Foodservice Industry Overview 2016

Casual Dining Trends & Tactics

Sarah Lockyer, Editor-in-Chief Nation’s Restaurant News

Dollar Growth:

+$37b

Nominal Growth:

+5.0%

Real Growth:

+2.1% 2012 2013 2014 2015 2016

658.2 681

710.3

745.3

782.7

Steady Growth Over Five Years

RESTAURANT & FOODSERVICE SALES (in billions)

(projected)

Source: NRA Restaurant Industry Forecast 2016

Revenue Overview

SALES: $ 644.1 billion (excludes alcohol & nonfood sales)

Source: Datassential IFMA Foodservice Landscape 2015/2016 (Feb 2016)

Limited Service Restaurants

38% | $245.6 billion

Retail Foodservice

9% | $58.3 billion

Full Service Restaurants

34% | $216.2 billion

Onsite Foodservice

19% | $124.2 billion

Revenue by Segment SALES: $ 644.1 billion (excludes alcohol & nonfood sales)

$2.3 $2.2

$7.8 $20.3

$5.7 $3.1

$15.6 $2.4

$20.5 $11.9

$17.4 $15.0

$2.0 $31.5

$24.8 $44.7

$171.5 $245.6

$0 $50 $100 $150 $200 $250 $300

CorrectionsMilitary

CateringVending

Senior LivingLong Term Care

HospitalsTransportation

RecreationBusiness & Industry

Colleges & UniversitiesK-12 Schools

Other RetailersConvenience Stores

SupermarketsLodging

Full ServiceLimited Service LSR 38%

FSR 34%

Retail 9%

Onsite 19%

Source: Datassential IFMA Foodservice Landscape 2015/2016 (Feb 2016)

Locations by Segment TOTAL FOODSERVICE LOCATIONS: 1.23 million+ (excludes alcohol & nonfood sales)

4,875 523

10,625 4,011

34,385 15,632

5,686 2,493

62,201 11,106

4,706 109,629

10,055 151,053

98,994 68,663

324,351 308,682

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

CorrectionsMilitary

CateringVending

Senior LivingLong Term Care

HospitalsTransportation

RecreationBusiness & Industry

Colleges & UniversitiesK-12 Schools

Other RetailersConvenience Stores

SupermarketsLodging

Full ServiceLimited Service LSR 25%

FSR 32%

Retail 21%

Onsite 22%

Source: Datassential IFMA Foodservice Landscape 2015/2016 (Feb 2016)

15%

25%

35%

45%

55%

65%

75%

85%

95%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Casual Fine Dining Midscale QSR ALL Fast Casual

Alcohol Beverage Penetration

Source: Datassential MenuTrends (Dec 2015)

Over 50% of all restaurants have alcoholic beverages on the menu

Fine Dining: 97.6%

Casual: 90.8%

Total US: 59.9%

Midscale: 48.6%

QSR: 21.4% -2%

+24%

+19%

+20%

+14%

Penetration 10-Year % Change

Fast Casual: 34.0% +3%

Same-Store Sales by Segment

Source: Black Box Intelligence/People Report/TDn2K (Dec. 2015)

2013 2014 2015 Industry -0.2% 0.6% 1.6%

Casual -1.1% 0.3% 1.2%

Family 0.4% -0.2% 1.6%

Fast Casual 3.5% 2.2% 1.9%

Fine Dining 3.1% 3.2% 2.4%

QSR 0.2% 2.9% 2.8%

Upscale Casual -0.3% 0.2% 1.9%

Industry Sales Growth Dips

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

2009

-Q4

2010

-Q1

2010

-Q2

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

2014

-Q1

2014

-Q2

2014

-Q3

2014

-Q4

2015

-Q1

2015

-Q2

2015

-Q3

2015

-Q4

2016

-Q1

2016

-Q2

Comp Sales

Source: Black Box Intelligence/TDn2K (Dec. 2015)

