Industry Survey - Restaurant 2011

Industry Surveys
Restaurants
Erik B. Kolb, Restaurants Analyst
March 3, 2011
Current Environment ............................................................................................ 1
Industry Profile .................................................................................................... 12
Industry Trends ................................................................................................... 15
How the Industry Operates ............................................................................... 21
Key Industry Ratios and Statistics................................................................... 26
How to Analyze a Restaurant Company ......................................................... 28
Glossary................................................................................................................ 33
Industry References........................................................................................... 34
CONTACTS: Comparative Company Analysis ......................................................... Appendix

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CURRENT ENVIRONMENT
Outlook 2011: will the positive momentum continue?

In our outlook at the start of 2010, we questioned if 2010 would bring “blue skies” to the restaurant
industry, or if it would just be the “eye of the storm,” as we were somewhat suspicious of a meaningful
recovery for the industry in 2010. Even though 2010 first-half sales were up only modestly (despite easy
comparisons with the first half of 2009), it now appears that the industry has generally stabilized, and some
restaurant companies are even growing.
In the second and third quarters of 2010, there was serious concern over a double-dip recession, and a
pronounced stock market correction. Since September 2010, however, both the economic outlook and the
stock market have improved. Home prices also seem to have stabilized, though the bottom nationwide may
not be fully reached until spring 2011. We single out home prices and the stock market, as they are the
primary stores of household wealth. The recent improvements in both have resulted in a notable uptick in
consumer confidence. Indeed, the University of Michigan’s Index of Consumer Sentiment increased to 74.5
in December 2010, up 4.1% from November’s 71.6 and 10.0% from October’s 67.7. The January 2011
figure was about flat with December, at 74.2.
Although most economists feel that the US has definitively emerged from recession, Standard & Poor’s
Equity Research thinks that some uncertainty still exists about the strength of the economy in 2011,
particularly as it pertains to consumer spending in general and to spending in restaurants in particular. The
withdrawal of monetary and fiscal stimulus at the federal level and austerity measures being taken by state
and municipal governments are all black clouds on the economic horizon.
We believe that home prices, while not a direct causative factor in restaurant sales, are still an important
influence for several reasons. First, homes had become a source of capital against which many people
borrowed in order to maintain their lifestyles. Obviously, since the collapse in home values, this is no longer
true; furthermore, those conditions are unlikely to come back anytime soon. Second, rising home values
contribute to positive consumer sentiment, but with the outlook still uncertain, consumers aren’t likely to
alter their spending habits significantly.
Economists have largely cheered the decline in the US unemployment rate, which stood at 9.0% in January
2011, down from 9.4% the previous month and the lowest level since April 2009. Standard & Poor’s
believes that this drop reflects not only real improvements in the labor market, but also the withdrawal of
workers from the labor force.
More importantly for restaurant sales expectations, further improvement in unemployment is expected to be
slow. As of February 2011, Standard & Poor’s Economics Department was forecasting unemployment to
average 8.9% for 2011. In our opinion, the major downside risk to this forecast is that many of the millions
of people that the US Bureau of Labor Statistics (BLS) has determined are no longer in the workforce (i.e.,
“discouraged workers” who have given up on finding a job and, therefore, are not counted as unemployed)
may start looking for work again. Including this group in the unemployment and civilian workforce
calculations would mean a January 2011 unemployment rate of 11.2% (the BLS’s U-4 number). We also
note that many of the newly employed this past December were part-time workers for the holiday season.
Finally, many states are facing large deficits and may be forced to lay off more employees in order to close
budget holes. While the federal stimulus package contained funds to aid state and local governments, many
of these benefits are set to expire in 2011. Thus, the possibility that the unemployment rate will resume
rising cannot be discounted, in our view.
Amid this backdrop, most economists expect the economy to grow in 2011. Standard & Poor’s expects
GDP growth, job creation, and consumer spending to remain somewhat muted during the post-recession
economic recovery. The recent recession clearly was the most difficult period in the history of the modern
INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 1

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

We expect traffic to be up 0.5%–1.0% in 2011, which reflects company commentary in second-half 2010
and early 2011 on traffic, as well as our overall economic view that employment gains will be relatively
modest through the rest of the year. We still expect diners to watch their consumption of appetizers,
desserts, and higher-priced beverages; we think this should result in a 1.0% negative mix as part of the sales
equation in 2011.
The end of federal stimulus clouds industry outlook for 2011

It is quite probable that the economic recovery since the third quarter of 2009 has been due largely to a
boost to consumers and businesses from the American Recovery and Reinvestment Act of 2009 (ARRA),
otherwise known as Stimulus II. In late February 2009, Congress passed the ARRA with a total size of $787
billion, of which about two-thirds was scheduled to be spent within 24 months.
It is likely that the ARRA’s effect on consumer spending has been somewhat larger than that of Stimulus I in
2008. Stimulus I had consisted of more than $100 billion in tax rebate checks for most Americans, which
were sent out mostly in the second quarter of 2008. We think the positive (if temporary) effect that stimulus
checks had on restaurant sales was seen in the US Census Bureau’s tally of monthly retail sales at food and
drinking establishments. Restaurant sales growth held up generally well in 2008 until November, when sales
growth slowed dramatically to 0.5% from a year earlier, and December, when sales were flat. This notable
slowdown corresponded closely with the commencement of the sharp rise in joblessness, in our view.
Sales generally trended lower in the first half of 2009 as unemployment rose further, until the effects of
ARRA began to be felt in the second quarter. Because ARRA’s stimulus worked through a reduction in
monthly payroll taxes, rather than a one-time rebate check, its effects have likely been more diffuse as well.
One can argue that the hundreds of billions in tax cuts, state aid, and infrastructure spending did have a
positive material effect on employment in 2009, albeit by making the unemployment rate “less worse” than
it otherwise would have been. On the other hand, one can make a case that most businesses still have
substantial excess capacity and will more likely than not keep staffing at current levels, or seek to augment
permanent staffing with temporary workers only where needed.
Additionally, states and localities that received aid did not actually increase payrolls and spending as much
as envisioned. After using the aid to plug existing gaps in budgets, many states and municipalities are facing
new holes in their fiscal plans, and are likely to enact more budget cuts for fiscal 2011. Cuts in government
payrolls and the tax increases needed to balance state and local budgets could significantly offset the
positive effects of ARRA.
In any case, it is likely that federal stimulus—barring Congressional action to extend or expand parts of the
ARRA—will have little effect on the consumer beyond 2011. It was believed in some circles that a third
round of stimulus was under consideration that would be more focused on job creation and education and
training, but the Republican victories in the November 2010 Congressional elections now make this
extremely unlikely. Indeed, it appears that spending will fall, while still-substantially Democratic delegations
make sizable tax cuts also unlikely.
Against this likely backdrop, our industry outlook for 2011 is for a rather modest increase in sales. We
expect overall traffic to be up slightly, with a shift from full-service restaurants to quick-service chains, as in
2010. We expect price increases to remain tough to come by, and expect consumers to continue eschewing
extras such as appetizers, desserts, and more expensive beverages.
Has the savings rate peaked?

One additional positive factor for consumer spending has been a drop in the savings rate. After hitting 5.9%
in 2009, Standard & Poor’s estimates that the rate declined to 5.8% in 2010 and projects it will decline
further to 5.6% in 2011. Such drops in the savings rate should prove a modest boon to restaurant
companies on the theory that consumers who are saving less are likely spending more on discretionary
purchases, such as dining out.
The savings rate, which averaged 2.6% in 2008, began to increase when consumers realized that their
homes were no longer a sure store of wealth due to price declines and that more active saving was

necessary. Although readings of the S&P/Case-Shiller Home Price Index improved throughout most of 2009
and 2010, the pace of improvements has slowed decidedly since May 2010, and even turned negative in
October and November. Indeed, in November 2010 (latest available data), the 20-city index was still 28.6%
below its peak in the spring of 2006, according to Standard & Poor’s. One theory for the modest weakening
in prices blames the expiration (on April 30, 2010) of the $8,000 first-time homebuyers’ tax credit, which
had been expanded to most homebuyers.
However, not all “savings” are created equal. Because of the way that savings are counted, a reduction in
debt is equivalent in most cases to “savings.” Thus, when debt is either paid back or forgiven, there is no
true money set aside. This statistical phenomenon has led to something of a paradox in 2010: as consumers
simultaneously both increased spending and reduced their debt outstanding by a record amount, the savings
rate bounced around roughly between 5% and 6%.
How can a record reduction in debt occur even as consumer spending is rising? What this most likely means
is that in the aggregate, consumers are once again spending freely (although they won’t admit it), even as
record amounts of debt are being written off under government-sponsored mortgage debt restructuring
programs, as well as by private lenders. Anecdotally, stories abound of those who have kept their credit
lines current in order to maintain their lifestyle, even as they have voluntarily defaulted on their mortgages.
Travel influences restaurant spending

Another factor that has a pronounced effect on the restaurant industry, but does not receive as much
attention as we think it should, is the current state of the travel industry. Travel has a significant impact on
dollars spent on food consumed in restaurants. Smith Travel Research, an industry data source, predicts
that the hotel occupancy rate had increased 5.3% in 2010, compared to a 9% decline in 2009. For 2011,
the firm forecasts a further 1.6% increase in occupancy rates.
How important is hotel travel to restaurant sales? According to the National Restaurant Association’s
2007/2008 Operations Review, travelers and visitors in 2007 (latest available) accounted for a median of
15% of sales at quick-service restaurants, 20% at casual dining establishments, and 40% at fine dining
restaurants. We believe the decline in travel-related restaurant meals over the last few years has been
significant, due to less discretionary income available to consumers and business cutbacks on travel.
However, as the recovery continues and businesses once again become willing to spend on travel, we think
restaurants will see a modest uptick in travel-based traffic. That said, we think travel is unlikely to be the
large positive contributor to the restaurant industry in 2011 that it has been in the past.
RESTAURANTS FOCUS ON GLOBAL OPPORTUNITIES
Global expansion is nothing new for most US restaurant operators, especially those in the quick-service
segment. Indeed, efforts by companies like Yum! Brands Inc. and McDonald’s to expand into the so-called
BRIC nations (Brazil, Russia, India, and China) have been ongoing for over a decade now. More recently,
other companies have entered these markets.
In January 2011, Starbucks Corp. generated headlines when it announced that it was expanding into India
through a partnership with Tata Coffee Ltd., a division of the Tata Group conglomerate. The agreement
will give Starbucks access to Tata Coffee’s sizable sourcing and roasting operations. In addition, the two
will jointly develop Starbucks retail outlets, focusing first on upscale hotels and the like before moving into
standalone retail outlets. Tata Coffee is the largest grower of plantation coffee in Asia and already India’s
third largest exporter of instant coffee. Standard & Poor’s believes the agreement could significantly ramp
up domestic distribution for Tata Coffee, as well as increase exports to surrounding regions.
In May 2010, Brinker International explained that once it completes efforts to stabilize US operations
around its Chili’s and Maggiano’s Little Italy chains, it will focus on international expansion. In February
2011, Brinker opened its first Chili’s in Moscow and has plans to open 25 restaurants in Russia by 2017.
The Chili’s chain entered India in mid-2009 and had four restaurants there as of this writing. According to
an article in Nation’s Restaurant News, the company expects to open its first Chili’s in Brazil later in 2011.

CIVETS: the next BRICs?
While the BRIC countries remain a key focus for many operators, especially those that were not part of the
initial wave to invest in these nations, many restaurant companies are now pursuing efforts elsewhere. While
we have seen a notable uptick in all geographic areas, specific targets now include a group of countries known
as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) and the Middle East.
US-based restaurant companies seem drawn to the CIVETS countries for a number of the same reasons that
previously brought them into the BRIC nations. First, and probably most important, economic prospects in
these countries have been rapidly improving, with further growth and diversification likely to continue.
Coupled with this growth is usually a motivated and sizable youth population that has growing disposable
income and a desire to adopt the cuisine and other aspects of middle-class life. Finally, the CIVETS nations
generally offer relative (or at least improving) political stability and capable financial systems that usually
encourage foreign investments.
 Colombia. Although its protracted battle against guerrillas demonstrates some of the risks associated
with moving into less-developed regions, Colombia’s improving political stability and 16% annualized GDP
growth over the past six years also show the appeal of such opportunities. One drawback is its relatively
low population growth. According to an October 2010 article in Nation’s Restaurant News, Colombia has
about 53,000 restaurants.
 Indonesia. Though demand for fast food is growing rapidly in Indonesia, the biggest challenge for US
restaurants is to adapt their menus (and the related supply chains) to a predominately Muslim culture.
 Vietnam. According to the above-mentioned NRN article, Vietnam has about 530,000 foodservice
establishments, of which about 430,000 are street stalls. With coffee companies holding the number one
and two chain spots, the country seems ripe for opportunity. Yum Brand’s KFC, which has been in the
country for a decade, has nearly 100 units in Vietnam.
 Egypt. In addition to quick-service prospects, Egypt also has shown high demand for casual dining
establishments. Indeed, Chili’s Grill & Bar (a division of Brinker International Inc.) and T.G.I. Friday’s
(owned by Carlson Companies) have long been players in the Egyptian market, especially in Cairo.
However, January’s political upheaval in Egypt, including widespread and violent rioting, points out the
potential risks of operating in less-stable countries.
 Turkey. With large cities like Istanbul and Ankara, Turkey has drawn considerable interest from US
restaurants. It has the highest per capita GDP of the CIVETS countries, at about $12,750 per person.
 South Africa. With what is likely one of the more foreign-investment–friendly economies in this group,
South Africa continues to attract interest.
Middle East attracts restaurant companies

Beyond CIVETS, the Middle East continues to draw new investments from restaurant operators, especially
full-service operators, as evidenced by a number of recently announced projects. In October 2010, Darden
Restaurants announced that it is partnering with Americana Group of Kuwait to bring at least 60 Red
Lobster, Olive Garden, and LongHorn Steakhouse outlets to Bahrain, Egypt, Kuwait, Lebanon, Qatar,
Saudi Arabia, and the United Arab Emirates over the next five years.
In January 2011, The Cheesecake Factory Inc. announced plans to develop 22 restaurants over the next five
years in the Middle East, including the United Arab Emirates, Kuwait, Bahrain, Qatar, and Saudi Arabia,
and potentially expanding into North Africa, Central and Eastern Europe, Russia, and Turkey.
LABOR AND COMMODITY COSTS REMAIN A KEY FOCUS FOR RESTAURANTS
The good news is that labor costs are likely to remain subdued, despite recent increases in the federal
minimum wage. Record high unemployment for unskilled workers should prevent upward pressure on
wages, even as the economy recovers.

