.9 A 2,730.3 A 2,391.2 1,897.1 2.5 0.4 (35.2) 129 199 192 166 144 YUM * YUM BRANDS INC DEC 9,561.0 C 9,349.0 9,011.0 8,380.0 7,757.0 A 6,953.0 10,232.0 (0.7) 6.6 2.3 93 91 88 82 76
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 278.2 209.7 171.0 126.5 96.1 74.6 NA NA 30.1 32.7 ** ** ** ** NACOSI COSI INC DEC 126.9 117.2 110.6 107.3 84.4 70.2 NA NA 12.6 8.3 ** ** ** ** NADPZ DOMINO'S PIZZA INC DEC 1,437.3 1,511.6 1,446.5 1,333.3 1,275.0 NA NA NA NA (4.9) ** ** ** ** NALUB LUBYS INC AUG 324.6 D 322.2 D 308.8 D 318.5 D 399.1 467.2 450.1 (3.2) (7.0) 0.8 72 72 69 71 89 TXRH § TEXAS ROADHOUSE INC DEC 597.1 A 458.8 363.0 A 286.5 232.8 NA NA NA NA 30.2 ** ** ** ** NA
Operating Revenues
Million $ Compound Growth Rate (%) Index Basis (1996 = 100)
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includesother (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
33
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 80.9 102.0 110.9 93.6 83.0 65.7 38.0 7.8 4.3 (20.7) 213 268 292 246 218 BOBE † BOB EVANS FARMS # APR 60.5 54.8 37.0 72.0 75.1 67.7 36.1 5.3 (2.2) 10.5 168 152 102 200 208 EAT † BRINKER INTL INC JUN 213.9 160.2 150.9 168.6 152.7 145.1 34.4 20.1 8.1 33.5 622 466 439 490 444 CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 21.0 19.5 17.8 8.0 15.3 13.2 NA NA 9.7 7.7 ** ** ** ** NACBRL † CBRL GROUP INC JUL 116.3 126.6 111.9 106.5 91.8 49.2 63.5 6.2 18.8 (8.2) 183 199 176 168 145
CEC § CEC ENTERTAINMENT INC DEC 68.3 74.7 82.5 67.4 69.5 64.2 13.2 17.8 1.2 (8.6) 516 565 624 510 526 CAKE † CHEESECAKE FACTORY INC DEC 81.3 87.9 66.5 57.8 49.1 39.3 5.9 30.0 15.6 (7.6) 1,375 1,488 1,125 978 830 CKR § CKE RESTAURANTS INC # JAN 50.2 194.6 18.7 (50.4) 25.8 (84.0) 22.3 8.4 NM (74.2) 225 872 84 (226) 116 DRI * DARDEN RESTAURANTS INC # MAY 377.1 338.2 290.6 227.2 232.3 237.8 (91.0) NM 9.7 11.5 NM NM NM NM NMIHP § IHOP CORP DEC 44.6 43.9 33.4 36.8 40.8 40.3 18.6 9.1 2.0 1.4 239 236 180 198 220
JBX § JACK IN THE BOX INC SEP 109.1 91.5 74.7 73.6 83.0 84.1 20.1 18.5 5.3 19.2 544 457 372 367 414 LNY § LANDRYS RESTAURANTS INC DEC NA 44.8 66.5 45.9 41.5 26.9 1.5 NA NA NA ** 2,976 4,417 3,048 2,757 MCD * MCDONALD'S CORP DEC 2,873.0 2,602.2 2,278.5 1,508.2 992.1 1,636.6 1,572.6 6.2 11.9 10.4 183 165 145 96 63 CHUX § O'CHARLEY'S INC DEC 18.9 12.0 23.3 21.3 26.8 17.6 (1.1) NM 1.5 57.0 NM NM NM NM NMPFCB § P F CHANGS CHINA BISTRO INC DEC 33.3 37.8 26.1 25.4 20.9 15.6 NA NA 16.3 (12.0) ** ** ** ** NA