Traffic Problem Remains

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

2009

-Q4

2010

-Q1

2010

-Q2

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

2014

-Q1

2014

-Q2

2014

-Q3

2014

-Q4

2015

-Q1

2015

-Q2

2015

-Q3

2015

-Q4

2016

-Q1

2016

-Q2

Comp Sales Comp Traffic

Source: Black Box Intelligence/TDn2K (Jun 2016)

Consumer Demand Pent-Up

Percent of adults NOT eating on-premises at restaurants as often as they would like (eating on premises, purchasing take-out, ordering delivery)

40%

2001-2010

2015

25%

Source: NRA Restaurant Industry Forecast 2016

Compared to pre-recession levels, there is a larger percentage of consumers not patronizing restaurants as often as they would like

Restaurant Operator Survey 2016

Improving Traffic

Nearly three-quarters of respondents said traffic trends were the same or better than this time a year ago.

2016 customer traffic trends have been:

Source: NRN Restaurant Operator Survey 2016

Optimistic Outlook

Only 11 percent said they expect first-half same-store sales this year to be worse than in the same period a year ago.

First-half same-store sales are expected to be:

Source: NRN Restaurant Operator Survey 2016

Business Boosters

The best tailwind for my business this year will be:

Source: NRN Restaurant Operator Survey 2016

Eyeing Unit Expansion

More than half of respondents said they plan net positive unit expansion this year.

Source: NRN Restaurant Operator Survey 2016

Investing in Upgrades

Redesigns topped the list, with equipment, staffing and mobile concerns close behind.

My business plans to invest most in:

Source: NRN Restaurant Operator Survey 2016

Labor Looms Large

More than 80 percent of respondents cited workforce management concerns, with nearly half saying recruitment and retention was the top challenge this year.

The top challenge my business is facing this year is:

Source: NRN Restaurant Operator Survey 2016

Labor Takes Center Stage

Turnover Rising with Hourlies

Source: People Report/TDn2K (Dec 2015)

Restaurants Extremely Labor Intensive

Source: National Restaurant Association, based on Bureau of Labor Statistics and U.S. Census Bureau Data (2013)

Average Sales per Full-Time Equivalent Non-Supervisory Employee

Eating and Drinking Places $84,000

Grocery Stores $304,000

Auto Dealers $823,000

Gasoline Service Stations $855,000

Restaurants require more labor to achieve their sales figures.

Labor and Benefits Costs: Changes Are Adding Pressure…

Area Impact/Example

Wage

Seattle, Los Angeles, and Chicago passing laws to raise minimum wage 4.4M workers expected to receive raise due to recent legislation Wal-Mart increases wages system-wide; McDonald’s increases wages for

company-owned stores

Unionization Fast-food restaurant employees strike in dozens of cities with demand of $15 per hour minimum wages and ability to unionize without retaliation

Healthcare & Benefits Paid sick leave and affordable health care for employee requirements

Legislation National Labor Relations Board names McDonald’s as a joint employer, exerting more responsibility of the company regarding the labor practices of its franchisees

Scheduling Starbucks reassesses employee scheduling policies Retailers face scrutiny for on-call scheduling and shifts

Tips IRS legislation classifies large party tips as service charges that are taxable as

regular wages and subject to payroll tax withholding rather than pooled into tip cash

Industry conversation and evaluations on no-tipping policies

Source: Alix Partners 2015 Restaurant Study

Top Chain Trends

Top 100 By the Numbers

Source: 2016 Top 200 Research, Nation’s Restaurant News

SALES UNITS +5.9% Sales Growth

+$13.67B Total U.S. Sales

LATEST YEAR

PRECEDING YEAR

PRIOR YEAR

$248.33B $234.57B $224.24B

+3.0% Unit Growth

+3,252 Total U.S. Units

LATEST YEAR

PRECEDING YEAR

PRIOR YEAR

195,741 192,489 187,677

23.0% LSR/BURGER

18.0% LSR/SANDWICH

13.2% BEVERAGE- SNACK

12.3% PIZZA

7.6% C-STORE

6.5% CHICKEN

6.1% CASUAL DINING

5.1% LSR/MEXICAN

3.6% FAMILY DINING

3.0% OTHER*

1.8% BAKERY-CAFÉ

*OTHER: IN-STORE AND LSR/SPECIALTY (INCLUDES CHINESE, NOODLE AND SEAFOOD CHAINS)