The federal minimum wage underwent a three-step increase from 2007 to 2009 totaling $2.10 per hour,
bringing the federal minimum wage to $7.25 an hour on July 24, 2009. Nevertheless, labor costs remained
subdued in 2009 and 2010 due to the large available labor pool amid record unemployment for unskilled,
mostly young workers. Since most restaurant chains compete with many other employers for the same
employees, the increases in the minimum wage have likely put upward pressure on wages even for employees
making more than the minimum. Granted, the rise in unemployment greatly mitigated this pressure, but we
believe labor costs are generally higher than they otherwise would have been.
We note that the increase in the minimum wage has affected some chains more than others. Some larger
national chains, such as McDonald’s, already pay wages in excess of the mandated minimums to most of
their employees. In addition, because numerous states already had a minimum wage that exceeded the new
federal minimum, the impact of the increase was likely limited to those chains operating in states where the
federal rate prevails. Chains like Texas Roadhouse Inc. that operate in regions where the average hourly
wage is somewhat lower than the national average are likely to see labor costs rise more in line with the
increase in the federal minimum wage.
Although the overall unemployment rate fell to 9.0% in January 2011, teenage joblessness remains
stubbornly high. Moreover, the unemployment rate for teenagers—25.7% in January, up from 25.4% the
previous month—could remain at sharply elevated levels if the restaurant industry and other employers of
large numbers of unskilled or inexperienced workers remain cautious in hiring. This caution is reflected in
the change in hourly wages in the leisure and hospitality industry: from September 2009 to September 2010,
wages rose 1.5%, according to the Bureau of Labor Statistics.
Food commodity cost outlook remains elevated

Most restaurants enacted only modest price increases in 2010 in an effort to preserve sales, regardless of the
likely negative effect this might have had on profit margins. Unfortunately for most operators, the cost of
most protein foods (i.e., meats, eggs, fish, and dairy) rose sharply during 2010, even as top-line growth
returned for many companies. Because many publicly owned restaurant companies negotiate most of their
BEEF, PORK AND POULTRY PRICES
commodity purchases well in advance,
(Index, 1982=100) however, the inflation in commodity costs
may not have been entirely felt in 2010.
180
170 The National Restaurant Association estimates
160 that average wholesale food costs rose 5% in
Chart H06: Beef
150 2010, with beef up 14%; pork up 33%; milk
Pork Poultry prices
140 up 27%; cheddar cheese up 17%; and butter
130 up 41%. It has a more benign view for broilers
120 and eggs, with prices up only in the single-digit
110 percentages. For 2011, the group sees beef up
100 1%–9% and cheddar up 1%–6%, with most
90 other items up or down slightly.
80
70 Will restaurants be able to raise prices more
1998 99 00 01 02 03 04 05 06 07 08 09 2010
than we expect to offset cost increases—both
Beef & veal Pork Chicken anticipated and unanticipated? We think the
current environment, in which very little
Source: US Bureau of Labor Statistics.
pricing power exists, will persist through
2011. The importance of price as a competitive factor is greater than at any time in the recent past, and we
see no end to the trend.
According to the World Agricultural Supply and Demand Estimates report, published monthly by the US
Department of Agriculture (USDA) and approved by the World Agricultural Outlook Board, expectations
for accelerating growth in emerging market demand for many agricultural products has largely contributed
to a resumption of rising expectations for commodity prices (demand in developed economies is relatively
stable). Uncertainties persist due to the continued use of corn to produce fuel. In addition, other factors—

such as protectionist movements in various countries, or unpredictable weather conditions such drought or
excessive precipitation—could alter global supply and demand balances.
Following are current outlooks for various commodities from the USDA. Keep in mind that many
restaurants, particularly large restaurant chains, purchase commodities on a forward basis or enter into
hedges, so the prices they pay may differ from spot prices. In general, when spot prices are rising, prices
actually paid may be lower than spot prices; conversely, when spot prices are falling, prices actually paid
may be higher.
 Wheat. After reducing acreage for 2010 plantings in response to stabilization of wheat prices in 2009,
which in turn followed record highs in 2008, US wheat production for 2011 is expected to benefit from
more ideal weather. Fortunately for US farmers, export demand has been stronger than expected due to
lower yields in several key producing countries. Ending stocks are projected to be higher than earlier
forecast as well. For the 2010/11 marketing year, farm prices are projected at $5.30–$5.70 per bushel,
reflecting an increase from the previous estimate.
 Corn. In recent years, farmers increased corn acreage: the use of corn to make ethanol for fuel raised
demand and put upward pressure on prices. Due to the increase in acreage, stabilization in the amount of
corn used to produce fuel, and a record crop of 13.2 billion bushels, corn prices have moderated and the
outlook is more stable. In 2010, greater demand for fuel production offset lower exports. Farm prices in the
current year are forecast at $4.90–$5.70 a bushel, compared with the 2009/10 average of about $4.75.
 Rice. Of much greater importance in many other countries than in the US, global rice production
improved in 2009 due to better weather in several of the primary producing countries. A poor harvest in
2008 did not keep pace with consumption in many places around the world, which led to export restrictions
in several countries and other artificial market controls. The sharp increase in rice prices spurred US farmers
to plant substantially more acreage (primarily of long-grain rice) in recent years. This resulted in record US
rice production in 2010. Used perhaps more extensively by restaurants serving Mexican or Asian cuisine
than at other restaurants, rice was expected to cost somewhat less in 2010/11 for both long-grain and short-
grain product, and the record production forecast is further pressuring prices. The USDA projects the
average farm price to fall to $10.50–$11.50 per hundredweight (cwt) for long-grain, from about $9.50 in
2009/10, and to $17.00–$18.00 per cwt for short-grain, from $17.50.
 Oilseeds. A variety of crops are used to make oils, including soybeans, cottonseed, sunflower seed,
canola, and peanuts. Over the past several years, domestic oilseed production declined as farmers shifted
acreage to the corn used for fuel production. However, the drop in corn prices in 2009 caused a return to
more acreage of oilseeds. Another product affecting the production and price of oils is soybean meal, which
is used as an ingredient in processed foods and as livestock feed. Most soybeans are used to make either oil
or meal, so relative pricing can cause a shift in production of the two. In 2009/10, growers maintained the
acreage that was shifted back to soybeans from corn in 2008/09. Prices across the soybean complex in
2010/11 are expected to remain at or below the lower levels seen in 2009/10, although moderately higher
export demand appears to have put a floor under price declines.
 Livestock and poultry. The USDA expects beef production in 2011 to decrease about 1% from 2010.
Prices are projected to rise 11%–14%. Pork production declined about 3% in 2010 and is forecast to
rebound by 2% in 2011. Prices are likely to continue rebounding after falling sharply in 2009, most likely
due to groundless “swine flu” concerns. (The H1N1 flu virus was never transferable from processed pork
products to humans.) For producers of broilers, higher demand led to better pricing and an increase in
production in 2010, and we see similar trends continuing in 2011. This compares to lower returns and
reduced flock sizes in 2009. Turkey production is seen nearly flat, while prices are expected to be up about
12%. Egg production likely increased in 2010, and will continue to increase in 2011, reversing its gradual
long-term decline. Prices were slightly lower in 2010, and we see a modest increase in 2011.
 Dairy. Milk production is expected to rise slightly through 2011 in response to a rebound in prices.
Production had been following prices lower: prices were hurt in part by lower export demand, which led to
a shift in supply back to the domestic market. After falling by about a third in 2009 from its 2008 peak, the

price of milk rebounded by about 24% in 2010 and will likely rise moderately in 2011. Cheese prices
increased 15% in 2010, and are expected to climb a further 5%–10% in 2011. Prices for butter, nonfat dry
milk, and dry whey (key ingredients in processed foods) also rebounded in 2010, and are on pace to increase
again in 2011. A composite index of prices for various milk and milk byproducts, which are heavily used by
restaurants and in processed foods, rose about 24% in 2010 to $15.92, from $12.84 in 2009. The level of
this price index was $18.34 in 2008.
INDUSTRY CONSOLIDATION CONTINUES
In 2011, given our forecast of only modest sales growth for the industry and with cost pressures likely to
intensify, we would expect more operators to fail. Indeed, industry research firm NPD Group Inc.
announced in January 2011 that their US restaurant unit count had declined by 1% (a loss of 5,551
restaurants) in fall 2010 compared with fall 2009.
With more than 925,000 food service locations in operation—about one for every 330 people in the US—
one can make a case that there are too many restaurants. The National Restaurant Association estimated
that the number of restaurant locations held steady during 2009, signifying that the number of locations
opening offset closures. We had thought that a material consolidation would take place in 2009, but it is
likely that very low interest rates, landlords’ willingness to renegotiate lower rents (rather than lose a
valuable tenant), as well as the sharp drop in commodity prices, helped save more than a few operators.
The list of operators that closed locations grew substantially through early 2009, but closings took at least a
temporary hiatus that summer, propelled by cheap financing made possible by the Federal Reserve. In 2010,
due to the Federal Reserve’s near-zero interest rate policy, several publicly traded restaurant companies,
such as O’Charley’s Inc. and Ruth’s Hospitality Group Inc., were able to obtain new financing. As in those
instances, the terms of new financings often carry reduced maximum borrowings and much higher interest
rates, but less onerous operating covenants. We would characterize some of these deals as last-ditch efforts
to buy some time for fundamentals to improve. Still, we believe time is quickly running out for companies
to work out new “extend and pretend” financing with their creditors.
With so many kinds of restaurants with varying operating models, it is difficult to pinpoint how many
restaurants the US can support, particularly during a severe economic downturn. With the recent recession
turning out to be deeper and longer than the average post–World War II recession, one might consider a
scenario where the industry would shrink to where there is one restaurant for every 350 people. This would
entail the closure of about 70,000 locations, in our estimation. The average number of persons working at a
restaurant is about 13.4 (though headcount varies tremendously across all the many types of restaurants in
the industry). If 70,000 food service locations were to go out of business, about 940,000 of the nearly 13
million people working in the foodservice industry would lose their means of support.
FULL-SERVICE CHAINS: PRICES UNDER PRESSURE
Standard & Poor’s projects that sales at full-service restaurants will increase 1.5% to $178.7 billion in
2011, on a 1.0% increase in guest traffic, 1.5% higher average menu prices, and a 1.0% positive effect from
mix changes. Our expectation of a 1.5% sales increase for this segment contrasts with the 2.5% increase
that we see for the foodservice industry overall. We expect slightly improved unemployment, the modest
return of business travel spending, and an overall feeling of improving certainty about the future of the
economy to benefit full-service restaurants more than quick-service operators.
With guest traffic still likely to increase only modestly across nearly all full-service categories, from fine
dining to family restaurants, managers will carefully weigh whether to absorb cost increases in order to
minimize lost traffic, despite the potential that this will squeeze margins. Most likely, managers will be
loathe to raise prices on their menus, choosing instead to effectively lower costs by reworking recipes or
reducing portion sizes.
For casual dining, the sub-segment of the full-service category that perhaps enjoyed the greatest growth over
the past decade, we think consumers have become very sensitive to the minimum and maximum prices in

restaurants. Over the course of 2010, we think this resulted in consumers becoming price sensitive to $8 as
the starting price point for entrées, whereas previously we viewed $10 as the level where consumers felt
comfortable. For family dining, bar and grill, and buffet-style steakhouse chains, we think the new entry
point may be $6, or as low as $5.
The price promotion that received perhaps the most attention during 2009 (and was repeated in 2010) was
Denny’s Super Bowl XLIII ad promoting a free Grand Slam at all 1,500 Denny’s restaurants for an eight-
hour period on the Tuesday following the game. In all, about two million Grand Slams were served, which,
along with the commercial, cost about $5 million, according to the company. We think that this promotion,
while expensive, instantly re-acquainted consumers with Denny’s and its value proposition (after years in
which the chain appeared to struggle to connect) and also boosted repeat business. Denny’s purchased three
ad spots during the 2010 Super Bowl and repeated the free Grand Slam promotion, which ran on February 9
from 6 a.m. to 2 p.m.
Other restaurants that provide higher-priced fare are also jumping on the value bandwagon through a
variety of means. Prix fixe meals for 30%–50% off what they would cost à la carte help lure traffic at fine
dining establishments. From the corner location of your favorite bar and grill, to that little undiscovered
jewel that serves all your favorites, new smaller portion appetizers, entrées, and desserts are being offered to
retain customers. Limited-time offers, such as coupons, special or “happy” hours, and the more timely
“recession busters” and derivatives thereof, are a more direct approach to generating traffic based on price.
Some chains prefer to appeal to a more specific target audience with family prices, based on four people, or
“two-for” offers for couples.
Nevertheless, value is relative. Full-service operators, particularly at the very high end, have adopted a
practice that seeks to offset, at least partly, the negative effect on profit margins of promotional activities
used to attract the more price-conscious diner: sharply raising appetizer, side dish, and dessert prices, while
keeping entrée and drink prices steady. For customers who aren’t as price sensitive, or simply don’t pay
attention, these increases boosted their average check but avoided the “sticker shock” of large jumps in
entrée prices. Other strategies for preserving business that were adopted during the recession are likely to be
maintained, such as more emphasis on take-out and catering. Many operators have also reduced staffing,
and may attempt to keep staffing low even as business turns up. This tactic is very risky, in our view, since it
would probably hurt the service component of the full-service restaurant’s value proposition.
QUICK SERVICE: CUSTOMERS CHOOSE VALUE
Standard & Poor’s forecasts that the quick-service restaurant segment will perform relatively well overall in
2011, with a sales increase of 1.8% to $165 billion. The projected advance reflects virtually no menu price
increase. We expect guest traffic to rise about 1.0%, partly reflecting a continuing of the trend for customers
to trade down from full-service restaurants. We expect the breakfast and lunch day parts to continue to
outperform the dinner day part. We expect a smaller negative mix shift of only about 0.25%, down from a
larger negative mix effect in 2010, which we think was driven by more heavily promoted value menu
options. We project the snack and nonalcoholic beverages segment, which often competes for the same
customer but is much smaller than the quick-service category, will experience a sales increase of about 1.0%
to $24.6 billion in 2011, on a 1.5% rise in traffic, no change in menu prices, and a 0.5% positive mix.
Reinventing fast food

Fast-food chains have been focusing on under-served parts of the day in order to offset slumping traffic
during the traditional lunch and dinner periods. The rationale is that rent and other costs are largely fixed,
and some staffing is already required during off-peak periods. Thus, if additional gross profits on
incremental sales from nontraditional day parts at least cover staffing costs during the off-peak periods, the
increased attention makes sense.
The most prominent day part addition in recent years was the breakfast segment. The NPD Group has
determined that breakfast accounted for 60% of traffic growth over the 2005–09 period (latest available),
while lunch was flat and dinner traffic declined about 2% per year.

Nontraditional day parts account for the rest of the increase in traffic. Chains such as Taco Bell and others
have strong late-night business, promoting menu items that are easily transportable. McDonald’s, which has
dominated breakfast, is fighting back against these upstarts. In 2010, McDonald’s upped the ante by adding
a $1 breakfast value menu to its tiered breakfast menu (which has both value and premium items, just as its
sandwich menu has). The company has added premium coffee drinks in its US restaurants and has started
rolling out other specialty beverages, with a separate counter and additional staffing, in order to challenge
beverage specialists such as Starbucks and Dunkin’ Donuts. As part of its commitment to offer healthier
products, McDonald’s began selling fruit and maple oatmeal in January 2011.
Value menus squeeze margins

These recent efforts notwithstanding, we believe rising costs and weak pricing power remain a key issue for
the fast-food sector. Though food costs were relatively stable in 2008 and 2009, they climbed substantially
in 2010 and may continue to do so in 2011.
With value menus now pervasive at most quick service and some lower-scale, full-service chains, we believe
that competitive pressure on menu pricing is intense. We do not see pricing power reemerging any time
soon. Customers have become accustomed to value-priced menu options. In addition to the lack of ability to
raise prices, attempts to cut costs have been controversial. We cite an instance when, in response to record
cheese prices in late 2008, McDonald’s removed one slice of cheese from the double cheeseburger on its
value menu. In response, Burger King heavily promoted its $1 double cheeseburger with two slices of
cheese—in ads that directly compared it with McDonald’s double cheeseburger with one slice. However,
this addition to Burger King’s BK Value Menu caused some franchisees to sue to block the company from
forcing them to sell this item for $1; Burger King eventually relented and raised the price to $1.19. The
franchisees contended that their franchise agreements do not give the company any control over pricing.
As the low end of the full-service segment is downsizing menu items to compete directly with quick-service
premium offerings in the $3–$5 price range, fast food operators are beginning to fight back. Burger King
has opened Whopper Bars in select locations, such as airport waiting areas, where customers can custom-
build their own burgers. A selection of beers is available at some Whopper Bars, with a burger and beer
combo selling for about $8, which is very price competitive with neighborhood bar and grill menu offerings.
INDUSTRY’S EFFORTS ON REGULATORY, LEGISLATIVE MATTERS
The restaurant industry actively lobbies government and elected officials on a number of regulatory and
legislative issues that are likely to affect the industry. The top issue that dominated the first year of the
Obama Administration was healthcare reform. On March 23, 2010, President Obama signed into law the
healthcare reform bill, known as the Patient Protection and Affordable Care Act (PPACA; H.R. 3590).
The healthcare reform bill appears to largely shield the restaurant industry from an increased reliance on
employer-subsidized coverage, in favor of a system that would formalize greater responsibility by
individuals for paying for coverage. While much of the legislation will not take effect for several years, we
think the present status quo situation will continue. We do not expect a material change in the relatively
higher rates of non-coverage within the restaurant industry relative to other industries, as well as in the
differences in employer-paid coverage offered to supervisory and full-time employees versus nonsupervisory
and part-time employees.
Another issue the industry has fought for years is menu nutrition labeling, but it appears that this battle may
be close to being lost. Various state legislatures have passed laws requiring nutritional information on
menus in most restaurants. As various courts subsequently upheld these laws following challenges by the
restaurant industry, it has essentially come around to supporting what it views as the lesser of two evils: a
national standard for menu labeling, rather than a different standard in each state.
On December 22, 2010, the US House of Representatives passed the Food and Drug Administration Food
Safety Modernization Act. The legislation, which the Senate had passed earlier that week, was signed into
law by President Obama on January 4, 2011. The National Restaurant Association was pleased with the
signing of the bill. The new regulations center on preventing food-borne illnesses, rather than responding