PNRA § PANERA BREAD CO DEC 58.8 52.2 38.6 30.6 21.8 13.2 (4.4) NM 34.9 12.8 NM NM NM NM NMPZZA § PAPA JOHNS INTERNATIONAL INC DEC 63.0 44.3 23.2 34.0 46.8 47.2 18.6 13.0 5.9 42.3 338 238 125 183 251 PEET § PEET'S COFFEE & TEA INC DEC 7.8 10.7 8.8 5.2 4.7 1.2 NA NA 46.6 (26.9) ** ** ** ** NARARE § RARE HOSPITALITY INTL INC DEC 50.0 52.4 47.5 42.3 33.4 26.2 5.2 25.3 13.8 (4.5) 954 999 907 806 638 RRGB § RED ROBIN GOURMET BURGERS DEC 29.4 27.4 23.4 15.7 8.3 7.7 NA NA 30.6 7.2 ** ** ** ** NA
RT † RUBY TUESDAY INC # MAY 91.7 101.0 102.3 109.8 88.5 58.3 25.0 13.9 9.5 (9.2) 366 403 408 439 353 RUTH § RUTHS CHRIS STEAK HOUSE DEC 23.7 10.6 6.4 NA NA NA NA NA NA 122.9 ** ** ** ** NASONC § SONIC CORP AUG 78.7 75.4 63.0 52.3 47.7 39.0 11.2 21.5 15.1 4.4 700 670 560 465 424 SBUX * STARBUCKS CORP SEP 581.5 494.5 390.6 268.3 215.1 181.2 42.1 30.0 26.3 17.6 1,380 1,174 927 637 511 SNS § STEAK N SHAKE CO SEP 28.0 30.2 27.6 20.9 23.1 21.8 13.0 8.0 5.1 (7.3) 215 232 212 161 177
TXRH § TEXAS ROADHOUSE INC DEC 34.0 30.3 21.7 23.1 17.0 NA NA NA NA 12.2 ** ** ** ** NATRY.B § TRIARC COS INC DEC (11.2) (58.9) 1.5 (13.1) (9.8) 9.0 (8.5) NM NM NM NM NM NM NM NMWEN * WENDY'S INTERNATIONAL INC DEC 37.0 224.1 52.0 236.0 218.8 193.6 155.9 (13.4) (28.2) (83.5) 24 144 33 151 140 YUM * YUM BRANDS INC DEC 824.0 762.0 740.0 618.0 583.0 492.0 (53.0) NM 10.9 8.1 NM NM NM NM NM
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 16.3 8.9 7.2 3.6 3.1 2.7 NA NA 43.2 83.3 ** ** ** ** NACOSI COSI INC DEC (12.3) (13.1) (18.4) (26.6) (20.9) (35.4) NA NA NM NM ** ** ** ** NADPZ DOMINO'S PIZZA INC DEC 106.2 108.3 62.3 39.0 60.5 NA NA NA NA (1.9) ** ** ** ** NALUB LUBYS INC AUG 21.1 8.6 1.9 (2.5) (9.7) (31.9) 39.2 (6.0) NM 145.9 54 22 5 (6) (25)TXRH § TEXAS ROADHOUSE INC DEC 34.0 30.3 21.7 23.1 17.0 NA NA NA NA 12.2 ** ** ** ** NA
Net Income
Million $ Compound Growth Rate (%) Index Basis (1996 = 100)
Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.
OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
34
Return on Revenues (%) Return on Assets (%) Return on Equity (%)
Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 6.0 8.4 10.0 9.4 10.0 8.9 12.5 15.9 15.5 15.6 18.0 22.4 23.2 22.0 23.1BOBE † BOB EVANS FARMS # APR 3.7 3.5 2.5 6.0 6.9 5.0 4.6 3.6 8.7 10.0 8.6 8.1 5.8 12.1 13.9EAT † BRINKER INTL INC JUN 5.2 4.1 4.1 5.1 5.3 9.8 7.3 7.3 9.1 9.5 19.7 15.2 14.0 15.9 16.3CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 3.8 4.1 4.2 2.2 5.0 7.2 7.6 8.3 4.5 9.8 10.4 10.7 11.4 5.7 12.4CBRL † CBRL GROUP INC JUL 4.4 4.9 4.7 4.8 4.4 7.2 8.5 8.1 8.2 7.4 19.8 14.5 13.4 13.5 11.3