The top 10 chains took 46% of the Top 100 universe’s $248.33 billion in sales

MARKET SHARE OF SALES (by segment)

Second 100 By the Numbers

Source: 2016 Top 200 Research, Nation’s Restaurant News

SALES UNITS

MARKET SHARE OF SALES (by segment)

+4.0% Sales Growth

+$972M Total U.S. Sales

LATEST YEAR

PRECEDING YEAR

PRIOR YEAR

$25.54B $24.57B $23.65B

+1.6% Unit Growth

-69 Total U.S. Units

LATEST YEAR

PRECEDING YEAR

PRIOR YEAR

19,938 20,007 20,338

35.1% CASUAL DINING

9.7% FAMILY DINING

8.8% LSR/ BURGER

7.9% LSR/ SANDWICH

7.5% LSR/ SPECIALTY*

6.6% BEVERAGE-SNACK

5.9% OTHER**

5.9% LSR/MEXICAN

5.0% BAKERY- CAFÉ

4.6% PIZZA

3.1% BUFFET/GRILL-BUFFET

*LSR/SPECIALTY: BARBECUE, CHINESE, HOT DOG, ITALIAN, MEDITERANNEAN AND JAPANESE CHAINS **OTHER: C-STORE, CAFETERIA, CHICKEN AND IN-STORE

The Largest Chains and Companies

(by latest-year U.S. systemwide sales) (by latest-year U.S. foodservice revenue: U.S.-only company/franchisor-operated restaurant sales, U.S. franchisee initial fees, and U.S. franchisee sales royalties) 1 McDonald’s $ 35.84 billion

2 Starbucks Coffee $ 15.95 billion

3 Subway $ 11.50 billion

4 Burger King $ 9.12 billion

5 Wendy’s $ 9.01 billion

6 Taco Bell $ 8.82 billion

7 Dunkin’ Donuts $ 7.62 billion

8 Chick-fil-A $ 6.75 billion

9 Pizza Hut $ 5.80 billion

10 Domino’s ↑ $ 4.81 billion

1 Compass Group PLC $ 11.40 billion

2 Starbucks Corp. $ 10.52 billion

3 Aramark $ 7.23 billion

4 Sodexo Inc. ↑ $ 7.02 billion

5 Darden Restaurants Inc. ↓ $ 6.92 billion

6 McDonald’s Corp. $ 5.50 billion

7 Chipotle Mexican Grill Inc. $ 4.47 billion

8 Bloomin’ Brands Inc. $ 3.87 billion

9 Brinker International Inc ↑ $ 3.21 billion

10 Yum! Brands Inc. $ 3.11 billion

Source: 2016 Top 200 Research, Nation’s Restaurant News NOTE: Arrows indicate movement in ranking versus prior year

TOP 10 LARGEST CHAINS TOP 10 LARGEST COMPANIES

The Biggest Movers in FSRs

21.0%

12.8%

10.5%

9.6%

8.9% Family Dining

Casual Dining

Casual Dining

Casual Dining

Casual Dining

Source: 2016 Top 200 Research, Nation’s Restaurant News

TOP 100 SECOND 100 (Top 5 growth chains ranked by % change in U.S. systemwide sales, latest year vs. preceding year)

(Top 5 growth chains ranked by % change in U.S. systemwide sales, latest year vs. preceding year)

21.8%

19.7%

18.7%

18.0%

17.1% Casual Dining

Family Dining

Casual Dining

Family Dining

Casual Dining

Questions? Sarah Lockyer sarah.lockyer@penton.com 212-204-4392 @slockyerNRN