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

INDUSTRY PROFILE
Satisfying the consumer’s appetite

The US foodservice industry comprises a large and varied range of away-from-home eating facilities:
everything from commercial eating and drinking places (restaurants, bars, cafeterias, and so forth) to food
contractors and institutional providers. The National Restaurant Association, an industry trade group,
estimates that overall US foodservice industry sales were $580 billion in 2010, up 2.5% from $565.7 billion
in 2009. Given modest economic growth, Standard & Poor’s forecasts that revenues will rise a similar 2%–
3% in 2011.
This Survey focuses on the restaurant sector of the foodservice industry. For additional details and industry
breakdowns, see the “Projected US foodservice industry sales” table in the “Current Environment” section.
INDUSTRY SEGMENTS
The publicly traded companies that dominate the restaurant industry are varied. They range from fast-food
operators, such as McDonald’s Corp., Burger King Holdings Inc., and Wendy’s/Arby’s Group Inc. (formed
by the September 2008 acquisition of Wendy’s International Inc. by Triarc Companies Inc.), to companies
that run full-service chains, such as Darden Restaurants Inc. (operator of the Red Lobster, Olive Garden,
and LongHorn Steakhouse restaurants), Brinker International Inc. (operator of Chili’s Grill & Bar and
Maggiano's Little Italy), and DineEquity Inc. (operator of IHOP and Applebee’s). There are also a few
public companies in the fine dining sub-segment of the full-service part of the industry. More often, such
restaurants are traditionally run by
RESTAURANT MARKET SHARES—2009 individuals, families, or limited partnerships.
They are typically located in cities or resort
Bakery café Convenience
1.2% areas, and cater to business people, the
store
Buffet 1.2% affluent, and those who aspire to affluence.
Snack
0.8% Other
2.7%
2.1% Fast food
Hotel
2.9% Quick counter service, meals to eat in or take
Coffee Chart H04: out, low prices, and plain décor are features
3.6%
Restaurant
Family common to fast-food (or limited-service)
Pizza 5.1% market shares restaurants. These outlets tend to specialize
Sandwich
6.1%
42.7% in a few menu items: hamburgers, pizza,
Chicken sandwiches, and/or chicken. Another trait of
6.3% fast food outlets is that generally they do not
serve alcohol. According to estimates by the
Contract National Restaurant Association, sales at
10.1% limited-service establishments in the United
Casual dining
15.2% States rose 1.5% in 2009 to $160.0 billion
TOTAL: $205.7 BILLION* (28.3% of total 2009 US foodservice
industry sales).
* Total sales are the combined domestic sales of the top 100 chains.
Source: Nation's Restaurant News. The fast-food industry is less fragmented
than its full-service counterpart. This is
partly a result of the segment’s focus on quick service and price. Larger chains tend to have an advantage
because their economies of scale allow them to develop the operational expertise to improve efficiency and
speed transactions, and to purchase supplies more cheaply. Sales figures and comparisons that follow reflect
the latest available data.
 Sandwich chains. The main attraction at a sandwich chain is the hamburger. However, many chains offer
a larger variety of main-course items, such as chicken and fish sandwiches. Many offer salads as a popular

and healthy alternative to sandwiches. Tacos and burritos are also included in the sandwich category, and a
number of chains have taken advantage of the tortilla’s portability to offer a variety of wraps.
Nontraditional service hours, including the breakfast, snack, and overnight parts of the day, have been a
major source of growth for sandwich chains in recent years. New menu items, such as dessert-like coffee
drinks and fruit smoothies, are seen as a future source of growth, as well.
Several large competitors, with chains that are generally recognizable throughout the nation, dominate the
sandwich chain category. With $30.0 billion in US sales in 2009, McDonald’s is the largest fast-food chain by
a wide margin. However, the concept faces strong competition from Subway (operated by privately held
Doctor’s Associates Inc.; $10.0 billion),
LARGEST US RESTAURANT CHAINS
Burger King (about $9.0 billion), Wendy’s
(Ranked by 2009 US systemwide foodservice sales)
(approximately $7.9 billion), and Taco
------ US SALES (MIL.$) ------ ----------- US UNITS ---------- Bell, a division of Yum! Brands Inc. ($6.8
CHAIN 2008 2009 % CHG. 2008 2009 % CHG.
billion).
McDonald's 29,988 31,033 3.5 13,918 13,980 0.4
Subway Table B02: largest
9,638 9,999 3.8 21,881 23,034 5.3
In 2009, annual sales at sandwich chains
Burger King 9,152 8,882 (3.0) 7,233 7,263 0.4
restaurant chains in NRN’s Top 100 averaged $1.09
Wendy's 8,009 7,919 (1.1) 5,905 5,877 (0.5)
million per unit, according to data from
Starbucks 7,755 7,415 (4.4) 10,992 10,553 (4.0)
company reports and industry publication
Taco Bell 6,700 6,800 1.5 5,588 5,604 0.3
Nation’s Restaurant News (NRN).
Dunkin' Donuts 4,955 5,110 3.1 6,395 6,566 2.7
Pizza Hut 5,500 5,000 (9.1) 7,564 7,566
Company results varied widely. Among
0.0
KFC 5,200 4,900 (5.8) 5,253 5,162 publicly held companies, McDonald’s was
(1.7)
Applebee's 4,487 4,373 (2.5) 1,875 1,868 the leader, with an average of about $2.22
(0.4)
Chili's Grill & Bar 3,961 4,000 1.0 1,292 1,297 million in annual per-unit sales. However,
0.4
Sonic Drive-In 3,811 3,837 0.7 3,475 3,544 a privately held company that made the
2.0
Olive Garden 3,271 3,365 2.9 685 717 list for the first time in 2008 topped the
4.7
Chick-fil-A 2,962 3,217 8.6 1,423 1,480 home of the Big Mac for the second
4.0
Domino's Pizza 3,057 3,097 1.3 5,047 4,927 straight year. Jason’s Deli, which has
(2.4)
Jack-in-the Box 3,048 3,072 0.8 2,158 2,212 2.5
about 215 locations in 28 states, topped
Arby's 3,254 2,983 (8.3) 3,633 3,596 (1.0)
all sandwich chains with $2.25 million per
Dairy Queen 2,600 2,640 1.5 4,584 4,540 (1.0)
location, while the predominantly
Panera Bread 2,447 2,579 5.4 1,197 1,251 4.5
California chain In-N-Out Burger was
IHOP Restaurants 2,419 2,511 3.8 1,380 1,433 3.8
third with $2.19 million per unit. These
Source: Nation's Restaurant News .
three were the only sandwich chains to
top $2 million per restaurant. Other prominent sandwich chains in the Top 100 included fast-growing
Chipotle Mexican Grill Inc. ($1.69 million), Jack in the Box Inc. ($1.41 million), and Wendy’s ($1.34 million).
Many Top 100 chains saw average unit sales fall in 2009 due to the recession. These included Jack in the Box,
which dipped just over 1% to $1.41 million per unit, and White Castle, which saw a decline of over 5% to
$1.31 million. We also note that the fastest growing chain in the country in 2009, Five Guys Burgers & Fries
(45% expansion in 2009), bucked the trend, with a 14% increase in average unit sales to $1.08 million.
Some operators within the fast-food segment could also be considered part of the growing fast-casual
segment. This group centers on meeting customers’ demand for speed, convenience, and quality—-all at a
lower price point than at a full-service restaurant. Some of the largest and most successful players in this
growing segment are Panera Bread, Chipotle Mexican Grill, and Five Guys Burgers and Fries. Standard &
Poor’s expects the segment to remain a key area for potential growth and for full-service operators in
particular to introduce new concepts. For example, P.F. Chang’s China Bistro has scaled down its concept
for the Pei Wei brand, and Ruby Tuesday plans to open 200 Lime Fresh locations by the end of 2012.
According to research firm Mintel, fast-casual sales totaled about $23 billion in 2010, up 30% from 2006’s
tally, and we expect substantial growth to continue in coming years.
 Pizza. The nation’s largest purveyor of pizza is Pizza Hut, a division of Yum Brands (US sales of $5.00
billion in 2009), followed by Domino’s Pizza Inc. ($3.10 billion). Papa John’s International Inc. ($2.09 billion)
and Little Caesars (a division of Ilitch Holdings Inc.; about $1.19 billion) also are large, nationally known
pizza concepts. These four account for 87% of the aggregate sales in the pizza chain restaurant segment.
FASTEST-GROWING US RESTAURANT CHAINS Two newcomers that joined the Top 100 list
(Ranked by percentage increase in foodservice revenues) of pizza purveyors in 2008 saw mixed results
% CHANGE IN in 2009. Papa Murphy’s Take ‘N’ Bake Pizza
----- REVENUES ----- saw sales rise 8% to $626 million in 2009, by
FISCAL PREV. CURRENT offering pizza (with the customer’s choice of
YEAR END YEAR YEAR toppings) that is then taken home and
Five Guys Burgers and Fries Dec-09 74.3 69.0 cooked. The mostly franchised chain has
Buffalo Wild Wings Grill & Bar Dec-09 20.9 20.4 nearly 1,175 locations in 32 states and
Chipotle Mexican Grill Dec-09 22.3 14.0 Canada. Not faring as well was CiCi’s Pizza
Chick-fil-A Dec-09 12.2 8.6 ($564 million), which saw sales dip 3%.
Table B03:
Zaxby's FASTEST- Dec-09 18.0 8.2 CiCi’s takes the pizza concept in a completely
Bojangles' Famous Chicken
GROWING 'n Biscuits
US Dec-09 8.2 8.1 opposite direction by offering an all-you-can-
Papa Murphy's TakeRESTAURANT
'N Bake Pizza Dec-09 16.1 7.8 eat pizza, pasta, salad, and dessert buffet for
Panera Bread CHAINS Dec-09 16.3 5.4 about $5, as long as you like the selections
7-Eleven Dec-09 3.4 4.5
that CiCi’s offers.
Steak n Shake Sep-09 (4.9) 4.0
IHOP Restaurants Dec-09 4.4 3.8 The pizza segment continued to struggle in
Subway Dec-09 17.2 3.8
2009 to find the right balance of promotions
Panda Express Dec-09 15.5 3.7
and pricing to keep both customers and
McDonald's Dec-09 4.9 3.5
profits. Top-ranked Pizza Hut was the
Dunkin' Donuts Dec-09 3.8 3.1
In-N-Out Burger Dec-09 5.3 3.0
biggest loser in the market share battle, as its
Wawa Dec-09 2.6 3.0 US systemwide sales fell 9% in 2009.
Olive Garden May-10 7.3 2.9
Texas Roadhouse Dec-09 9.5  Chicken. KFC Corp. (a division of Yum
2.6
Golden Corral Dec-09 (0.7) Brands) is the leader in this category, with
2.5
Source: Nation's Restaurant News . US systemwide sales totaling an estimated
$4.90 billion in 2009. KFC stumbled again
in 2009 as sales fell for the second year in a row, while the next largest competitor, Chick-fil-A Inc. ($3.22
billion) saw sales rise 9%. Revenue growth at Chick-fil-A has increased more quickly than at its competitors
over the past several years, fueled by aggressive expansion and high customer satisfaction scores, especially for
speed of service. The latter is a category in which the company maintains the highest scores in the fast-food
industry. Other competitors include Popeye’s Chicken & Biscuits (operated by AFC Enterprises Inc.; $1.49
billion) and Church’s Chicken (operated by Cajun Operating Co.; $858 million).
Full service
All full-service restaurants offer some form of table ordering, though their price points range from low to
high. These restaurants have much higher per-unit sales volume, on average, than do fast-food outlets.
According to the National Restaurant Association, sales at full-service restaurants totaled about $182.0
billion in 2009, down 3.9% from 2008. Sales at full-service eateries accounted for 32.1% of total US
foodservice industry sales in 2009.
 Casual dining. Casual dining chains (also referred to as the dinnerhouse segment) encompass a host of
restaurant types, including seafood, Asian, and Italian. The top 10 chains based on sales had mixed results in
2009, with five showing sales gains and five showing declines. Based on total systemwide sales, Applebee’s
Neighborhood Grill & Bar (operated by DineEquity Inc.) leads the segment ($4.37 billion in 2009), followed
by Chili’s Grill & Bar (operated by Brinker International; $4.00 billion in the fiscal year ended June 2008),
Olive Garden (operated by Darden Restaurants Inc.; $3.36 billion), Red Lobster (also a Darden-owned brand,
$2.46 billion) and Outback Steakhouse (operated by OSI Restaurant Partners LLC; $2.25 billion).
Only one of the top 10 casual dining chains ranked by average per-unit sales—Chili’s Grill & Bar—saw an
increase in average unit sales in 2009, with a 0.5% gain, according to data from Nation’s Restaurant News.
Measured by average per-unit sales, The Cheesecake Factory Inc. was No. 1, with $9.58 million sales per
unit in 2009. Olive Garden ($4.90 million per unit) moved into second place, switching places with P.F.
Chang’s China Bistro Inc., which fell to third ($4.79 million). Rounding out the top five were Red Lobster
($3.70 million) and Texas Roadhouse ($3.68 million).

 Family restaurants. A family restaurant aims to appeal to customers of all ages by offering a relaxed
atmosphere, low prices, and menus geared to both children’s and adults’ palates. These restaurants are
sometimes referred to as “midscale.” Category leader International House of Pancakes/IHOP, operated by
DineEquity Inc. (systemwide sales of $2.51 billion in 2009), grew despite the tough economy in 2009, while
second-place Denny’s (a division of Denny’s Corp.; systemwide sales of $2.16 billion) saw its sales decline.
Cracker Barrel Old Country Store (a division of CBRL Group Inc.; $1.88 billion) was in third place with
nearly flat sales growth in its latest fiscal year.
On a sales per unit basis, Cracker Barrel led this segment, averaging an estimated $3.22 million per unit in
the fiscal year ended July 2009. This was well ahead of IHOP ($1.76 million per unit), Bob Evans restaurants
(operated by Bob Evans Farms Inc.; $1.73 million per unit), Perkins Restaurant and Bakery (a division of
Perkins & Marie Callender’s Inc.; $1.60 million per unit), and Steak ’n Shake ($1.48 million per unit).
 Coffee/Snack. These chains have grown up specializing in one or just a few particular food or beverage
items, although menu expansion has almost always been tried as a way to spur growth. Starbucks Corp. is
perhaps the best example of a restaurant chain thriving in the specialty area of the industry. With about
10,500 locations in the United States, sales in the US were approximately $7.56 billion in its fiscal year
ended September 2010. While Starbucks does sell food, the company specializes in coffee products. Other
examples of chains specialized by product include Dunkin’ Donuts ($5.11 billion) and Baskin-Robbins
($578 million), both owned by Dunkin’ Brands Inc., and Krispy Kreme Doughnuts Inc. ($464 million).
Other
Within the restaurant industry, there are chains that do not easily fit into specific categories, due to the kind
of product they sell or the way in which they serve the product. Examples include bars and taverns, caterers,
and snack and beverage bars. These loose categories accounted for sales of approximately $57.0 billion in
2009, or about 10.0% of total US foodservice sales.
INDUSTRY TRENDS
The restaurant industry is highly competitive. This has forced operators to find ways to continue to boost
market share, to find and retain employees, and to control costs, as they strive to maximize profits.
SALES TRENDS FINALLY STABILIZING AFTER YEARS OF DECLINES
In 2009, 59 of the top 100 restaurant chains reported lower sales, but by the third quarter of 2010, industry
sales indicated the industry was finally stabilizing, and that a number of companies were even growing. This
comes after years of declines that likely
US FOOD SALES GROWTH stabilized in 2010. According to industry
(In billions of dollars) research firm Technomic Inc., total
foodservice sales likely increased 0.3% in
600
2010 in nominal terms, but declined 1.2%
500
when adjusted for inflation.
Chart H01: US
400 Despite the stabilizing trends, many
FOOD SALES
companies are still recovering and
300
GROWTH
repositioning after the downturn. The lack of
top-line growth over the past few years has
200
led to a greater focus on the availability and
100 use of capital. This represents a marked
change for an industry that has traditionally
0 had ready access to capital from banks and in
1984 86 88 90 *92 94 96 98 00 02 04 06 08 2010 the capital markets.
Eating & drinking places All food stores
*Change in data compilation from SIC categories to NAICS categories.
In recent years, numerous companies, such as
Source: US Department of Commerce. Dunkin’ Brands, Sonic Corp. and Domino’s

Pizza, voluntarily underwent leveraged recapitalizations. Many others were taken private in similarly
leveraged transactions by private equity groups. Underlying these strategies was the premise that growth
would reduce financial risk over time, and that higher debt would always result in a higher return on equity.
Indeed, a wave of deals in 2010 demonstrates that private equity groups have developed a taste for the
industry, though given the sector’s recent run-up in valuation, it remains to be seen whether this trend will
continue. The largest of these deals was 3G Capital’s $4 billion takeover bid for Burger King, announced in
September 2010 and completed in November 2010. Other firms that saw bids in 2010 include On the
Border, Papa Murphy’s, and Rubio’s. Meanwhile, Wendy’s/Arby’s Group put the Arby’s sandwich chain on
the auction block in January 2011, just days after Yum Brands announced it was seeking a buyer for Long
John Silver’s and A&W All-American Food Restaurants. It remains to be seen if buyers emerge for these
properties and, if so, what they are willing to pay.
Clearly, flat GDP growth in 2008 and a 2.6% decline in 2009 have demonstrated the risk in this premise.
Most restaurant operators now take a longer-term view when considering changes in their capital structure.
Most are increasing the cash that they hold, paying down debt taken on earlier to grow, or buying back
stock. Now that trends seem to be stabilizing, many have resumed expansion plans, but the recent downturn
has left its mark. Most capital projects now are focused on more modest efforts and utilize less aggressive
funding methods. Indeed, cash flow is once again a key driver of near-term operations and prospects.
COMPETING FOR CUSTOMERS
To improve or simply maintain market share in the competitive restaurant industry, companies employ
strategies to improve consumer choice, convenience, and value. Techniques include adding cuisine types,
discounting prices to attract customers, expanding takeout service, and using technology to improve
customer satisfaction. Restaurants are also extending their menus to draw in both value-conscious and
premium customers. More fast-food chains are offering breakfast options, and many are catering to a late-
night clientele by extending operating hours.
Driven by demographic changes, many restaurants have begun to diversify their menus across various
cuisine types. For instance, with the Hispanic and Asian-American segments growing at a faster pace than
the overall US population, many restaurants are developing new products to target these groups’ tastes,
often attracting other customers in the process.
Hispanic market in focus