CEC § CEC ENTERTAINMENT INC DEC 8.8 10.3 11.3 10.3 11.6 10.1 11.8 13.8 12.0 13.9 19.7 21.5 22.8 17.9 19.2CAKE † CHEESECAKE FACTORY INC DEC 6.2 7.4 6.9 7.5 7.5 8.3 10.4 9.9 11.0 12.0 12.0 14.8 13.3 13.8 14.7CKR § CKE RESTAURANTS INC # JAN 3.2 12.8 1.2 NM 1.9 6.3 26.4 2.7 NM 2.9 14.3 88.0 16.8 NM 11.3DRI * DARDEN RESTAURANTS INC # MAY 6.8 5.9 5.5 4.5 5.0 12.8 11.4 10.2 8.3 8.9 32.4 27.0 23.7 19.2 20.0IHP § IHOP CORP DEC 12.7 12.6 9.3 9.1 11.2 5.8 5.5 4.0 4.4 5.6 15.3 13.9 9.3 9.9 12.1
JBX § JACK IN THE BOX INC SEP 3.9 3.7 3.2 3.6 4.2 7.6 7.0 6.1 6.6 7.9 17.1 16.4 14.6 15.8 18.9LNY § LANDRYS RESTAURANTS INC DEC NA 3.6 5.7 4.2 4.6 NA 3.0 5.4 4.5 5.1 NA 8.0 11.0 7.8 8.6MCD * MCDONALD'S CORP DEC 13.3 12.7 12.0 8.8 6.4 9.7 9.0 8.5 6.1 4.3 18.8 17.7 17.4 13.5 10.0CHUX § O'CHARLEY'S INC DEC 1.9 1.3 2.7 2.8 5.4 2.7 1.8 3.7 4.1 6.6 5.2 3.5 7.4 8.0 12.3PFCB § P F CHANGS CHINA BISTRO INC DEC 3.5 4.7 3.7 4.5 4.9 6.8 8.9 7.9 10.3 10.7 11.4 14.0 11.6 13.3 13.4
PNRA § PANERA BREAD CO DEC 7.1 8.2 8.1 8.6 7.8 12.0 13.7 13.5 14.1 13.1 16.5 18.7 17.6 17.5 15.9PZZA § PAPA JOHNS INTERNATIONAL INC DEC 6.3 4.6 2.5 3.7 4.9 17.3 12.2 6.4 9.5 12.4 41.0 29.5 15.6 24.2 29.5PEET § PEET'S COFFEE & TEA INC DEC 3.7 6.1 6.0 4.3 4.5 5.2 7.8 7.4 5.0 6.8 6.2 9.1 8.6 5.9 8.5RARE § RARE HOSPITALITY INTL INC DEC 5.1 6.2 5.8 6.2 5.7 7.7 9.0 9.2 9.9 9.0 12.8 12.6 12.6 13.0 12.0RRGB § RED ROBIN GOURMET BURGERS DEC 4.7 5.6 5.7 4.8 3.0 7.5 9.1 9.9 8.3 5.1 13.1 14.9 15.8 13.5 11.3
RT † RUBY TUESDAY INC # MAY 6.5 7.7 9.2 10.5 9.7 7.6 9.0 10.2 12.6 13.4 19.0 18.5 18.9 23.6 23.6RUTH § RUTHS CHRIS STEAK HOUSE DEC 8.7 5.0 3.3 NA NA 13.8 5.6 NA NA NA 43.8 NA NA NA NASONC § SONIC CORP AUG 11.4 12.1 11.7 11.7 11.9 13.1 13.9 12.5 11.7 12.5 20.3 21.0 21.0 21.1 22.1SBUX * STARBUCKS CORP SEP 7.5 7.8 7.4 6.6 6.5 14.6 14.3 12.8 10.7 10.4 26.9 21.7 17.1 14.1 13.9SNS § STEAK N SHAKE CO SEP 4.4 5.0 5.0 4.2 5.0 5.5 6.6 6.5 5.2 7.2 10.4 12.8 13.5 11.8 13.9
TXRH § TEXAS ROADHOUSE INC DEC 5.7 6.6 6.0 8.1 7.3 8.9 10.3 10.2 16.7 NA 12.4 15.0 20.6 71.3 NATRY.B § TRIARC COS INC DEC NM NM 0.4 NM NM NM NM 0.1 NM NM NM NM 0.5 NM NMWEN * WENDY'S INTERNATIONAL INC DEC 1.5 5.9 1.4 7.5 8.0 1.3 6.8 1.6 8.1 9.2 2.4 11.9 3.0 14.7 17.7YUM * YUM BRANDS INC DEC 8.6 8.2 8.2 7.4 7.5 13.7 13.4 13.1 11.2 11.9 57.1 50.1 54.5 72.1 167.0
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 5.8 4.2 4.2 2.8 3.2 11.1 7.0 6.5 2.8 3.5 15.3 9.7 9.0 5.1 20.9COSI COSI INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NADPZ DOMINO'S PIZZA INC DEC 7.4 7.2 4.3 2.9 4.7 25.3 23.8 13.9 NM NA NA NA NA NA NALUB LUBYS INC AUG 6.5 2.7 0.6 NM NM 10.2 3.9 0.7 NM NM 13.6 6.2 1.4 NM NMTXRH § TEXAS ROADHOUSE INC DEC 5.7 6.6 6.0 8.1 7.3 8.9 10.3 10.2 16.7 NA 12.4 15.0 20.6 71.3 NA
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.
OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
35
Current Ratio Debt / Capital Ratio (%) Debt as a % of Net Working Capital
Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 0.6 0.5 0.7 0.6 0.6 25.5 28.6 6.3 4.3 11.7 NM NM NM NM NMBOBE † BOB EVANS FARMS # APR 0.5 0.5 0.3 0.3 0.3 18.1 20.4 21.9 3.4 4.5 NM NM NM NM NMEAT † BRINKER INTL INC JUN 0.5 0.6 1.1 0.5 0.5 31.6 26.0 37.1 22.8 30.0 NM NM NM NM NMCPKI § CALIFORNIA PIZZA KITCHEN INC DEC 0.6 1.0 1.2 1.3 1.2 0.0 0.0 0.0 0.0 0.0 NM NM 0.0 0.0 0.0CBRL † CBRL GROUP INC JUL 0.9 0.6 0.8 0.7 0.7 69.1 17.9 16.0 17.6 19.1 NM NM NM NM NM
CEC § CEC ENTERTAINMENT INC DEC 0.9 0.8 0.3 0.7 1.0 32.8 29.1 2.9 15.9 12.8 NM NM NM NM NMCAKE † CHEESECAKE FACTORY INC DEC 1.2 1.3 1.0 1.4 1.2 4.8 3.5 2.8 0.0 0.0 99.2 66.2 362.2 0.0 0.0CKR § CKE RESTAURANTS INC # JAN 0.8 0.8 0.6 0.8 0.6 31.1 43.7 71.2 78.9 66.5 NM NM NM NM NMDRI * DARDEN RESTAURANTS INC # MAY 0.5 0.4 0.4 0.5 0.5 30.5 27.3 20.2 33.3 32.8 NM NM NM NM NMIHP § IHOP CORP DEC 1.2 1.1 2.1 2.8 3.0 42.0 44.7 43.2 41.1 42.2 NM NM 546.9 388.3 300.3
JBX § JACK IN THE BOX INC SEP 1.2 1.0 0.9 0.6 0.3 24.5 31.7 33.3 36.6 22.6 395.9 NM NM NM NMLNY § LANDRYS RESTAURANTS INC DEC NA 0.7 2.2 0.8 0.6 NA 60.2 47.7 32.3 24.7 NA NM 346.4 NM NMMCD * MCDONALD'S CORP DEC 1.2 1.4 0.8 0.8 0.7 33.7 35.7 35.8 41.8 46.2 NM 492.9 NM NM NMCHUX § O'CHARLEY'S INC DEC 0.7 0.8 0.7 0.6 0.7 27.5 32.9 34.5 39.2 34.3 NM NM NM NM NMPFCB § P F CHANGS CHINA BISTRO INC DEC 0.6 1.1 1.3 1.1 1.5 4.8 2.4 0.2 0.1 0.8 NM 65.7 2.6 3.1 8.6
PNRA § PANERA BREAD CO DEC 1.2 1.2 1.0 1.6 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0PZZA § PAPA JOHNS INTERNATIONAL INC DEC 0.8 0.9 0.8 0.8 0.8 38.6 22.6 35.0 26.1 52.9 NM NM NM NM NMPEET § PEET'S COFFEE & TEA INC DEC 2.7 4.5 2.0 4.1 2.7 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.0 0.0 1.9RARE § RARE HOSPITALITY INTL INC DEC 0.9 1.1 0.9 1.1 1.0 31.5 8.3 8.1 7.1 6.9 NM 622.6 NM 349.9 856.2RRGB § RED ROBIN GOURMET BURGERS DEC 0.4 0.4 0.5 0.5 0.5 31.6 21.4 21.6 21.3 27.8 NM NM NM NM NM
RT † RUBY TUESDAY INC # MAY 0.8 0.7 0.6 0.6 0.6 51.8 39.4 28.7 23.0 31.7 NM NM NM NM NMRUTH § RUTHS CHRIS STEAK HOUSE DEC 0.4 0.7 0.5 NA NA 50.0 48.9 174.4 NA NA NM NM NM NA NASONC § SONIC CORP AUG 0.5 0.5 0.7 0.9 0.7 27.4 18.7 25.1 37.5 33.7 NM NM NM NM NMSBUX * STARBUCKS CORP SEP 0.8 1.0 1.8 1.5 1.6 0.2 0.2 0.1 0.2 0.3 NM NM 0.6 1.4 1.6SNS § STEAK N SHAKE CO SEP 0.4 0.4 0.8 0.6 0.4 35.7 37.3 41.0 45.7 50.1 NM NM NM NM NM
