march 2008 casual dining executive summary – talking points –

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March 2008 Casual Dining Executive Summary – Talking Points –

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Page 1: March 2008 Casual Dining Executive Summary – Talking Points –

March 2008

Casual Dining Executive Summary

– Talking Points –

Page 2: March 2008 Casual Dining Executive Summary – Talking Points –

III-A. Current Operating Environment

Page 3: March 2008 Casual Dining Executive Summary – Talking Points –

3

Why is Casual Dining Struggling?Several elements within the current operating environment are contributing to the lackluster results currently experienced by many concepts:

Economic pressures

Various economic factors can create positive or negative drags on consumer perceptions and spending patterns/habits. Many of the current trends are creating a negative effect on sales demand.

Historically aggressive Casual Dining unit growth

In recent years, Casual Dining unit growth rates have exceeded the overall restaurant industry. This has created a scenario where restaurant supply arguably is greater than consumer demand.

Page 4: March 2008 Casual Dining Executive Summary – Talking Points –

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Why is Casual Dining Struggling?

Lack of differentiation among Casual Dining brands

As concepts look to attract more customers, many are losing their unique identity. Consumers often see very little difference among the menu offerings and experience perceptions of various brands (especially in the Bar and Grill segment).

Changing consumer dining habits

Recent trends show consumers eating more meals at home, while total meals sourced outside the house have flattened and even decreased slightly.

Page 5: March 2008 Casual Dining Executive Summary – Talking Points –

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Economic Pressures

Potential Drivers of Restaurant Industry Sales Demand

Source: UBS

FactorProjected Effect on

Restaurant Spending

Rising gasoline prices Negative

Rising wage and salaries Positive

Higher unemployment rate Negative

Lower restaurant unit growth Positive

Rising consumer prices (energy) Negative

Positive wealth effect Positive

Falling consumer sentiment Negative

Consumers are currently experiencing all of the “Negative” influencers, while the “Positive” elements have been non-existent, or exhibited minimal influence.

Page 6: March 2008 Casual Dining Executive Summary – Talking Points –

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Casual Dining Unit Growth Has Outpaced Demand

An analysis of 146 Leading Casual Dining Chains

included in the Technomic Top 500 shows that their

rate of unit expansion has averaged nearly 5% during

the period 2004-2007 as shown on the following

chart.

Page 7: March 2008 Casual Dining Executive Summary – Talking Points –

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Historical Casual Dining Unit Growth

Source: UBS

Casual Dining unit growth has outpaced the general restaurant industry three of the past four years.

0.0%

2.0%

0.0%

1.0%

4.7%

6.1%5.3%

3.1%

2004 2005 2006 2007

Restaurant Industry Casual Dining

Page 8: March 2008 Casual Dining Executive Summary – Talking Points –

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Consumers have almost unlimited choices.

Little perceived differentiation.

Many concepts have spent too much time focusing on trying to be “all things to all people.”

The result is “everyone looks the same.”

Undifferentiated Concept Landscape

Page 9: March 2008 Casual Dining Executive Summary – Talking Points –

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Undifferentiated Concept Landscape

When participants were asked to identify differences among Classic Casual concepts they struggled to find differences, reporting that they are “very similar.”

Other focus group comments included:

“They all look alike. You walk in and the waiting area is like a box. The booths are so close together. It’s like everyone is on top of each other.”

“…they all have similar atmospheres as far as casual dining goes.”

Page 10: March 2008 Casual Dining Executive Summary – Talking Points –

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Casual-Dining’s Dinner Traffic Is Down

Dinner Traffic at Casual-Dining

Source: The NPD Group/Foodservice/NPD Crest and UBS

-2.4%

2.2%

-6.6%

-4.3%

-2.9%

-4.9%

3.1%

-2.6% -2.7%

SON'05 DJF'06 MAM'06 JJA'06 SON'06 DJF'07 MAM'07 JJA'07 SON'07

Similar trends are noted in fast food as well, but not to this degree.

Page 11: March 2008 Casual Dining Executive Summary – Talking Points –

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Meals Purchased at a Restaurant Flattening

Consumption Has Decreased Slightly Over the Past Several Years– Annual Per Person –

Source: The NPD Group/Foodservice/NPD Crest and UBS

160

170

180

190

200

210

220

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Page 12: March 2008 Casual Dining Executive Summary – Talking Points –

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Meals Prepared and Consumed at Home Increasing

Consumption Trending Upward– Annual Per Person –

Source: The NPD Group/Foodservice/NPD Crest and UBS

780790800810820830840850860870880890900910920

Page 13: March 2008 Casual Dining Executive Summary – Talking Points –

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Consumers Report Cutting Back at FSRs (Full-Service Restaurants)

In a recent survey, approximately a quarter of consumers reported they had cutback back their usage at FSRs in the past 90 days for lunch and dinner.

9%

14%

25%23%

Lunch Dinner

Visiting More Visiting Less

% of Consumers Who Have Increased or Decreased Their FSR Visits in the Past 90 Days

Source: American Express Market Brief, March 2008; n=1200

Page 14: March 2008 Casual Dining Executive Summary – Talking Points –

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Consumers Report Having Less Discretionary Income Available for Dining at FSRs

77%

26%

13%

Less moneyavailable to spend

on extras like eatingout

Cost of gas to drive

I don't feel there areenough healthy

options

Top Reasons Given for Dining at FSRs “Less Often”

Source: American Express Market Brief, March 2008; n=1200

Page 15: March 2008 Casual Dining Executive Summary – Talking Points –

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Consumers are Most Likely to Blame Gas Prices and Utility Bills

70%

50%

37%

36%

19%

13%

13%

Gasoline Prices

Utility Bills

Lost Job/Pay Cut

Mortgage/Rent

Higher Credit Card Minimums

Increase in Credit Card Interest Rates

Media Reports on the State of theEconomy

Factors Impacting Consumers’ Decisions to Spend Less Money at Restaurants

Source: American Express Market Brief, March 2008; n=1200

Page 16: March 2008 Casual Dining Executive Summary – Talking Points –

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Most of these Meals Have Been Replaced By Meals Prepared at Home

89%

22%

18%

5%

Food prepared atand/or eaten at

home

Prepared food froma retail store

Visit to a LSR

Work cafeteria orsome other

cafeteria

Meal Types That Replaced What Were FSR Occasions

Source: American Express Market Brief, March 2008; n=1200