The Hispanic market has become increasingly important to the restaurant industry, reflecting this
community’s growing influence in the US economy. According to the US Census Bureau, nearly 16% of the
US population (about 48 million people) identify themselves as Hispanic or Latino. At recent growth rates,
the group is expected to rise to 25% of the population within several decades.
However, a recently published study by the US Census Bureau suggests that Hispanic households have
somewhat lower disposable incomes relative to other groups, particularly after accounting for housing
expenditures. (The study found that Hispanic households on average spent more of their income on
housing.) Even after adjusting to equalize household incomes for ethnic groups, the data showed that
Hispanic households still spent more on housing.
While the study did not pursue this line of thought, one could hypothesize that this preference or desire for
home ownership would result in lower remaining income being available for spending on other types of
goods and services, including on food away from home. It remains to be seen if Hispanic households will
maintain this preference or if the severe housing recession has altered it. (We also note this same question
could be posed for Americans in general.) Moreover, the study did not differentiate among multi-
generational Hispanic-American households, and recently immigrated Hispanic households.
Many restaurant concepts have adjusted their menu selections to cater to this group. Moreover, the flavors
of the cuisines of diverse Hispanic cultures have influenced American food tastes broadly. Yum Brands Inc.
and Jack in the Box have stepped up pursuit of the Mexican-inspired market through their Taco Bell and

Qdoba chains, respectively, while Chipotle Mexican Grill has developed the niche for Mexican food made
with locally grown fresh and organic ingredients.
Besides menu development, each of these companies has increased its sophistication with respect to
marketing, hiring, and recruiting franchisees with advanced knowledge of the broad and diverse Hispanic
community. McDonald’s is the fifth highest ranked spender on Hispanic media spending. Wendy’s is
actively pursuing Hispanic customers in its marketing program through media sources that are popular with
this group. Jack in the Box offers classes in English as a second language to attract Hispanic employees.
Brands come and go

The industry downturn has resulted in a substantial retrenchment in the trend of restaurant companies
developing multiple brands. Popular in the 1990s and earlier in this decade, multiple concepts were favored
for two main reasons. First, adding new concepts can boost long-term growth in sales and earnings: because
customer tastes are fickle, companies must come up with new ideas to stimulate demand. Second, the
strategy gives a company the advantages of diversification, as success in some of its concepts can provide a
buffer against poor performance in others.
In several notable instances, however, these multi-brand strategies were not successful enough or failed to
satisfy impatient investors. For example, McDonald’s divested Chipotle Mexican Grill and Boston Market,
and Wendy’s divested Tim Horton’s and Baja Fresh. Perhaps, in some cases, the problem resulted from a
clash of cultures between a relatively large and conservative parent brand and a quick-on-its-feet upstart
brand that was more interested in top-line growth than short-term profits.
Other companies have been adding and shedding concepts at the same time. Darden Restaurants Inc.
decided to sell Smokey Bones Barbeque & Grill at approximately the same time that it acquired RARE
Hospitality International Inc., operator of Longhorn Steakhouse. Some fast-food purveyors have been more
successful with their multi-concept strategies. Jack in the Box Inc.’s Qdoba has more than quadrupled the
number of restaurants in operation since Jack in the Box acquired it in 2003.
Yum Brands has taken the multi-concept idea a step further, seeking to “multi-brand” individual
restaurants by incorporating more than one concept under a single roof. The company believes that by
combining two or more of its major concepts (Taco Bell, KFC, Pizza Hut, Long John Silver’s, and A&W), it
will draw customers to its locations by creating more choice. It also expects to leverage additional sales
against each location’s fixed costs, especially real estate. Yum Brands believes that multi-branded sites
achieve 20%–30% higher sales, on average, and derive at least a 30% increase in average cash flow per site.
This idea is being taken a step further by Tim Horton’s, the predominantly Canadian coffee shop chain,
which is co-branding locations with those of the Cold Stone Creamery ice cream parlor chain owned by
privately held Kahala Corp.
Private equity firms were active in acquiring multiple restaurant brands, in the hope that common oversight
might create synergies and potential cost savings, as well as reduce risk to the parent company and its
affiliated investors through diversification. However, it appears these deals often were based primarily on
low-cost capital and overstated business strategies. In our view, the recent bankruptcy filings for the Uno
Restaurant Holdings, Bennigan’s, and Steak & Ale chains, as well as the company that owns Village Inn
and Bakers Square will likely not be the only private equity–related bankruptcies before the current industry
downturn ends.
Easier than home cooking

The home meal replacement (HMR) market is of particular interest to restaurant operators, as a way to
increase sales with incremental or, in some cases, no additional capital investment. We believe the strong
demand for takeout food, prepared and packaged for busy customers to eat at home, should continue to
grow solidly over the next few years. According to Technomic Inc., a market research firm, takeout sales
account for about 60% of total sales at limited-service chains.
Although takeout has always been a focus for quick-service restaurants, it has received similar attention
from casual-dining operators only in recent years. The constant drive to increase the return on assets has

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

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

Establishments that receive grades lower than ‘A’ will be visited by health department officials more
frequently. New York is not the only city with such a system, as Los Angeles has been using a similar system
for over 12 years. Other cities now include Dallas, Louisville, and San Diego, as well as states like North
Carolina, South Carolina, and Mississippi. Standard & Poor’s expects the health grade trend to continue
expanding to new cities, as restaurant goers continue to raise their disclosure expectations.
Fast-food chains recently dealt with new laws in various states and cities across the United States to ban trans
fats from the food they serve. Despite legal challenges and other efforts by individual restaurants as well as
chains and industry groups, these laws have largely been upheld by the courts. Although not the first such law,
a new law went into effect in July 2008 in New York City (which had been passed by the city’s Board of
Health in December 2006). It requires restaurants in the city to remove trans fats from the ingredients of the
items on their menus. Since then, numerous municipalities have followed New York’s lead.
Chains such as Burger King and Wendy’s are using new kinds of trans-free cooking oils or have already
reduced the amount of trans fat in the oils they use for frying and cooking. McDonald’s has switched to
zero trans fat for its French fry cooking oil as well as the fats used as ingredients and to cook nearly all
other items on its menu. According to the company’s nutrition website, remaining items, such as fried pies
and baked cookies, were switched to zero trans fat by the end of 2008.
Other recent governmental efforts are aimed at helping consumers to be better informed about their dining
decisions. Various states and municipalities have begun requiring chain restaurants to post calorie and fat
information for items on their menu. A 2008 Los Angeles City Council moratorium on new fast-food
restaurants was subsequently extended. The moratorium covered a portion of the city where it was deemed
that a lack of alternatives to fast-food establishments was resulting in rising obesity.
High-profile salmonella and E. coli outbreaks in the recent past increased calls from Congress in 2007 and
2008 to increase funding for, and to make changes in, FDA food safety activities. On January 4, 2011, the
Food and Drug Administration Food Safety Modernization Act was signed into law by President Obama.
(For further discussion of the bill, please see the “Current Environment” section of this Survey.)
FOOD-AWAY-FROM-HOME TRENDS STABILIZE
The long-term trend toward eating out more ended in 2006 and eroded further in recent years. According to
updated data from the US Department of Labor’s Bureau of Labor Statistics, consumption of food away
from home accounted for 43.5% of total food expenditures in 2010, up from 41.9% in 2008, but down
from the high of 44.1% in 2006. The percentage spent away from home was up slightly from 2000, at
41.4% of total food spending. The amount per household spent on food away from home in 2010 was
$2,668, down from $2,698 in 2009.
PURCHASED MEALS & BEVERAGES
AS A % OF DISPOSABLE INCOME It remains to be seen if the percentage of
11,000 4.30 pay spent on away-from-home food will
10,000 4.25
continue rising to its 2006 high, or even
9,000 4.20
higher. Some, but not all, of the factors that
supported the long-term climb in eating out
8,000 4.15
over nearly 50 years should eventually
7,000 4.10
Chart H03: support increased demand in the future.
6,000 PURCHASED MEALS 4.05 One of the linchpins in the trend toward
5,000 & BEVERAGES AS % 4.00 eating out is steady growth in disposable
4,000
OF DISPOSABLE 3.95 income. According to the US Department of
INCOME
3,000 3.90 Commerce, chain-weighted US disposable
2,000 3.85 personal income per capita increased at a
1989 91 93 95 97 99 01 03 05 07 2009 compound annual growth rate (CAGR) of
Disposable income (Bil. $, left scale)
1.17% between 2003 and 2010. Aided by
Purchased meals & beverages as %of disposable income (right scale)
tax cuts in 2008, nominal disposable
personal income grew at a CAGR of 4.5%.
Sources: US Bureau of Economic Analysis; USDA Economic Research Service.

The resumption of the long-term trend toward eating more meals away from home will likely depend on a
resumption of personal income rising faster than price increases in the restaurant industry and for food in
general. Higher growth in personal income from 1985 to 2005 meant that total food expenditures declined
from 11.7% of disposable personal income to 9.9%, but subsequently rose to 12.4% in 2010. Food away
from home rose to 43.5% of total food expenditures, from 41.3%, during this 20-year period.
Further boosting the dining-out trend is the decline in free time. Dual-earner households account for more
than 50% of US families, according to the Bureau of Labor Statistics. In many families, both parents hold
full-time jobs, which leaves less time to prepare meals at home. With the rise of dual-income and single-
parent families, and with numerous moderately priced restaurants to choose from, dining out is often the
most convenient choice. Any prolonged period of high unemployment, sufficient to reduce the expectation
of having two incomes to support household spending, could cause a permanent trend change in food
consumed away from home.
A key challenge for the restaurant industry as baby boomers start to retire will be to entice this generation
of retirees to eat out more than prior retirees. A significant part of demand for food away from home is
driven by being at work. In 2009, the National Restaurant Association reported that those 65 or older
spend approximately half as much on food away from home as do those from age 45 to 54. It remains to be
seen if future retirees—members of the baby boom generation, who have lived their entire adult lives eating
out—will continue to do so in their golden years.
HOW THE INDUSTRY OPERATES

Over the past 50 years, eating out had gradually become part of the way of life for many Americans. As a
percentage of total food expenditures in the United States, meals eaten away from home as a percentage of
total food expenditures have risen fairly steadily from just 26% in 1960, according to the US Department of
Agriculture. According to the National Restaurant Association, a trade group, projected industry sales for
2010 were $580 billion, which would account for 3.9% of the projected US gross domestic product. With a
projected 12.7 million employees in 2010, the industry is the nation’s largest private-sector employer.
Contributing heavily to this trend has been the rise of fast-food dining that began in the 1950s with industry
trendsetters Jack in the Box Inc. and McDonald’s Corp. By offering drive-through service and
revolutionizing work flow processes, these companies significantly improved customer satisfaction while
lowering wait times. The establishment of large chains, in both the fast food and casual dining categories,
has helped to streamline operations and lower costs further.
Economic trends have played an important role in the popularity of eating out. With the rise in single-
parent and dual-income households, domestic life has become more time-pressured. Restaurants provide a
quick option for feeding the family. In addition, median household income has continued to increase,
boosting the propensity to eat out. The convenience of eating out and the large number of reasonably priced
options mean that restaurant meals will likely remain an integral part of daily life in America.
RESTAURANTS: FROM TAKE-OUT TO FULL-SERVICE
Foodservice businesses are a highly diverse group, ranging from corner pubs and fast-food franchises to
such deluxe restaurants as highly regarded Jean-Georges in New York, known for its top restaurants, or
Joel Robuchon in Las Vegas, where the restaurant scene has come into its own over the last decade. The
industry is divided into three general categories: commercial, institutional, and military. (A more detailed
breakdown of the various categories is listed in the table entitled “Projected US foodservice industry sales”
in the “Current Environment” section of this Survey.)
Commercial restaurant service, which comprises everything from restaurants and cafeterias to ice cream
parlors, bars, and cafés, is by far the largest category; its sales in 2009 were an estimated $517.3 billion,
according to the National Restaurant Association, down 0.7% from 2008. Institutional foodservice,
consisting of sales by institutional organizations and businesses operating their own foodservice, totaled

about $46.4 billion, and military foodservice was worth an estimated $2.1 billion. For 2010, institutional
foodservice sales are expected to be $47.2 billion, while military sales are expected to come in at $2.2
billion. (Institutional and military foodservice are not covered by this Survey.)
In the commercial foodservice business, the largest segments are full-service and limited-service restaurants.
Full-service restaurants usually feature moderate to high prices and sit-down service. Average check prices
generally exceed $8. Meals are served with flatware and china, and alcoholic beverages are often available.
Limited-service (also called fast-food or quick-service) restaurants typically offer rapid food preparation and
low prices, with or without seating. Food packaging is often disposable, and the average check price is
almost always less than $7. Take-out orders account for a large portion of this business. In recent years,
another concept, aptly named “quick casual,” has emerged to bridge the two categories. Quick-casual
restaurants have a slightly higher average check price than fast-food concepts, generally $7 to $10,
presumably in exchange for higher-quality food and fresher preparation.
LOW ENTRY BARRIERS, HIGH RISK/RETURN
Small operators run a substantial majority of all restaurants, according to the National Restaurant
Association, which estimates that 91% of all operators have fewer than 50 employees. This includes the
large number of small franchisees that operate single or a few locations of the major fast-food brands.
The restaurant business’s low barriers to entry are partly responsible for its popularity among small-scale
entrepreneurs. Some of these ventures succeed, but because of the industry’s intense competition and high
fixed costs, many fail. For restaurants that do succeed, however, the payback on investment can be
considerable. Once sales reach the break-even point, a relatively high percentage of incremental revenues
can become profit.
In recent years, casual dining chain concepts have taken market share from independent operators through
geographical expansion. Fast-food chains have long used proliferation to their advantage: McDonald’s now
has about 14,000 units in the United States and 32,700 worldwide. Now, however, multi-concept casual
dining operators, such as DineEquity Inc. (formed through the 2007 acquisition of Applebee’s by IHOP)
and Darden Restaurants Inc. (operator of the Red Lobster, Olive Garden, and Longhorn Steakhouse chains,
among others), have come to dominate the mid-price segment.
Large restaurant chains have been able to realize economies of scale that have made competition extremely
difficult for small operators. Advantages include purchasing power in negotiating food and packaging
supply contracts, as well as increased sophistication in real estate purchasing, location selection, menu
development, and marketing.
FRANCHISING: A QUICK WAY TO GROW
Many restaurant chains choose to grow their concepts by franchising. Franchising permits restaurant
companies to expand their brand-name recognition rapidly, without bearing the full cost of acquiring land,
buildings, and equipment. In a typical franchise relationship, such costs are borne by the franchisee, which
also pays a royalty to the parent company for the right to be part of its chain.
The practice of franchising involves a business contract between two companies: a franchisor (or parent
company) and a franchisee (or individual business operator). It gives the franchisee the right to construct
and operate a restaurant on a site accepted by the franchisor and to use the franchisor’s operating and
management systems.
Under these arrangements, the franchisor charges the franchisee a one-time fee, which may include, for
instance, an initial nonrefundable fee of about $5,000 and other technical assistance fees of typically about
$50,000. Most also require franchisees to contribute 2% to 5% of sales to cover both local and national
advertising. In addition, the franchisee makes royalty payments based on gross receipts from restaurant
operations, with specified minimum payments. In the United States, royalty payments are generally 4%–5%
of total receipts. Franchise contracts vary in length, but may be for periods of 10 to 20 years.