TXRH § TEXAS ROADHOUSE INC DEC 0.7 0.9 0.8 0.5 0.5 9.7 2.8 7.0 56.7 64.7 NM NM NM NM NMTRY.B § TRIARC COS INC DEC 1.7 1.2 3.3 4.8 4.2 58.3 66.6 57.2 59.0 47.3 435.4 301.8 96.2 79.2 69.1WEN * WENDY'S INTERNATIONAL INC DEC 1.7 1.3 0.7 0.9 0.9 34.8 22.4 24.5 26.8 30.4 212.2 355.5 NM NM NMYUM * YUM BRANDS INC DEC 0.5 0.5 0.5 0.6 0.5 57.5 53.2 52.0 64.7 79.5 NM NM NM NM NM
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 2.9 3.0 3.1 3.6 0.9 0.0 0.0 0.0 0.0 19.0 0.0 0.0 0.0 0.0 NMCOSI COSI INC DEC 1.8 3.0 1.1 0.7 1.0 0.2 0.2 1.0 0.9 0.6 0.7 0.4 36.2 NM 32.6DPZ DOMINO'S PIZZA INC DEC 1.1 1.0 1.0 1.0 0.9 422.4 367.0 367.5 421.7 267.7 NM NM NM NM NMLUB LUBYS INC AUG 0.5 0.3 0.2 0.2 0.2 0.0 8.3 28.5 0.0 3.5 NM NM NM NM NMTXRH § TEXAS ROADHOUSE INC DEC 0.7 0.9 0.8 0.5 0.5 9.7 2.8 7.0 56.7 64.7 NM NM NM NM NM
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.
OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
36
Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 24-16 22-15 21-16 24-14 19-13 20 15 4 4 4 1.3-0.8 1.0-0.7 0.3-0.2 0.3-0.2 0.3-0.2BOBE † BOB EVANS FARMS # APR 21-14 17-13 33-21 16-10 16-10 32 31 46 23 20 2.4-1.5 2.4-1.8 2.1-1.4 2.2-1.4 2.0-1.3EAT † BRINKER INTL INC JUN 19-13 23-18 25-18 21-15 23-15 12 0 0 0 0 1.0-0.6 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 32-23 34-22 27-18 63-39 34-22 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0CBRL † CBRL GROUP INC JUL 18-12 17-12 19-13 19-12 20-12 19 22 14 1 1 1.6-1.1 1.8-1.3 1.1-0.8 0.1-0.0 0.1-0.1
CEC § CEC ENTERTAINMENT INC DEC 20-13 20-14 19-13 21-9 20-10 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0CAKE † CHEESECAKE FACTORY INC DEC 38-21 34-26 39-29 39-24 44-25 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0CKR § CKE RESTAURANTS INC # JAN 25-17 5-3 46-20 NM-NM 29-7 20 5 0 NM 0 1.2-0.8 1.4-0.9 0.0-0.0 0.0-0.0 0.0-0.0DRI * DARDEN RESTAURANTS INC # MAY 17-13 17-11 15-10 17-12 22-13 17 18 4 6 6 1.4-1.0 1.6-1.0 0.4-0.3 0.5-0.3 0.4-0.3IHP § IHOP CORP DEC 22-18 22-17 27-20 23-12 19-11 41 44 62 44 0 2.3-1.8 2.6-2.0 3.1-2.3 3.6-1.9 0.0-0.0
JBX § JACK IN THE BOX INC SEP 21-11 16-11 19-10 12-7 16-7 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0LNY § LANDRYS RESTAURANTS INC DEC NA-NA 16-13 14-10 16-9 18-11 NA 10 7 6 6 0.8-0.6 0.8-0.6 0.7-0.5 0.7-0.4 0.6-0.3MCD * MCDONALD'S CORP DEC 19-14 17-13 18-14 23-10 39-19 43 33 30 34 30 3.2-2.2 2.4-1.9 2.2-1.7 3.3-1.5 1.5-0.8CHUX § O'CHARLEY'S INC DEC 28-18 43-24 20-14 24-14 18-11 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0PFCB § P F CHANGS CHINA BISTRO INC DEC 43-22 45-30 58-39 55-30 47-28 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0