Franchising is a widespread phenomenon around the world, but it is especially prevalent in the restaurant
industry. According to a PricewaterhouseCoopers report for the International Franchise Association, an
independent trade group, franchisees of restaurants in 2009 were expected to operate nearly 229,000
restaurant locations in the United States, up 1.4% from 2008, with a combined 4.4 million employees and
$251 billion of economic output.
The percentage of franchised versus company-operated units varies widely among individual chains. For
example, fast-food giants McDonald’s, and Yum Brands Inc. franchised 89% and 84% of their US units at
year-end 2010, respectively, versus only 46% at Jack in the Box. Even among concepts owned by the same
company, however, franchising strategies can vary. At Jack in the Box Inc.’s Qdoba chain, franchisees
accounted for 69% of total units.
Why franchise?
Many restaurant chains opt to franchise their businesses to enjoy superior returns. Franchising eliminates
the need to focus on the day-to-day concerns of operating units, while generating a steady stream of royalty
fees. Furthermore, since franchise royalties are based on a percentage of sales, rather than profits, they can
ensure a steady stream of revenue even in a difficult operating environment. In return, the franchisee enjoys
the benefits of brand-name recognition and, often, training and marketing support from the parent
company. The franchisee also can participate in cooperative purchasing, enabling it to sell food at a lower
price than an independent operator can.
While franchisors avoid some of the hazards of expansion, they face other risks. Licensing and franchising
involve some loss of control of the business. With the day-to-day operating decisions made by franchisees,
one poorly run franchised unit can reflect badly on the whole chain. Individual franchisees depend on the
overall success of the entire chain to maintain their own standing.
Strong and vital franchisees are essential to the continued success of many restaurant chains, particularly in
the fast-food segment. Companies that employ the franchise business model rely on maintaining successful
franchisees and attracting new, entrepreneurial-minded franchisees to assure long-term success and safety. A
company that tries to profit at the expense of its franchisees—for example, by charging high prices for
supplies—can damage the trust needed to have a good working relationship between franchisor and
franchisee.
Successful refranchising
Some companies, such as Yum Brands, regularly buy and sell restaurants as a means of strengthening their
operations, a practice known as refranchising. Acquired restaurants, which may not have been performing
up to expectations under franchisee ownership, can be improved and then operated profitably by the
company or sold to another franchisee. In other cases, restaurants may be acquired due to geographic or
operational benefits to existing company-operated units. Selling restaurants generates cash that can then be
used to fund new development, acquisition, and remodeling programs. The gains can be substantial.
Refranchising frees up invested capital and generates franchise fees. While this tactic can improve overall
returns, its ultimate success depends on a company’s ability to find qualified franchisees to purchase its
restaurants. Nonetheless, in an industry that requires relatively high capital expenditures, the popularity of
these cash-generating programs is easy to understand.
RESTAURANT MANAGEMENT AND TRAINING
There is a strong correlation between the quality of restaurant management and the long-term success of a
concept. Restaurant management structure varies by concept and sales volume. Every restaurant typically
employs a general manager, an associate manager, and one to five assistant managers. General managers are
primarily responsible for the day-to-day operations in one restaurant, overseeing customer relations,
foodservice, cost controls, restaurant maintenance, personnel management, implementation of company
policies, and the restaurant’s profitability. Associate and assistant managers support the general manager’s
duties and fill in when needed. For chain restaurants, general managers report to district managers, who in
turn report to regional managers, who are responsible to the corporate executive management.

Training takes a variety of forms. For employees who have development or supervisory responsibilities,
extensive restaurant operations training courses are standard at most companies. CBRL Group Inc., which
operates Cracker Barrel Old Country Stores, sends new managers through an 11-week training program,
consisting of eight weeks of in-store training and three weeks at corporate headquarters. In addition, training
is conducted for all restaurant employees. Brinker International Inc.’s training program includes a four- to five-
month period for managers and supervisors. Training teams also instruct employees on opening a new
restaurant, remaining on location for two to three weeks to ensure a smooth transition to operating personnel.
Franchisers such as Applebee’s International Inc., McDonald’s, and Wendy’s operate extensive training
programs in a classroom setting. These companies also give periodic training to their restaurant employees.
McDonald’s dubs its school “Hamburger University.”
Often, a company may raise staffing levels in order to improve service and thus increase sales. In a
competitive environment, customer satisfaction levels can be an important determinant in improving sales
volumes. If a company can use its increased manpower to speed service times, fast-food restaurants may
serve more customers at the register over a period of time, while casual dining restaurants may increase the
speed in which tables turn.
COST STRUCTURE
The costs of owning and operating a restaurant vary by format. Obviously, larger units cost more than
smaller ones, as do upscale formats with a greater investment in interior design and higher spending on
costly food items. To justify the expense, large units are typically located in areas with greater population
density or that have a larger geographic draw. They generally see greater revenues than smaller units,
though this is not always the case. In any event, if a unit’s volume does not reach the company’s revenue
THE RESTAURANT INDUSTRY DOLLAR—2009 projections, its profitability also
(As percent of total) will be below plan, and it is
FULL-SERVICE RESTAURANTS likely to be shut down.
---- AVERAGE CHECK PER PERSON ---- LIMITED-
Table B04: restaurant Industry dollar $25 AND SERVICE
Food and beverages, labor, and
UNDER $15 $15-$24.99 OVER RESTAURANTS real estate constitute the
Cost of food and beverages 32.2 31.8 31.9 31.9 restaurant owner’s largest cost
Wages & benefits 33.7 33.2 33.7 29.4 categories. (See “The restaurant
Restaurant occupancy costs 4.9 5.1 6.1 7.7 industry dollar” table for these
Other 26.2 26.4 26.5 25.1 and other costs as a percentage
Income before income tax 3.0 3.5 1.8 5.9 of sales for different industry
Source: National Restaurant Association. sectors.)
Food and beverages

Not surprisingly, the cost of food and beverages is one of a restaurant’s largest expense categories.
Companies negotiate directly with national and regional suppliers to ensure consistent quality, freshness,
and competitive prices. The larger the customer, the greater the bargaining power that it has over suppliers.
Many companies engage in forward pricing to stabilize food costs. Forward pricing is a hedging strategy
whereby a company negotiates with a supplier to purchase a certain amount of a product at a given price.
Some supply contracts signed by larger chains can lock in less volatile food products, such as beef, at stable
prices for an entire year. Some of the products subject to the greatest price variability, especially dairy
products, can be locked in only for shorter periods.
Labor
Labor is the restaurant industry’s second largest expense, though the proportion of total cost varies by
restaurant type. We estimate that, at casual dining restaurants (average meal prices of $15.00 to $24.99),
salaries, wages, and employee benefits represented about one-third of sales; at major fast-food restaurant
chains, these factors accounted for less than 30% of sales. At fine dining establishments, labor typically
represents about 40% of sales.

Restaurant sales and profits can be greatly influenced by the efforts of general managers and area managers.
In recent years, companies have placed a premium on retaining their best operators. In many cases,
managers’ pay relies on incentives and often is tied to restaurant-level profit performance. Companies award
stock options to personnel from the highest levels of management down to the restaurant-level manager.
Starbucks Corp., Brinker International, and the CBRL Group all issue significant amounts of options to
compensate management.
Real estate
A restaurant owner can purchase or lease an existing space, or build a new one. Many chain operators choose
to build their own units, so that individual restaurants all conform to the same design concept. The land on
which a restaurant is built can be purchased or leased. Both options have pros and cons.
When a company purchases real estate, it must cover the purchase price. To finance such a purchase, the
company must have good financial resources, with cash on its balance sheet and borrowing power. Once
real estate is purchased, the company can benefit from appreciation. If real estate values decline, however,
so does the value of the company’s investments.
Brinker International estimates that the average cost for land, or the value of the lease for the land when
capitalized (valued as an asset on the balance sheet), is $946,000 for a Chili’s unit and $4.8 million for its
upscale Maggiano’s Little Italy chain. Purchases are either financed with loans or paid out of current funds.
Leasing requires less capital and offers greater flexibility than do outright purchases. Leases are finite in
duration and eventually expire; thus, they give restaurant operators the option of relocating or closing units,
if site selection is poor and the units are not drawing enough volume. On the other hand, leasing leaves
operators vulnerable to rising rents or the loss of a lucrative location.
Whether owned or leased, site selection is critical to the success of a new restaurant. Companies devote
significant time and resources to analyzing each prospective site. The main criteria are customer traffic levels
and convenience. Proximity to sites that draw large crowds, such as retail centers, office complexes, and hotel
and entertainment centers, is desirable. Some chains, such as Subway (operated by privately held Doctor’s
Associates Inc.), choose to locate units in strip malls or malls to increase visibility. Other chains, such as
McDonald’s, prefer freestanding locations in high-traffic areas, to better control their costs. Accessibility
concerns, such as the availability of parking and ease of entry, are also important. In addition, a company will
review potential competition in a trade area, local market demographics, and site visibility.
The bottom line

After food, labor, occupancy, and other expenses are subtracted, what is left is operating profit.
Profitability, however, varies widely among the various industry segments and even among individual units
in a chain; the level of sales at a given establishment is a key determinant. Expense structures also vary from
company to company. Some businesses are simply better than others at reining in costs.
It’s a cash business

Because virtually all sales in the restaurant industry are transacted in cash or equivalents (such as credit
cards), many restaurant companies operate with negative working capital. (Working capital equals current
assets minus current liabilities. It is sometimes referred to as net working capital, as current assets can be
considered working capital needed to support the business.) A working capital deficiency occurs when
current liabilities exceed current assets. Inventory, financed from normal trade credit, turns rapidly in the
restaurant business. This is also one reason why debt levels are relatively low compared with other
industries, especially those that must support high levels of slow-moving inventory, such as retailers.
CREATING AND TESTING NEW FOODS
In recent years, competition has fostered innovation as restaurants have sought to boost volume. In the
process, they have made new product introductions an important part of the equation. Although customers
may not be aware of it, most fast-food and restaurant chains spend a great deal of time researching and
developing new products.

Menu offerings evolve along with consumer taste. To develop prototype products, restaurant chains
conduct consumer research and keep up on the latest trends in food. When a new product is introduced,
three key elements determine its success. The product must meet consumer expectations and thus generate
incremental sales. Its day-to-day preparation should be compatible with company standards and operations.
Finally, it should deliver financial benefits.
The type of new product introduced—sandwich, salad, main course, dessert, and so forth—must fit clearly
into the chain’s menu and meet its customers’ expectations. Thus, while a chain such as Wendy’s would be
unlikely to unveil a new pizza topping, it could be expected to create a new sandwich item.
In the highly competitive fast-food category, new menu items can be crucial to driving sales as they can help
to raise traffic—without the margin pressure of price discounting. Price wars are common throughout the
industry and favor well-financed behemoths McDonald’s and Burger King Corp. Smaller regional
companies, such as Jack in the Box, focus on new product development to differentiate themselves from
competitors, thereby reducing the potential impact of large-scale industry discounting.
Over the past several years, McDonald’s has had great success in driving sales through new products. Items
recently added to the menu, such as the Snack Wrap or Southern Style Chicken biscuits and sandwiches,
have helped to both drive customer traffic and raise the average check. The company’s product development
process is driven predominantly by customer feedback. Approximately every six weeks, the company
gathers 80 to 100 customers at a selected McDonald’s unit to get input on new ideas, as well as existing
menu items. New menu item ideas are categorized by food category, price sensitivity, and health concerns.
Armed with an increased understanding of customer trends, the company can experiment with various food
ideas at McDonald’s Hamburger University campus in Oak Brook, Illinois. Products are chosen for tests in
select markets and then select regions; such tests often last for six months to ensure marketability. Testing
often is supported by advertising, which can take anywhere from several weeks to three months to arrange.
Before an item can be rolled out across the McDonald’s restaurant system, the company must arrange for a
supply of ingredients. In some cases, this may take several months due to the vastness of the company’s
needs. For instance, when the company decided to promote its Apple Dippers product in 2005, the company
became the largest single user of apples in the country. A full growing season was actually needed to create
a supply equal to the demand. Given the rigors of the McDonald’s testing process, and the operational and
procurement efforts needed to support a rollout over the company’s nearly 14,000 US restaurants, the
company’s new product introduction process generally takes from six months to two years to complete.
KEY INDUSTRY RATIOS AND STATISTICS

Restaurant sales are driven by consumer spending, which in turn is influenced by the health of the overall
economy. To gain knowledge of the economy’s current and anticipated state of health, and its potential
impact on the restaurant industry, analysts consult the following indicators.
 Real growth in gross domestic product (GDP). Reported quarterly by the Bureau of Economic Analysis,
part of the US Department of Commerce, inflation-adjusted (or real) GDP growth is a measure of the health
of the overall US economy. The Bureau of Economic Analysis also issues advance and preliminary estimates
of GDP before reporting the final GDP figure for the quarter. Most major economies are cyclical, advancing
and contracting with the business cycle. The business cycle dating committee of the National Bureau of
Economic Research establishes the official beginning and end of recessions.
Real GDP shrank 2.6% in 2009, in contrast to a 0.4% increase in 2008. As of February 2011, Standard &
Poor’s Economics estimated that real GDP grew 2.9% in 2010 and forecast an increase of 3.1% in 2011.
 Disposable personal income. Reported each month by the US Bureau of Economic Analysis, disposable
personal income is a measure of aggregate consumer income, minus taxes and adjusted for inflation.
Changes in this measure are important, because they influence the level of consumer spending that can be

expected. When personal income is growing, consumers are more willing to loosen their purse strings.
Conversely, when it is stagnant or weak, consumers are less willing to spend. They may shift to eating at
less-expensive restaurants or at quick-service chains or to cooking at home.
Growth in disposable income decelerated in 2009 despite the effect of tax rebates, with real disposable
income rising 1.0%, down from 3.9% in 2008. As of February 2011, Standard & Poor’s Economics
expected real disposable personal income to record a 3.1% gain in 2010 and a 4.4% increase in 2011.
 Consumer confidence. This index is compiled monthly by the Conference Board, a private research
organization, which polls 5,000 representative US households to gauge consumer sentiment. Its two
components—the present situation index and the expectations index—reflect consumers’ views of current and
future business and economic conditions, and consumers’ expectations about how they will be affected. This
qualitative measure of consumer attitudes is expressed as an index, with 1985 used as a base year (1985=100).
A reading above 90 is considered a strongly positive outlook on the economy.
Factors that influence the index include perceptions of employment availability and current and projected
income levels. When consumer confidence is high or rising, it is usually accompanied by increased spending
and borrowing. Conversely, consumers who are uncertain about the future are likely to pare or postpone
their expenditures. In January 2011, the Conference Board’s consumer confidence index stood at 60.6, and
had risen to levels not previously seen since
CONSUMER PRICE INDEX FOR FOOD AWAY FROM HOME
(Year-to-year percent change)
spring 2010 (62.7 in May 2010).
5.0  The consumer price index (CPI). Released

monthly by the Bureau of Labor Statistics
4.5
(BLS, an agency within the US Department of
4.0 Labor), the CPI measures changes in the price
3.5 of commodities, fuel oil, electricity, utilities,
Chart H02: CPI for
3.0 food away from home telephone services, food, and energy, and thus
serves as an inflation indicator. The “core”
2.5
CPI smoothes out the index by removing the
2.0 volatile food and energy categories.
1.5 Restaurants, like most companies, try to pass
1.0 on increased costs for supplies and labor to
customers. Given the highly competitive
0.5
environment, though, restaurant chains are
0.0 generally reluctant to raise menu prices.
1990 92 94 96 98 00 02 04 06 08 2010
Source: US Bureau of Labor Statistics. Driven by decreased energy prices, the overall
CPI rose 1.6% in 2010, following a 0.3%
US UNEMPLOYMENT RATE
decline in 2009. As of February 2011,
(Monthly data; in percent)
Standard & Poor’s Economics was forecasting
10.5 that the CPI would rise 1.9% in 2011.
10.0
9.5  Unemployment rate. Wages are often the
9.0 largest single expense at restaurants.
Chart H05: US
8.5 unemployment rate Restaurants rely heavily on the availability of a
8.0
dependable work force at the low end of the
7.5
7.0 national pay scale. Employee turnover rates
6.5 are relatively high, especially at quick-service
6.0 restaurants, where annual turnover often
5.5 exceeds 200% for non-management positions.
5.0 A steady stream of acceptable replacements is
4.5 needed. When unemployment rates are
4.0 relatively low, restaurants often have to raise
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
pay levels to attract and retain workers.
Source: US Bureau of Labor Statistics.

Released monthly by the BLS, the unemployment rate tracks the number of working-age people currently
searching for employment as a percentage of those employed or looking for work. After bottoming in late
2007, the unemployment rate rose to 10.0% as of December 2009, but then fell to 9.0% (as of January
2011) as the economy continued its recovery and many of the jobless dropped out of the labor force and,
therefore, were not counted as unemployed. As of February 2011, Standard & Poor’s Economics was
forecasting the unemployment rate to average 8.9% in 2011.
 Commodity costs. Food commodity costs are one of the largest input costs of a restaurant company; they
can significantly affect profitability. Rising costs can erode profit margins if the company cannot pass the
added expense on to the customer in the form of a price increase.
 Industry expansion rates. The growth rate of overall restaurant locations should be in line with increases
in demand to ensure a healthy overall business. In the early 1990s, restaurant industry expansion caused
supply to significantly outpace demand. This situation led to store closings and concept failures.
 Interest rates. Many growth companies cannot finance expansion strategies wholly from current cash
flow and must therefore access capital markets. If a company chooses debt financing, prevailing interest
rates may affect corporate profitability. Ten-year Treasury notes often are seen as the most reliable indicator
of long-term interest rate trends and are traded daily on secondary bond market exchanges.
Reflecting Federal Reserve policy, short-term rates dropped dramatically through 2008, to its current target
of 0.0% to 0.25%. Volatility in the credit markets sparked by concerns about subprime mortgage defaults
also pushed down 10-year Treasury yields. After hitting a peak of 5.25% in June 2007, the rate on the 10-
year Treasury note was about 3.33% as of January 2011. Standard & Poor’s expected rates to rise to 4.1%
by the end of 2011.
HOW TO ANALYZE A RESTAURANT COMPANY

The first, and perhaps the most important, step in analyzing a restaurant company is relating the
fundamental outlook for the restaurant industry to the company under consideration. A range of factors,
both quantitative and qualitative, can be helpful in comparing and contrasting a company to its
competition, sub-industry peer group, and to the restaurant industry in general.
Although absolute numbers are critical to the assessment of any company, comparative analysis is needed to
measure the relative success of a company under given industry conditions. If a restaurant’s same-store sales
are declining while the rest of the industry is showing gains, clearly there is cause for concern and further
investigation. However, if a company’s competitors are also experiencing weak financial performance, even
as the industry is doing relatively well, then the problem may lie beyond the company.
Further study then would likely suggest where the problems lie. Is it indicative of a change in consumer
tastes or preferences? Have costs, prices, or other factors changed in ways that make the potential
investment return of the business more or less attractive? Analysis then could suggest either how to address
the problems or that they may be too large or too broad for the company to fix. Conversely, if a company’s
financial performance is stellar versus its peers, analysis could show if or for how long the outperformance
can be sustained.
QUANTITATIVE ISSUES
Aspects of a restaurant’s business that can be measured quantitatively include same-store sales, systemwide
sales, operating margin, return on assets, and cash flow. These hard numbers are the basis for analyzing
company trends over time, in order to determine whether the business is achieving improvements in its
performance. In addition, comparing the company’s results with those of its peers is useful in determining
relative performance.

Same-store sales
The most closely watched quantitative indicator is same-store sales, defined as year-over-year sales changes for
units open and operating at post-startup levels in both years. A company that experiences declining same-store
sales while the rest of the industry posts strong revenue gains is losing market share, and reasons for this loss
need to be closely examined. It is important to note that some chains compare same-store sales for units open
only 13 months—a less reliable indicator of sales strength than the 18-month period. Stores often take several
months, if not years, to reach the maturity necessary to make meaningful comparisons.
Gains in same-store sales can be achieved through increases in prices and through increases in customer
count, or traffic. Price increases are often necessary to offset wage and commodity cost inflation. From 2001
through 2003, many operators raised prices only modestly (2.3% annually, according to the Bureau of
Labor Statistics), due to relatively slower demand growth compared with prior years. From 2004 through
2006, somewhat higher costs for food (especially beef) and utilities led many restaurant chains to raise
menu prices at a slightly faster 3.1% annual pace. Hikes in the minimum wage, as well as acceleration of
certain food costs starting in late 2007, contributed to increases in prices for food away from home in 2007
(4.0%) and 2008 (5.0%). Prices for food away from home increased only 1.8% in 2009 and 1.3% in 2010.
We expect price increases to be very modest in 2011, as most chains have little pricing power, in our view.
Traffic gains often reflect customer satisfaction. Diners are the ultimate judges of whether a restaurant’s
food, price, and service meet their needs. If a chain fails to please customers and to report sufficient sales
gains, its long-term growth—even its survival—can be in doubt. A company that is expanding rapidly by
adding new units can boost overall sales growth, but it is important to monitor sales trends at existing units
to be sure the concept is doing well
One additional component of same-store sales is product mix. Shifts in mix can reflect menu changes,
advertising and promotions, or changes in customer preferences—any factor that affects the size of the
average check, other than price increases. Restaurants can raise the amount of the average check by adding
higher-priced items to the menu, such as an increased assortment of appetizers and alcoholic beverages, or
can lower it by featuring value products in an advertising campaign designed to spur traffic. Consumer
choices also can alter product mix. In difficult economic times, for example, customers tend to avoid
ordering desserts and drinks, or select less expensive options.
The same-store sales trends of a company should be considered within the context of the demographic and
geographic markets it serves. A key issue facing the industry in 2011 is how companies respond to declining
employment and consumer income, which has had a pronounced impact on regions particularly hurt by the
downturn in housing. Restaurant sales have been especially weak in regions like the Southwest and Southeast
where the economy has been particularly hurt by falling home values and ongoing foreclosure activity. In
California recently, home sales have perked up as buyers have been tempted by prices as much as 50% or
more below their all-time peaks, but we believe overall economic weakness is likely to persist. Moreover,
because these regions have had the fastest growing populations in recent years, they are where restaurant
companies have been expanding the most. In other regions, such as the Midwest, weak economic conditions
outside of housing are having a negative impact on the sales trends of restaurants located in those areas.
Other nonrecurring factors can influence same-store sales comparisons. These may include the inclusion of
an extra 14th week in a quarter or 53rd week in a year. Often these extra weeks are at the end of the year,
and the week between Christmas and New Year’s Day is one of the strongest sales weeks throughout the
year. Whether this week falls into the fourth quarter of the current fiscal year or the first quarter of the next
can skew comparisons.
Average weekly sales

Some chains report the average weekly sales of their restaurants. For companies that are expanding rapidly,
average weekly sales may be preferable to same-unit sales as an indicator of sales trends. Units that have
been in operation for at least 18 months may not comprise a large enough percentage of the store base to
give a true indication of the state of the business. Also, if average weekly sales growth is significantly lower
(or higher) than same-store sales growth, it may indicate that new locations are opening to lower (higher)
volumes than existing stores.
Systemwide sales
This measures the total revenues from restaurants operated by the company, its franchisees, and, in some
cases, its licensees and affiliates. Sales from franchisees, and from affiliates that are less than 50% company-
owned, are not recorded in a company’s revenues, although fees charged by the company to the franchisees
are often incorporated.
Systemwide sales growth is an important factor in projecting the top-line growth potential of a company. It
can occur through expansion of sales capacity or through same-store sales growth. Many restaurant
companies rely more on expansion than same-store sales growth to achieve earnings growth. For instance,
The Cheesecake Factory Inc. is an operator that has experienced consistently stellar restaurant traffic, but
because it almost always increases prices only in response to cost inflation, rather than to boost margins, the
same-store sales growth at its restaurants tends to be fairly moderate. However, Cheesecake Factory has
been able to consistently outperform the industry in terms of sales per unit and has generally reported
higher same-store sales than its peers.
Operating margin
Operating margin is arguably the most important profitability measure in assessing a restaurant company; it
indicates how adept a company is at making a profit on its sales dollar. To arrive at this figure, the analyst
must first calculate the company’s total cost of restaurant sales, including such line items on the income
statement as food, beverage, labor, and direct operating costs (such as uniforms, linen, china, utensils,
menus, and decoration), plus occupancy, and allocated general and administrative expenses. The total cost
figure is subtracted from restaurant sales; the result is operating profit, which can then be divided by sales to
give the operating margin.
Operating margin can be affected by a number of variables, including food and beverage costs, product mix,
sales volumes, and competitive pricing pressures. Labor costs also affect margins. A lack of qualified workers
can put upward pressure on salaries and benefits. Conversely, an ample supply of people in the 16-to-24 age
category, the traditional source of labor for restaurants, can keep wage costs from escalating.
Another source of wage pressure is legislated increases in the minimum wage. After having remained at
$5.15 per hour since 1997, a 41% increase in the federal minimum wage over three years was enacted in
2007. The minimum wage subsequently rose in three $0.70 increments on July 24 in 2007, 2008, and 2009,
to an ending $7.25 an hour. About three-fifths of the states, however, have state minimum wage laws that
set the hourly rate higher than the federal minimum (the remainder either have no minimum or set the
state’s lowest wage automatically equal to the federal). For tip-earning employees, employers are required
by law to ensure that such employees’ compensation (tips, plus direct hourly pay of a minimum of $2.13 an
hour) is at least equal to the federal hourly minimum.
We think that many restaurant employees, particularly in upscale casual dining and fine dining restaurants,
earn more than the minimum wage—in some cases, significantly more. Furthermore, we believe that wage
increases at the minimum, or bottom of the scale, put pressure on wages further up for employees who are
beyond entry level or have attained seniority.
Companies often pay managers short-term cash bonuses as performance incentives; these vary from year to
year depending on how performance measures up against various internally set sales and profitability targets.
However, many companies do not regularly report on the details of this expense, making periodic
comparisons more difficult. We believe that, in recent periods, some restaurant companies may have
“managed” how and when they accrue bonuses, in order to meet their publicly stated financial targets.
Margin analysis should always be considered within the context of the segment of the restaurant industry
that the company serves. For example, operating expenses may be higher in the casual dining segment than
for the fast-food chains because of higher real estate costs, as sit-down dining requires more space both in
the restaurant and for parking than high-volume fast-food chains.
More recently, chains have sought to improve margins by rotating menu selections to take advantage of the
food products that can be acquired cheaply. For instance, at a time of declining seafood prices, Applebee’s.

(operated by DineEquity Inc.) and Red Lobster (operated by Darden Restaurants Inc.) are particularly
known for seasonal promotions.
Return on assets
A company’s decision on whether to purchase or rent its locations can affect its reported operating margins.
Chains that own their restaurants tend to have higher profit margins, as the depreciation expense is often
less than what they would pay for rent. However, a company that purchases property must invest more
capital in its stores. When comparing the financial results of companies that have different ownership
profiles, return on assets (ROA) is a useful tool in analyzing relative performance.
Reviewing a company’s ROA over a multiyear period can reveal trends regarding the success of recent
investments and may be a valuable guide in estimating prospects for future growth. A company is more
likely to reinvest in its current business if its ROA is either high or trending upward, whereas a company
with declining or low returns might reevaluate how it invests its capital.
Cash flow
A corporation’s financial flexibility reveals much about its health. Projected cash flow—net income, plus
noncash items such as depreciation and amortization—can be compared with expected cash needs. Capital
resources are needed primarily to undertake the construction, acquisition, maintenance, and refurbishing of
restaurants. Some companies are self-financing, with the ability to fund their capital expenditure programs
from internally generated funds. Many more, however, require external sources. For the large publicly held
chains, capital is generally provided via public stock offerings and debt financing.
Free cash flow (cash flow from operations less capital expenditures) can measure a company’s present
ability to return funds to its shareholders and debt holders; it also may be a measure of a company’s
maturity. If a company believes that its concepts have significant growth potential and high returns on
investment, it is more likely to use its cash from 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 return cash to its stakeholders.
Capital expenditures should be analyzed, to separate funds being used to expand a company’s business from
investments required simply to maintain existing business. While funds for expansion are intended to
increase future funds available for shareholders, amounts required to renovate, remodel, and maintain
existing structures can be recurring, and should be seen as a consistent drain on cash from operations.
Companies such as CEC Entertainment Inc. (operator of Chuck E. Cheese’s restaurants) have consistently
large remodeling requirements that should be factored into the overall analysis.
QUALITATIVE ISSUES
The key qualitative issues affecting a restaurant business are management’s expertise and its design and
execution of the business strategy. Although these factors do not lend themselves to numerical analysis, they
are nonetheless crucial to success.
In evaluating a restaurant company’s management team, an analyst should first ask whether its strategy
makes sense in light of current and long-term industry trends. If the strategy is a good one, is the current
management capable of executing it? What is management’s record for working together as a team? The
quality of management often spells the difference between success and failure. We look for seasoned
management teams that have performed well in both good times and bad.
A company’s expansion strategy is key to its long-term profitability potential. Companies may choose to grow
via internal unit expansion or via acquisitions. In addition, many chains are hedging their bets on the success
of one format and developing or acquiring other restaurant formats. For example, Brinker International Inc.,
with about $3.7 billion in revenue owns Chili’s Grill & Bar as its largest chain, but it also operates Italian- and
Mexican-themed restaurants. Darden Restaurants Inc. pursues a multi-concept strategy via the 2007
acquisition of RARE Hospitality Inc., operator of the Longhorn Steakhouse and Capital Grille chains.

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

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

INDUSTRY REFERENCES
PERIODICALS MARKET RESEARCH FIRMS
Nation’s Restaurant News NPDFoodworld: CREST

http://www.nrn.com http://www.npd.com
Weekly; contains articles on a variety of restaurant industry Part of market research firm NPD Group Inc. that tracks
topics. chain and independent restaurants, and consumer behavior
and attitudes at commercial restaurants.
QSR
http://www.qsrmagazine.com Technomic Inc.
Published 10 times annually; covers the quick-service http://www.technomic.com
sector of the restaurant industry. A market research firm concerned with the restaurant
industry.
Restaurant Business
http://www.monkeydish.com GOVERNMENT AGENCIES
Published 18 times a year; spotlights various industry
segments; customizable website. Economic Research Service
http://www.ers.usda.gov
Restaurants USA Source of annual US statistics regarding food consumption,
http://www.restaurant.org production, and trends; part of the US Department of
Published 11 times a year; focuses on trends and issues of Agriculture.
importance to the restaurant industry.
US Bureau of Labor Statistics
Technomic Top 500 http://www. bls.gov
http://www.technomic.com Source of weekly, monthly, and annual data on
Annual publication; detailed study of restaurant trends, and employment, wages, income, and spending; part of the US
segmented look at industry market shares. Department of Labor.
TRADE ASSOCIATIONS US Census Bureau

http://www.census.gov
International Franchise Association Source of annual and monthly retail and foodservice sales;
http://www.franchise.org part of the US Department of Commerce.
A membership organization of franchisors, franchisees, and
suppliers; provides information, products, and services to
members.
National Restaurant Association

http://www.restaurant.org
Trade organization that works to promote the foodservice
industry, and to protect and educate its members. Publishes
industry data and research, including the Restaurant
Industry Operations Report (annual; co-published with
Deloitte & Touche) and an annual Restaurant Industry
Forecast.

COMPARATIVE COMPANY ANALYSIS — RESTAURANTS
Operating Revenues
Million $ CAGR (%) Index Basis (1999 = 100)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 627.0 610.1 654.1 638.8 606.9 553.7 364.2 5.6 2.5 2.8 172 168 180 175 167
BJRI § BJ'S RESTAURANTS INC DEC 426.7 374.1 316.1 238.9 178.2 129.0 37.4 27.6 27.0 14.1 1,141 1,000 845 639 477
BOBE † BOB EVANS FARMS # APR 1,726.8 1,750.5 1,737.0 1,654.5 1,584.8 1,460.2 A 964.6 6.0 3.4 (1.4) 179 181 180 172 164
EAT † BRINKER INTL INC JUN 3,620.6 4,235.2 4,376.9 4,151.3 D 3,912.9 3,707.5 1,870.6 6.8 (0.5) (14.5) 194 226 234 222 209
BWLD § BUFFALO WILD WINGS INC DEC 538.9 422.4 329.7 278.2 209.7 171.0 NA NA 25.8 27.6 ** ** ** ** NA
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 664.7 677.1 632.9 554.6 479.6 422.5 179.2 14.0 9.5 (1.8) 371 378 353 309 268
CEC § CEC ENTERTAINMENT INC DEC 818.3 814.5 785.3 774.1 726.1 728.0 440.7 6.4 2.4 0.5 186 185 178 176 165
CAKE † CHEESECAKE FACTORY INC DEC 1,602.0 1,606.4 1,511.6 1,315.3 1,182.1 969.2 347.5 16.5 10.6 (0.3) 461 462 435 379 340
CMG † CHIPOTLE MEXICAN GRILL INC DEC 1,518.4 1,329.7 1,085.8 822.9 627.7 470.7 NA NA 26.4 14.2 ** ** ** ** NA
CBRL § CRACKER BARREL OLD CTRY STOR JUL 2,367.3 2,384.5 2,351.6 D 2,643.0 2,567.5 2,380.9 1,531.6 A 4.5 (0.1) (0.7) 155 156 154 173 168
DRI [] DARDEN RESTAURANTS INC # MAY 7,113.1 7,217.5 6,626.5 A 5,567.1 D 5,720.6 5,278.1 3,701.3 6.8 6.1 (1.4) 192 195 179 150 155
DIN § DINEEQUITY INC DEC 1,414.0 1,613.6 484.6 A,C 349.6 348.0 359.0 273.2 F 17.9 31.5 (12.4) 517 591 177 128 127
JACK § JACK IN THE BOX INC SEP 2,471.1 A 2,539.6 D 2,876.0 2,765.6 2,507.2 2,322.4 1,456.9 F 5.4 1.2 (2.7) 170 174 197 190 172
MCD [] MCDONALD'S CORP DEC 22,744.7 23,522.4 22,786.6 D 21,586.4 D 20,460.2 19,064.7 13,259.3 5.5 3.6 (3.3) 172 177 172 163 154
CHUX § O'CHARLEY'S INC DEC 880.8 931.2 977.8 989.5 930.2 C 871.4 302.2 11.3 0.2 (5.4) 291 308 324 327 308
PFCB § P F CHANGS CHINA BISTRO INC DEC 1,228.2 1,198.1 D 1,092.7 D 937.6 809.2 706.9 C 153.3 23.1 11.7 2.5 801 782 713 612 528
PNRA † PANERA BREAD CO DEC 1,353.5 1,298.9 1,066.7 829.0 640.3 479.1 171.4 23.0 23.1 4.2 790 758 622 484 374
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 1,106.0 A 1,132.1 1,063.6 1,001.6 968.8 D 942.4 805.3 A 3.2 3.3 (2.3) 137 141 132 124 120
PEET § PEET'S COFFEE & TEA INC DEC 311.3 284.8 249.4 210.5 175.2 145.7 67.8 16.5 16.4 9.3 459 420 368 310 258
RRGB § RED ROBIN GOURMET BURGERS DEC 841.0 869.2 A 763.5 A 618.7 A 486.0 409.1 NA NA 15.5 (3.2) ** ** ** ** NA
RT § RUBY TUESDAY INC # MAY 1,194.8 1,248.6 1,360.3 1,410.2 1,306.2 1,110.3 797.5 4.1 1.5 (4.3) 150 157 171 177 164
RUTH § RUTHS HOSPITALITY GROUP INC DEC 344.6 D 405.8 319.2 A 271.5 D 214.5 D 192.2 D NA NA 12.4 (15.1) ** ** ** ** NA
SONC § SONIC CORP AUG 718.8 804.7 768.5 693.3 623.1 536.4 257.6 10.8 6.0 (10.7) 279 312 298 269 242
SBUX [] STARBUCKS CORP SEP 9,774.6 10,383.0 A 9,411.5 A 7,786.9 6,369.3 5,294.2 1,680.1 19.3 13.0 (5.9) 582 618 560 463 379
TXRH § TEXAS ROADHOUSE INC DEC 942.3 880.5 A 735.1 A 597.1 A 458.8 363.0 A NA NA 21.0 7.0 ** ** ** ** NA
WEN † WENDY'S/ARBY'S GROUP INC DEC 3,580.8 1,822.8 A 1,263.7 1,243.3 D 727.3 A 328.6 A 854.0 A,C 15.4 61.2 96.5 419 213 148 146 85
YUM [] YUM BRANDS INC DEC 10,868.0 11,286.0 10,416.0 9,561.0 C 9,349.0 9,011.0 7,822.0 3.3 3.8 (3.7) 139 144 133 122 120
OTHER COMPANIES WITH SIGNIFICANT RESTAURANT OPERATIONS