PNRA § PANERA BREAD CO DEC 40-25 43-23 35-25 46-24 51-32 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0PZZA § PAPA JOHNS INTERNATIONAL INC DEC 19-15 23-12 27-21 18-12 15-10 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0PEET § PEET'S COFFEE & TEA INC DEC 57-43 48-30 42-24 57-31 44-25 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0RARE § RARE HOSPITALITY INTL INC DEC 23-17 21-16 23-17 22-13 19-13 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0RRGB § RED ROBIN GOURMET BURGERS DEC 30-18 37-24 37-17 32-11 22-14 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0
RT † RUBY TUESDAY INC # MAY 21-13 16-12 21-14 18-9 20-10 31 3 3 3 3 2.4-1.5 0.2-0.2 0.2-0.1 0.3-0.2 0.3-0.2RUTH § RUTHS CHRIS STEAK HOUSE DEC 24-17 77-54 NA-NA NA-NA NA-NA 0 0 NA NA NA 0.0-0.0 0.0-0.0 NA-NA NA-NA NA-NASONC § SONIC CORP AUG 27-20 29-21 29-19 24-15 28-16 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0SBUX * STARBUCKS CORP SEP 53-38 52-35 66-34 48-28 46-33 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0SNS § STEAK N SHAKE CO SEP 21-13 20-15 22-16 24-11 19-12 0 0 0 0 0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0
TXRH § TEXAS ROADHOUSE INC DEC 37-20 43-29 35-24 NA-NA NA-NA 0 0 0 NA NA 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA NA-NATRY.B § TRIARC COS INC DEC NM-NM NM-NM NM-NM NM-NM NM-NM NM NM NM NM NM 6.3-3.9 2.8-2.1 3.1-2.3 1.5-0.5 0.0-0.0WEN * WENDY'S INTERNATIONAL INC DEC NM-96 29-19 93-69 20-12 21-13 180 29 104 12 12 1.9-0.9 1.6-1.0 1.5-1.1 1.0-0.6 0.9-0.6YUM * YUM BRANDS INC DEC 21-15 20-17 19-13 17-10 17-10 18 16 8 0 0 1.2-0.8 1.0-0.8 0.6-0.4 0.0-0.0 0.0-0.0
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 31-16 40-24 43-26 40-31 NA-NA 0 0 0 0 NA 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 NA-NACOSI COSI INC DEC NM-NM NM-NM NM-NM NM-NM NM-NM NM NM NM NM NM 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0DPZ DOMINO'S PIZZA INC DEC 17-13 16-10 16-11 NA-NA NA-NA 29 25 6 NA NA 2.3-1.7 2.4-1.5 0.5-0.3 NA-NA NA-NALUB LUBYS INC AUG 20-10 39-15 NM-41 NM-NM NM-NM 0 0 0 NM NM 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0TXRH § TEXAS ROADHOUSE INC DEC 37-20 43-29 35-24 NA-NA NA-NA 0 0 0 NA NA 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA NA-NA
Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.