COSI COSI INC DEC 118.6 135.6 D 134.6 D 126.9 117.2 110.6 NA NA 1.4 (12.5) ** ** ** ** NA
DPZ DOMINO'S PIZZA INC DEC 1,404.1 1,425.1 1,462.9 1,437.3 1,511.6 1,446.5 NA NA (0.6) (1.5) ** ** ** ** NA
LUB LUBYS INC AUG 292.9 317.7 320.4 324.6 D 322.2 D 308.8 D 501.5 (5.2) (1.1) (7.8) 58 63 64 65 64
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #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 - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
RESTAURANTS INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies
Net Income
Million $ CAGR (%) Index Basis (1999 = 100)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 6.0 (23.0) 11.8 28.0 30.2 27.6 18.7 (10.8) (26.3) NM 32 (123) 63 150 162
BJRI § BJ'S RESTAURANTS INC DEC 13.0 10.3 11.7 9.8 8.4 6.3 0.5 38.6 15.8 26.5 2,623 2,074 2,355 1,981 1,680
BOBE † BOB EVANS FARMS # APR 70.3 (5.1) 64.9 60.5 54.8 37.0 52.9 2.9 13.7 NM 133 (10) 123 114 104
EAT † BRINKER INTL INC JUN 79.2 51.7 230.0 213.9 160.2 150.9 85.2 (0.7) (12.1) 53.1 93 61 270 251 188
BWLD § BUFFALO WILD WINGS INC DEC 30.7 24.4 19.7 16.3 8.9 7.2 NA NA 33.6 25.5 ** ** ** ** NA
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 4.6 8.7 14.8 21.0 19.5 17.8 5.4 (1.6) (23.8) (47.1) 85 160 274 389 361
CEC § CEC ENTERTAINMENT INC DEC 61.2 56.5 55.9 68.3 74.7 82.5 44.4 3.3 (5.8) 8.3 138 127 126 154 168
CAKE † CHEESECAKE FACTORY INC DEC 42.8 52.3 74.0 81.3 87.9 66.5 21.7 7.0 (8.4) (18.1) 197 241 340 374 405
CMG † CHIPOTLE MEXICAN GRILL INC DEC 126.8 78.2 70.6 41.4 37.7 6.1 NA NA 83.3 62.2 ** ** ** ** NA
CBRL § CRACKER BARREL OLD CTRY STOR JUL 66.0 65.3 76.0 116.3 126.6 111.9 70.2 (0.6) (10.0) 1.0 94 93 108 166 180
DRI [] DARDEN RESTAURANTS INC # MAY 407.0 371.8 369.5 377.1 338.2 290.6 176.7 8.7 7.0 9.5 230 210 209 213 191
DIN § DINEEQUITY INC DEC 31.4 (154.5) (0.5) 44.6 43.9 33.4 32.1 (0.2) (1.2) NM 98 (481) (2) 139 137
JACK § JACK IN THE BOX INC SEP 131.0 118.2 126.3 109.1 91.5 74.7 76.5 5.5 11.9 10.9 171 155 165 143 120
MCD [] MCDONALD'S CORP DEC 4,551.0 4,313.2 2,335.0 2,873.0 2,602.2 2,278.5 1,947.9 8.9 14.8 5.5 234 221 120 147 134
CHUX § O'CHARLEY'S INC DEC (7.3) (132.5) 7.2 18.9 12.0 23.3 16.1 NM NM NM (45) (823) 45 117 75
PFCB § P F CHANGS CHINA BISTRO INC DEC 43.7 35.0 35.2 33.3 37.8 26.1 6.0 21.9 10.9 24.7 724 580 584 551 626
PNRA † PANERA BREAD CO DEC 86.1 67.4 57.5 58.8 52.2 38.6 (0.2) NM 17.4 27.6 NM NM NM NM NM
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 57.5 36.8 32.7 63.0 44.3 23.2 47.3 2.0 19.9 56.1 122 78 69 133 94
PEET § PEET'S COFFEE & TEA INC DEC 19.3 11.2 8.4 7.8 10.7 8.8 (0.1) NM 17.0 72.4 NM NM NM NM NM
RRGB § RED ROBIN GOURMET BURGERS DEC 17.6 27.1 30.7 29.4 27.4 23.4 NA NA (5.5) (35.1) ** ** ** ** NA
RT § RUBY TUESDAY INC # MAY 45.3 (17.9) 26.4 91.7 101.0 102.3 36.5 2.2 (15.0) NM 124 (49) 72 251 276
RUTH § RUTHS HOSPITALITY GROUP INC DEC 2.5 (53.2) 18.1 23.7 10.6 6.4 NA NA (16.9) NM ** ** ** ** NA
SONC § SONIC CORP AUG 49.4 60.3 64.2 78.7 75.4 63.0 27.4 6.1 (4.7) (18.0) 180 220 234 287 275
SBUX [] STARBUCKS CORP SEP 390.8 315.5 672.6 581.5 494.5 390.6 101.7 14.4 0.0 23.9 384 310 661 572 486
TXRH § TEXAS ROADHOUSE INC DEC 47.5 38.2 39.3 34.0 30.3 21.7 NA NA 17.0 24.4 ** ** ** ** NA
WEN † WENDY'S/ARBY'S GROUP INC DEC 3.5 (482.0) 15.1 (11.2) (58.9) 1.5 8.7 (8.7) 18.9 NM 40 NM 173 (128) (674)
YUM [] YUM BRANDS INC DEC 1,071.0 964.0 909.0 824.0 762.0 740.0 627.0 5.5 7.7 11.1 171 154 145 131 122

COSI COSI INC DEC (11.1) (15.9) (16.5) (12.3) (13.1) (18.4) NA NA NM NM ** ** ** ** NA
DPZ DOMINO'S PIZZA INC DEC 79.7 54.0 37.9 106.2 108.3 62.3 NA NA 5.1 47.8 ** ** ** ** NA
LUB LUBYS INC AUG (26.2) 2.5 11.2 21.1 8.6 1.9 28.6 NM NM NM (92) 9 39 74 30
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600.
#Of the following calendar year. **Not calculated; data for base year or end year not available.
Return on Revenues (%) Return on Assets (%) Return on Equity (%)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 1.0 NM 1.8 4.4 5.0 1.2 NM 2.1 5.5 6.6 2.1 NM 4.0 10.4 12.8
BJRI § BJ'S RESTAURANTS INC DEC 3.1 2.8 3.7 4.1 4.7 3.6 3.3 4.4 4.8 6.3 5.4 4.6 5.5 5.9 8.0
BOBE † BOB EVANS FARMS # APR 4.1 NM 3.7 3.7 3.5 6.2 NM 5.4 5.0 4.6 11.4 NM 9.8 8.6 8.1
EAT † BRINKER INTL INC JUN 2.2 1.2 5.3 5.2 4.1 3.8 2.3 10.1 9.8 7.3 12.7 7.4 24.5 19.7 15.2
BWLD § BUFFALO WILD WINGS INC DEC 5.7 5.8 6.0 5.8 4.2 11.1 11.1 11.0 11.1 7.0 16.1 15.6 15.2 15.3 9.7
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 0.7 1.3 2.3 3.8 4.1 1.3 2.4 4.4 7.2 7.6 2.5 4.4 6.9 10.4 10.7
CEC § CEC ENTERTAINMENT INC DEC 7.5 6.9 7.1 8.8 10.3 8.2 7.6 7.8 10.1 11.8 41.3 32.6 19.4 19.7 21.5
CAKE † CHEESECAKE FACTORY INC DEC 2.7 3.3 4.9 6.2 7.4 3.9 4.6 6.8 8.3 10.4 8.8 10.3 11.6 12.0 14.8
CMG † CHIPOTLE MEXICAN GRILL INC DEC 8.4 5.9 6.5 5.0 6.0 14.2 10.1 10.6 8.3 10.4 19.1 13.2 13.6 10.6 13.2
CBRL § CRACKER BARREL OLD CTRY STOR JUL 2.8 2.7 3.2 4.4 4.9 5.2 5.1 5.2 7.2 8.5 57.8 66.3 37.4 19.8 14.5
DRI [] DARDEN RESTAURANTS INC # MAY 5.7 5.2 5.6 6.8 5.9 7.9 7.6 9.7 12.8 11.4 23.3 24.7 29.5 32.4 27.0
DIN § DINEEQUITY INC DEC 2.2 NM NM 12.7 12.6 0.3 NM NM 5.8 5.5 53.7 NM NM 15.3 13.9
JACK § JACK IN THE BOX INC SEP 5.3 4.7 4.4 3.9 3.7 8.9 8.2 8.7 7.6 7.0 26.7 27.1 22.4 17.1 16.4
MCD [] MCDONALD'S CORP DEC 20.0 18.3 10.2 13.3 12.7 15.5 14.9 8.0 9.7 9.0 33.2 30.1 15.2 18.8 17.7
CHUX § O'CHARLEY'S INC DEC NM NM 0.7 1.9 1.3 NM NM 1.1 2.7 1.8 NM NM 1.9 5.2 3.5
PFCB § P F CHANGS CHINA BISTRO INC DEC 3.6 2.9 3.2 3.5 4.7 6.6 5.4 6.2 6.8 8.9 13.3 11.4 12.1 11.4 14.0
PNRA † PANERA BREAD CO DEC 6.4 5.2 5.4 7.1 8.2 11.4 9.8 9.3 12.0 13.7 15.8 14.3 13.6 16.5 18.7
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 5.2 3.3 3.1 6.3 4.6 14.7 9.3 8.4 17.3 12.2 37.4 28.6 24.0 41.0 29.5
PEET § PEET'S COFFEE & TEA INC DEC 6.2 3.9 3.4 3.7 6.1 10.1 6.3 5.1 5.2 7.8 12.5 7.7 6.1 6.2 9.1
RRGB § RED ROBIN GOURMET BURGERS DEC 2.1 3.1 4.0 4.7 5.6 2.9 4.7 6.1 7.5 9.1 6.3 9.8 11.6 13.1 14.9
RT § RUBY TUESDAY INC # MAY 3.8 NM 1.9 6.5 7.7 4.1 NM 2.1 7.6 9.0 9.5 NM 6.1 19.0 18.5
RUTH § RUTHS HOSPITALITY GROUP INC DEC 0.7 NM 5.7 8.7 5.0 0.9 NM 7.7 13.8 5.6 6.4 NM 23.3 43.8 NA
SONC § SONIC CORP AUG 6.9 7.5 8.4 11.4 12.1 5.9 7.6 9.2 13.1 13.9 NA NA 45.1 20.3 21.0
SBUX [] STARBUCKS CORP SEP 4.0 3.0 7.1 7.5 7.8 6.9 5.7 13.8 14.6 14.3 14.1 13.2 29.8 26.9 21.7
TXRH § TEXAS ROADHOUSE INC DEC 5.0 4.3 5.3 5.7 6.6 7.4 6.5 7.9 8.9 10.3 12.2 10.5 11.5 12.4 15.0
WEN † WENDY'S/ARBY'S GROUP INC DEC 0.1 NM 1.2 NM NM 0.1 NM 1.0 NM NM 0.1 NM 3.3 NM NM
YUM [] YUM BRANDS INC DEC 9.9 8.5 8.7 8.6 8.2 15.7 14.0 13.4 13.7 13.4 233.6 187.0 70.6 57.1 50.1

COSI COSI INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM
DPZ DOMINO'S PIZZA INC DEC 5.7 3.8 2.6 7.4 7.2 17.4 11.5 8.9 25.3 23.8 NA NA NA NA NA
LUB LUBYS INC AUG NM 0.8 3.5 6.5 2.7 NM 1.1 5.3 10.2 3.9 NM 1.3 6.5 13.6 6.2
Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
Debt as a % of
Current Ratio Debt / Capital Ratio (%) Net Working Capital
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 1.2 0.8 0.5 0.4 0.4 30.2 34.5 33.6 35.7 37.3 857.1 NM NM NM NM
BJRI § BJ'S RESTAURANTS INC DEC 1.1 0.6 1.8 2.6 2.2 1.8 3.7 0.0 0.0 0.0 66.2 NM 0.0 0.0 0.0
BOBE † BOB EVANS FARMS # APR 0.4 0.3 0.2 0.5 0.5 17.5 20.9 16.3 18.1 20.4 NM NM NM NM NM
EAT † BRINKER INTL INC JUN 0.9 0.9 0.7 0.5 0.6 52.8 60.2 50.7 31.6 26.0 NM NM NM NM NM
BWLD § BUFFALO WILD WINGS INC DEC 1.5 1.5 2.6 2.9 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 0.6 0.5 0.5 0.6 1.0 10.5 29.8 0.0 0.0 0.0 NM NM NM NM NM
CEC § CEC ENTERTAINMENT INC DEC 1.0 0.9 0.8 0.9 0.8 64.4 73.1 57.6 32.8 29.1 NM NM NM NM NM
CAKE † CHEESECAKE FACTORY INC DEC 0.9 1.0 0.8 1.2 1.3 20.1 37.9 26.4 4.8 3.5 NM NM NM 99.2 66.2
CMG † CHIPOTLE MEXICAN GRILL INC DEC 2.9 2.7 2.8 2.9 0.4 0.5 0.6 0.7 0.8 1.1 1.9 2.9 3.1 3.4 NM
CBRL § CRACKER BARREL OLD CTRY STOR JUL 0.7 0.8 0.7 0.9 0.6 76.9 84.1 82.0 69.1 17.9 NM NM NM NM NM
DRI [] DARDEN RESTAURANTS INC # MAY 0.5 0.5 0.4 0.5 0.4 40.4 47.1 51.3 30.5 27.3 NM NM NM NM NM
DIN § DINEEQUITY INC DEC 1.3 1.4 1.1 1.2 1.1 77.0 78.9 73.0 42.0 44.7 NM NM NM NM NM
JACK § JACK IN THE BOX INC SEP 0.9 1.1 0.7 1.2 1.0 40.4 50.5 48.2 24.5 31.7 NM NM NM 395.9 NM
MCD [] MCDONALD'S CORP DEC 1.1 1.4 0.8 1.2 1.4 40.8 41.6 31.0 33.7 35.7 NM NM NM NM 492.9
CHUX § O'CHARLEY'S INC DEC 0.8 0.7 0.8 0.7 0.8 38.2 42.2 27.2 27.5 32.9 NM NM NM NM NM
PFCB § P F CHANGS CHINA BISTRO INC DEC 0.6 0.8 0.5 0.6 1.1 0.9 20.4 23.1 4.8 2.4 NM NM NM NM 65.7
PNRA † PANERA BREAD CO DEC 2.3 1.2 1.2 1.2 1.2 0.0 0.0 14.3 0.0 0.0 0.0 0.0 307.9 0.0 0.0
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 1.0 0.8 0.7 0.8 0.9 34.7 47.1 49.7 38.6 22.6 NM NM NM NM NM
PEET § PEET'S COFFEE & TEA INC DEC 3.1 2.5 2.5 2.7 4.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
RRGB § RED ROBIN GOURMET BURGERS DEC 0.6 0.5 0.5 0.4 0.4 37.3 44.0 33.3 31.6 21.4 NM NM NM NM NM
RT § RUBY TUESDAY INC # MAY 0.7 0.8 0.9 0.8 0.7 32.4 52.2 56.2 51.8 39.4 NM NM NM NM NM
RUTH § RUTHS HOSPITALITY GROUP INC DEC 0.4 0.5 0.6 0.4 0.7 75.0 81.2 52.3 50.0 48.9 NM NM NM NM NM
SONC § SONIC CORP AUG 1.7 0.9 0.6 0.5 0.5 96.6 106.6 115.3 27.4 18.7 805.7 NM NM NM NM
SBUX [] STARBUCKS CORP SEP 1.3 0.8 0.8 0.8 1.0 15.2 18.0 19.3 0.2 0.2 120.8 NM NM NM NM
TXRH § TEXAS ROADHOUSE INC DEC 0.7 0.3 0.5 0.7 0.9 19.1 26.4 15.1 9.7 2.8 NM NM NM NM NM
WEN † WENDY'S/ARBY'S GROUP INC DEC 1.8 0.8 0.8 1.7 1.2 34.8 27.4 61.3 58.3 66.6 371.6 NM NM 435.4 301.8
YUM [] YUM BRANDS INC DEC 0.7 0.6 0.7 0.5 0.5 73.1 101.6 71.1 57.5 53.2 NM NM NM NM NM

COSI COSI INC DEC 0.6 0.8 0.9 1.8 3.0 0.0 4.0 0.2 0.2 0.2 NM NM NM 0.7 0.4
DPZ DOMINO'S PIZZA INC DEC 1.3 1.7 1.3 1.1 1.0 755.7 609.1 669.5 422.4 367.0 NM NM NM NM NM
LUB LUBYS INC AUG 0.2 0.4 0.9 0.5 0.3 0.0 0.0 0.0 0.0 8.3 NM NM NM NM NM
Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 83 - 23 NM - NM 43 - 24 21 - 13 20 - 15 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
BJRI § BJ'S RESTAURANTS INC DEC 39 - 18 45 - 17 55 - 36 65 - 42 65 - 34 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
BOBE † BOB EVANS FARMS # APR 14 - 7 NM - NM 20 - 13 21 - 14 17 - 13 30 NM 29 32 31 4.2 - 2.1 4.8 - 1.7 2.3 - 1.4 2.4 - 1.5 2.4 - 1.8
EAT † BRINKER INTL INC JUN 26 - 10 48 - 8 19 - 10 19 - 13 23 - 18 56 84 16 12 0 5.5 - 2.2 10.8 - 1.8 1.6 - 0.9 1.0 - 0.6 0.0 - 0.0
BWLD § BUFFALO WILD WINGS INC DEC 26 - 13 33 - 11 43 - 20 31 - 16 40 - 24 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
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 92 - 42 50 - 15 49 - 28 32 - 23 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 - 0.0
CEC § CEC ENTERTAINMENT INC DEC 13 - 7 16 - 5 24 - 13 20 - 13 20 - 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
CAKE † CHEESECAKE FACTORY INC DEC 31 - 9 28 - 6 29 - 21 38 - 21 34 - 26 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
CMG † CHIPOTLE MEXICAN GRILL INC DEC 25 - 12 63 - 15 72 - 25 53 - 31 NA - NA 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 NA - NA
CBRL § CRACKER BARREL OLD CTRY STOR JUL 13 - 5 14 - 4 18 - 12 18 - 12 17 - 12 27 25 20 19 22 5.2 - 2.0 6.7 - 1.9 1.8 - 1.1 1.6 - 1.1 1.8 - 1.3
DRI [] DARDEN RESTAURANTS INC # MAY 14 - 8 14 - 5 18 - 10 17 - 13 17 - 11 34 30 27 17 18 4.3 - 2.4 6.1 - 2.1 2.7 - 1.5 1.4 - 1.0 1.6 - 1.0
DIN § DINEEQUITY INC DEC 63 - 10 NM - NM NM - NM 22 - 18 22 - 17 0 NM NM 41 44 0.0 - 0.0 17.7 - 1.8 2.8 - 1.4 2.3 - 1.8 2.6 - 2.0
JACK § JACK IN THE BOX INC SEP 12 - 7 15 - 6 21 - 13 21 - 11 16 - 11 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
MCD [] MCDONALD'S CORP DEC 16 - 12 17 - 12 32 - 22 19 - 14 17 - 13 49 42 77 43 33 4.1 - 3.2 3.5 - 2.4 3.5 - 2.4 3.2 - 2.2 2.4 - 1.9
CHUX § O'CHARLEY'S INC DEC NM - NM NM - NM 76 - 42 28 - 18 43 - 24 NM NM 58 0 0 0.0 - 0.0 15.1 - 1.2 1.4 - 0.8 0.0 - 0.0 0.0 - 0.0
PFCB § P F CHANGS CHINA BISTRO INC DEC 21 - 9 22 - 10 34 - 16 43 - 22 45 - 30 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 25 - 15 29 - 14 35 - 18 40 - 25 43 - 23 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
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 14 - 7 23 - 10 32 - 20 19 - 15 23 - 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
PEET § PEET'S COFFEE & TEA INC DEC 29 - 13 37 - 22 50 - 38 57 - 43 48 - 30 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
RRGB § RED ROBIN GOURMET BURGERS DEC 23 - 8 26 - 4 24 - 17 30 - 18 37 - 24 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 13 - 1 NM - NM 60 - 19 21 - 13 16 - 12 0 NM 49 31 3 0.0 - 0.0 0.0 - 0.0 2.6 - 0.8 2.4 - 1.5 0.2 - 0.2
RUTH § RUTHS HOSPITALITY GROUP INC DEC 43 - 6 NM - NM 29 - 11 24 - 17 77 - 54 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
SONC § SONIC CORP AUG 16 - 7 23 - 6 28 - 21 27 - 20 29 - 21 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
SBUX [] STARBUCKS CORP SEP 45 - 15 49 - 16 41 - 22 53 - 38 52 - 35 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 19 - 10 23 - 8 30 - 20 37 - 20 43 - 29 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
WEN † WENDY'S/ARBY'S GROUP INC DEC NM - NM NM - NM NM - 49 NM - NM NM - NM 600 NM 225 NM NM 1.7 - 1.0 10.5 - 2.7 4.6 - 1.8 6.3 - 3.9 2.8 - 2.1
YUM [] YUM BRANDS INC DEC 16 - 10 21 - 11 23 - 16 21 - 15 20 - 17 34 33 30 18 16 3.3 - 2.1 3.2 - 1.6 1.9 - 1.3 1.2 - 0.8 1.0 - 0.8

COSI 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 - 0.0
DPZ DOMINO'S PIZZA INC DEC 7- 3 16 - 3 58 - 20 17 - 13 16 - 10 0 0 NM 29 25 0.0 - 0.0 0.0 - 0.0 110.2 - 37.8 2.3 - 1.7 2.4 - 1.5
LUB LUBYS INC AUG NM - NM NM - 36 28 - 21 20 - 10 39 - 15 NM 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)
RESTAURANTS‡
BH § BIGLARI HOLDINGS INC SEP 4.20 (16.20) 8.40 20.20 22.00 186.80 181.74 202.59 192.02 174.68 350.00 - 98.40 218.20 - 58.40 362.00 - 203.00 422.00 - 265.00 439.00 - 328.20
BJRI § BJ'S RESTAURANTS INC DEC 0.49 0.39 0.45 0.42 0.38 9.27 8.52 8.19 7.60 5.51 19.29 - 8.76 17.47 - 6.63 24.80 - 16.07 27.50 - 17.64 24.81 - 13.11
BOBE † BOB EVANS FARMS # APR 2.29 (0.17) 1.96 1.68 1.53 19.59 18.03 16.33 16.84 16.38 32.84 - 16.14 34.70 - 12.51 39.83 - 24.58 34.91 - 22.72 26.45 - 19.91
EAT † BRINKER INTL INC JUN 0.78 0.50 1.90 1.66 1.21 5.05 4.49 6.05 7.42 7.21 20.09 - 7.95 23.90 - 3.88 35.74 - 18.92 32.02 - 20.99 28.27 - 22.13
BWLD § BUFFALO WILD WINGS INC DEC 1.70 1.37 1.12 0.95 0.52 10.63 8.57 7.86 6.56 5.58 44.80 - 21.30 44.98 - 14.50 47.75 - 22.88 29.17 - 14.80 20.85 - 12.58
CPKI § CALIFORNIA PIZZA KITCHEN INC DEC 0.19 0.34 0.51 0.72 0.67 7.44 6.92 7.38 7.00 6.49 17.44 - 8.03 16.91 - 5.24 25.23 - 14.28 23.00 - 16.70 22.87 - 14.63
CEC § CEC ENTERTAINMENT INC DEC 2.68 2.43 1.81 2.09 2.13 7.57 5.67 8.19 11.13 9.92 34.77 - 19.29 39.59 - 12.96 43.83 - 24.37 41.14 - 27.69 43.14 - 29.32
CAKE † CHEESECAKE FACTORY INC DEC 0.72 0.82 1.02 1.04 1.12 8.49 7.50 8.09 9.05 8.17 22.63 - 6.84 23.25 - 4.96 29.78 - 21.22 39.28 - 21.65 38.49 - 29.29
CMG † CHIPOTLE MEXICAN GRILL INC DEC 3.99 2.39 2.16 1.29 1.43 21.65 18.66 16.47 14.02 11.10 98.66 - 46.46 150.00 - 36.86 155.49 - 54.61 67.77 - 39.51 NA - NA
CBRL § CRACKER BARREL OLD CTRY STOR JUL 2.94 2.87 2.75 2.71 2.65 5.97 4.15 4.40 6.74 16.65 39.50 - 15.44 38.87 - 10.67 50.74 - 31.82 47.95 - 32.04 44.60 - 33.11
DRI [] DARDEN RESTAURANTS INC # MAY 2.92 2.71 2.63 2.63 2.26 5.96 3.93 2.45 7.36 7.99 41.21 - 23.32 37.83 - 13.21 47.60 - 26.90 44.43 - 32.91 39.53 - 25.78
DIN § DINEEQUITY INC DEC 0.55 (10.09) (0.13) 2.46 2.26 (86.36) (94.36) (89.61) 15.58 15.38 34.71 - 5.24 55.77 - 5.65 71.70 - 35.57 54.59 - 43.94 50.50 - 37.97
JACK § JACK IN THE BOX INC SEP 2.31 2.03 1.93 1.56 1.28 7.34 6.20 4.99 8.36 6.33 28.35 - 16.59 30.35 - 11.82 39.77 - 24.71 32.30 - 16.58 20.98 - 13.68
MCD [] MCDONALD'S CORP DEC 4.17 3.83 1.96 2.33 2.06 10.78 9.99 11.14 11.01 10.45 64.75 - 50.44 67.00 - 45.79 63.69 - 42.31 44.68 - 31.73 35.69 - 27.36
CHUX § O'CHARLEY'S INC DEC (0.35) (6.34) 0.31 0.81 0.53 8.50 8.69 10.63 11.06 10.03 11.41 - 1.83 15.30 - 1.19 23.45 - 13.17 22.31 - 14.98 22.90 - 12.70
PFCB § P F CHANGS CHINA BISTRO INC DEC 1.90 1.47 1.38 1.28 1.44 12.83 13.02 11.89 10.64 10.47 39.57 - 16.51 33.00 - 14.51 47.10 - 22.16 54.93 - 28.09 65.12 - 42.92
PNRA † PANERA BREAD CO DEC 2.81 2.24 1.81 1.88 1.69 15.52 12.57 10.71 10.52 8.49 68.94 - 42.30 65.00 - 30.60 62.78 - 33.33 75.88 - 46.25 72.65 - 39.00
PZZA § PAPA JOHNS INTERNATIONAL INC DEC 2.07 1.31 1.10 1.95 1.32 3.73 1.92 1.40 2.57 3.61 29.25 - 15.31 30.68 - 12.78 34.86 - 21.76 37.96 - 28.76 30.13 - 15.67
PEET § PEET'S COFFEE & TEA INC DEC 1.48 0.81 0.61 0.57 0.77 12.59 10.91 10.55 9.40 9.02 42.20 - 19.29 29.75 - 17.79 30.37 - 22.98 32.76 - 24.29 37.28 - 23.05
RRGB § RED ROBIN GOURMET BURGERS DEC 1.14 1.70 1.84 1.78 1.68 11.51 10.09 11.15 10.69 10.43 26.44 - 9.27 43.58 - 7.49 44.60 - 31.55 52.81 - 32.42 62.91 - 40.34
RT § RUBY TUESDAY INC # MAY 0.74 (0.35) 0.51 1.60 1.67 8.29 7.81 7.72 7.88 8.77 9.38 - 0.85 9.70 - 0.96 30.80 - 9.50 32.98 - 21.03 26.80 - 20.48
RUTH § RUTHS HOSPITALITY GROUP INC DEC 0.11 (2.28) 0.78 1.02 0.30 (1.45) (2.01) 0.35 0.01 0.41 4.74 - 0.70 9.00 - 0.90 23.00 - 8.70 24.61 - 16.90 23.06 - 16.30
SONC § SONIC CORP AUG 0.81 1.00 0.94 0.91 0.84 (1.52) (3.02) (3.61) 3.32 3.26 12.86 - 6.05 23.33 - 5.78 26.19 - 20.02 24.75 - 18.14 24.03 - 17.77
SBUX [] STARBUCKS CORP SEP 0.53 0.43 0.90 0.76 0.63 3.66 2.93 2.74 2.68 2.56 23.95 - 8.12 21.01 - 7.06 36.61 - 19.89 40.01 - 28.72 32.46 - 22.29
TXRH § TEXAS ROADHOUSE INC DEC 0.68 0.53 0.53 0.46 0.44 4.20 3.35 3.44 3.06 2.56 12.75 - 6.72 12.39 - 4.09 16.05 - 10.51 17.24 - 9.16 19.13 - 12.65
WEN † WENDY'S/ARBY'S GROUP INC DEC 0.01 (2.60) 0.16 (0.13) (0.84) 0.14 0.28 (0.70) (1.20) (2.67) 5.80 - 3.55 10.11 - 2.63 20.55 - 7.82 20.56 - 12.86 16.00 - 11.60
YUM [] YUM BRANDS INC DEC 2.28 2.03 1.74 1.51 1.33 (0.16) (2.28) 0.27 0.81 1.04 36.96 - 23.37 41.73 - 21.50 40.60 - 27.50 31.84 - 22.10 26.90 - 22.37

COSI COSI INC DEC (0.27) (0.40) (0.42) (0.32) (0.38) 0.22 0.46 0.81 1.26 1.45 1.21 - 0.16 3.24 - 0.15 6.77 - 2.00 11.21 - 4.20 10.39 - 4.40
DPZ DOMINO'S PIZZA INC DEC 1.39 0.93 0.61 1.68 1.62 (22.85) (25.31) (24.65) (9.39) (7.93) 10.07 - 4.58 15.18 - 2.61 35.67 - 12.25 28.90 - 21.01 25.91 - 16.41
LUB LUBYS INC AUG (0.93) 0.09 0.43 0.81 0.38 5.83 6.73 6.81 6.35 5.56 5.88 - 3.23 11.26 - 3.23 11.83 - 9.21 16.09 - 8.18 14.80 - 5.75
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 Services has 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.

Industry Survey - Restaurant 2011

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Industry Survey - Restaurant 2011

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Industry Surveys

Current Environment ............................................................................................ 1

Industry Profile .................................................................................................... 12

Industry Trends ................................................................................................... 15

How the Industry Operates ............................................................................... 21

Key Industry Ratios and Statistics................................................................... 26

How to Analyze a Restaurant Company ......................................................... 28

CONTACTS: Comparative Company Analysis ......................................................... Appendix

Global Industry Surveys

Standard & Poor’s Industry Surveys

Outlook 2011: will the positive momentum continue?

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 1

SALES IMPROVE AS AMERICANS DINE OUT ONCE AGAIN

2 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

The end of federal stimulus clouds industry outlook for 2011

Has the savings rate peaked?

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 3

Travel influences restaurant spending

RESTAURANTS FOCUS ON GLOBAL OPPORTUNITIES

4 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

Middle East attracts restaurant companies

LABOR AND COMMODITY COSTS REMAIN A KEY FOCUS FOR RESTAURANTS

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 5

Food commodity cost outlook remains elevated

6 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 7

INDUSTRY CONSOLIDATION CONTINUES

FULL-SERVICE CHAINS: PRICES UNDER PRESSURE

8 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

QUICK SERVICE: CUSTOMERS CHOOSE VALUE

Reinventing fast food

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 9

Value menus squeeze margins

INDUSTRY’S EFFORTS ON REGULATORY, LEGISLATIVE MATTERS

10 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 11

Satisfying the consumer’s appetite

12 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

14 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

SALES TRENDS FINALLY STABILIZING AFTER YEARS OF DECLINES

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 15

COMPETING FOR CUSTOMERS

Hispanic market in focus

16 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

Brands come and go

Easier than home cooking

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 17

FAST-FOOD CHAINS MOVE OVERSEAS

18 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

INDUSTRY FOCUSES ON HEALTH

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 19

FOOD-AWAY-FROM-HOME TRENDS STABILIZE

20 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

HOW THE INDUSTRY OPERATES

RESTAURANTS: FROM TAKE-OUT TO FULL-SERVICE

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 21

LOW ENTRY BARRIERS, HIGH RISK/RETURN

FRANCHISING: A QUICK WAY TO GROW

22 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS

RESTAURANT MANAGEMENT AND TRAINING

INDUSTRY SURVEYS RESTAURANTS / MARCH 3, 2011 23

Food and beverages

24 RESTAURANTS / MARCH 3, 2011 INDUSTRY SURVEYS