OCTOBER 18 , 2007 / RESTAURANTS INDUSTRY SURVEY
37
Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)
RREESSTTAAUURRAANNTTSS‡‡APPB † APPLEBEES INTL INC DEC 1.09 1.30 1.36 1.13 0.99 4.51 3.50 4.51 4.21 3.59 26.47-17.29 29.19-19.73 28.55-22.26 26.79-15.39 18.44-12.69BOBE † BOB EVANS FARMS # APR 1.68 1.53 1.05 2.07 2.13 16.84 16.38 15.20 17.84 16.21 34.91-22.72 26.45-19.91 34.37-22.49 33.25-21.18 33.30-21.65EAT † BRINKER INTL INC JUN 1.66 1.21 1.05 1.16 1.04 7.42 7.21 6.27 6.51 5.36 32.02-20.99 28.27-22.13 26.53-19.28 24.81-17.55 24.00-16.05CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 0.72 0.67 0.62 0.28 0.55 7.00 6.49 5.79 J 5.14 J 4.77 J 23.00-16.70 22.87-14.63 16.97-11.19 17.71-10.83 18.69-11.90CBRL † CBRL GROUP INC JUL 2.71 2.65 2.29 2.16 1.69 6.74 16.65 15.99 14.66 13.73 47.95-32.04 44.60-33.11 43.14-30.00 42.07-24.86 34.10-19.54
CEC § CEC ENTERTAINMENT INC DEC 2.09 2.13 2.22 1.70 1.67 11.13 9.92 9.92 9.48 9.41 41.14-27.69 43.14-29.32 42.25-28.93 35.24-15.66 33.30-15.93CAKE † CHEESECAKE FACTORY INC DEC 1.04 1.12 0.86 0.77 0.67 9.05 8.17 6.94 5.95 5.04 39.28-21.65 38.49-29.29 33.50-25.01 30.00-18.18 29.03-16.60CKR § CKE RESTAURANTS INC # JAN 0.79 3.29 0.32 (0.88) 0.45 5.07 4.73 1.34 1.03 2.04 20.00-13.17 17.15-11.51 14.77-6.28 7.95-3.05 12.85-3.01DRI * DARDEN RESTAURANTS INC # MAY 2.63 2.26 1.85 1.39 1.36 7.57 8.20 8.09 7.28 7.12 44.43-32.91 39.53-25.78 28.54-18.48 23.01-16.50 29.77-18.00IHP § IHOP CORP DEC 2.46 2.26 1.62 1.72 1.95 15.58 15.38 16.49 17.37 16.62 54.59-43.94 50.50-37.97 43.40-32.78 39.40-20.98 36.46-21.08
JBX § JACK IN THE BOX INC SEP 3.12 2.57 2.06 2.02 2.11 16.71 12.66 12.00 10.05 10.31 64.60-33.15 41.95-27.35 39.00-21.09 23.60-15.01 34.20-14.25LNY § LANDRYS RESTAURANTS INC DEC NA 2.01 2.46 1.66 1.60 NA 21.61 22.74 21.59 20.33 36.30-26.11 33.00-25.39 33.74-24.75 26.78-15.05 29.10-17.55MCD * MCDONALD'S CORP DEC 2.33 2.06 1.81 1.19 0.78 11.01 10.45 9.74 8.18 6.88 44.68-31.73 35.69-27.36 32.96-24.54 27.01-12.12 30.72-15.17CHUX § O'CHARLEY'S INC DEC 0.81 0.53 1.05 0.98 1.44 11.06 10.03 9.29 8.28 12.20 22.31-14.98 22.90-12.70 20.89-14.29 23.65-13.66 26.00-15.60PFCB § P F CHANGS CHINA BISTRO INC DEC 1.28 1.44 1.01 1.00 0.85 10.64 10.47 9.08 7.79 6.50 54.93-28.09 65.12-42.92 58.18-38.99 54.59-30.25 40.22-23.95
PNRA § PANERA BREAD CO DEC 1.88 1.69 1.28 1.03 0.75 10.52 8.49 6.76 5.43 4.59 75.88-46.25 72.65-39.00 45.14-32.35 47.79-24.55 37.95-23.64PZZA § PAPA JOHNS INTERNATIONAL INC DEC 1.95 1.32 0.68 0.94 1.16 2.57 3.61 2.63 3.06 2.03 37.96-28.76 30.13-15.67 18.50-13.88 17.00-10.93 17.59-11.69PEET § PEET'S COFFEE & TEA INC DEC 0.57 0.77 0.66 0.41 0.43 9.40 9.02 8.04 7.27 6.57 32.76-24.29 37.28-23.05 27.42-16.10 23.50-12.61 19.10-10.62RARE § RARE HOSPITALITY INTL INC DEC 1.50 1.55 1.41 1.27 1.03 11.17 12.10 11.27 9.86 8.52 34.85-24.98 32.84-24.81 32.59-23.56 27.95-16.89 19.83-13.83RRGB § RED ROBIN GOURMET BURGERS DEC 1.78 1.68 1.46 1.04 0.67 10.69 10.43 7.95 6.25 4.30 52.81-32.42 62.91-40.34 54.75-24.27 32.86-11.22 14.49-9.09
RT † RUBY TUESDAY INC # MAY 1.60 1.67 1.59 1.68 1.38 7.88 8.77 8.57 7.76 6.34 32.98-21.03 26.80-20.48 33.00-22.63 29.98-15.90 27.15-14.24RUTH § RUTHS CHRIS STEAK HOUSE DEC 1.02 0.30 0.05 NA NA 0.01 0.41 (6.71) NA NA 24.61-16.90 23.06-16.30 NA-NA NA-NA NA-NASONC § SONIC CORP AUG 0.91 0.84 0.71 0.60 0.53 3.32 3.26 2.70 2.04 1.98 24.75-18.14 24.03-17.77 20.71-13.36 14.21-8.85 14.64-8.71SBUX * STARBUCKS CORP SEP 0.76 0.63 0.49 0.34 0.28 2.68 2.56 2.99 2.53 2.20 40.01-28.72 32.46-22.29 32.13-16.45 16.72-9.81 12.85-9.22SNS § STEAK N SHAKE CO SEP 1.01 1.10 1.01 0.78 0.83 9.60 8.73 7.92 6.92 6.14 21.10-13.25 21.95-16.41 21.90-16.22 18.40-8.75 15.90-9.70
TXRH § TEXAS ROADHOUSE INC DEC 0.46 0.44 0.42 0.47 0.37 3.06 2.56 1.82 1.08 0.78 17.24-9.16 19.13-12.65 14.79-10.19 NA-NA NA-NATRY.B § TRIARC COS INC DEC (0.13) (0.84) 0.02 (0.22) (0.48) (1.20) (2.67) 2.42 3.68 11.47 20.56-12.86 16.00-11.60 12.90-9.62 32.58-10.10 28.73-21.98WEN * WENDY'S INTERNATIONAL INC DEC 0.33 1.95 0.46 2.07 1.96 9.64 16.03 13.41 12.15 9.84 67.19-31.75 56.40-36.73 42.75-31.74 41.55-23.97 41.60-26.15YUM * YUM BRANDS INC DEC 1.51 1.33 1.27 1.05 0.99 0.81 1.04 1.20 0.41 (0.43) 31.84-22.10 26.90-22.37 23.74-16.07 17.70-10.77 16.58-10.18
OOTTHHEERR CCOOMMPPAANNIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT RREESSTTAAUURRAANNTT OOPPEERRAATTIIOONNSSBWLD BUFFALO WILD WINGS INC DEC 0.95 0.52 0.44 0.33 0.32 6.56 5.58 5.02 4.64 1.48 29.17-14.80 20.85-12.58 18.80-11.39 13.06-10.30 NA-NACOSI COSI INC DEC (0.32) (0.38) (0.62) (1.54) (5.04) 1.26 1.45 0.91 0.92 2.29 11.21-4.20 10.39-4.40 7.40-2.51 6.08-0.95 10.93-5.47DPZ DOMINO'S PIZZA INC DEC 1.68 1.62 1.17 (0.11) 1.18 (9.39) (7.93) (8.34) (20.41) (13.67) 28.90-21.01 25.91-16.41 19.01-12.40 NA-NA NA-NALUB LUBYS INC AUG 0.81 0.38 0.08 (0.11) (0.43) 6.35 5.56 5.92 5.87 7.29 16.09-8.18 14.80-5.75 8.08-3.26 3.94-0.95 7.33-2.85TXRH § TEXAS ROADHOUSE INC DEC 0.46 0.44 0.42 0.47 0.37 3.06 2.56 1.82 1.08 0.78 17.24-9.16 19.13-12.65 14.79-10.19 NA-NA NA-NA
Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. J-This amount includes intangibles that cannot be identified.
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. In this regard, Standard & Poor’s Equity Research Serviceshas no access to nonpublic information received by other units of Standard & Poor’s. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.
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