restaurant industry 2009 and beyond hudson riehle senior vice president research and knowledge group...

Restaurant Industry 2009 and Beyond

Hudson RiehleSenior Vice President

Research and Knowledge Group

Rhode Island Hospitality Association Economic Outlook Breakfast

Providence, RI

October 14, 2009

Agenda

• Overview• Economic Backdrop• Industry Segments• Industry Imperatives

– Jobs and Careers– Food and Healthy Living– Sustainability and Social Responsibility– Profitability and Entrepreneurship

• Regional Outlook• Wrap-Up

DEFINITION:

“Restaurant Industry”All meals/snacks prepared away from home, including all takeout meals and beverages

Restaurant Industry

Commercial Restaurant

Services

Non-Commercial Restaurant

Services

Military Restaurant

Services

Overview:The Industry in 2009

2008 + 2009 =

Most Challenging Period for Restaurant Industry in Decades

39 Years of Restaurant-Industry Sales

Source: National Restaurant Association

Annual Sales:

$560+ billion

Employees:

13 million

Locations:

945,000


1955: 25% Present: 48%

Restaurant Industry’s Share of the Food Dollar

The Industry Mosaic

Economic Backdrop

National Economy Expected to Improve in 2010

4.1%

1.1%

1.8%2.5%

3.6%3.1%

2.7%2.1%

0.4%

-2.6%

2.1%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Projected

U.S. Real Gross Domestic Product – Historical and Projected Growth Rates

Source: Bureau of Economic Analysis; National Restaurant Association

Recovery Expected to Be Slow and ModestU.S. Real Gross Domestic Product – Quarterly Annualized Growth Rates


1.2%

3.2% 3.6%

2.1%

-0.7%

1.5%

-2.7%

-5.4%-6.4%

-0.7%

3.0%

2.2% 2.0% 2.2% 2.5%3.0%

-8%

-6%

-4%

-2%

0%

2%

4%

07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4

Projected

Income Growth Expected to Remain Modest in 2010

Real Disposable Personal Income – Historical and Projected Growth Rates


5.1%

2.4%

3.3%

2.5%

3.4%

1.3%

4.0%

2.2%

0.5%

0.1%

0.8%

0%

1%

2%

3%

4%

5%

6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Projected

Home Equity Cashed Out Through Refinancing Each Quarter

Includes refinancing of prime, first-lien conventional mortgages

Source: Freddie Mac

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Bill

ion

s

00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1

0%

2%

4%

6%

8%

10%

12%

14%

Jan-81 Jan-85 Jan-89 Jan-93 Jan-97 Jan-01 Jan-05 Jan-09

Personal Saving Rate Trending Upward Personal Saving as a Percentage of Disposable Personal Income

Source: Bureau of Economic Analysis

Gas Prices Remain Below 2008 Levels Average price per gallon for regular gasoline

Source: U.S. Department of Energy, Energy Information Administration

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Pri

ce

pe

r g

allo

n

Tourism Drives Restaurant Sales Median proportion of restaurant sales represented by travelers and visitors


25%25%25%25%

FamilyFamilyDiningDining

CasualCasualDiningDining

40%40%

15%15%

FineFineDiningDining

QuickserviceQuickservice

International Arrivals to the U.S. Down 10% in First Half of 2009 Percent change in number of international arrivals to the U.S.

Source: U.S. Department of Commerce; *Year-to-Date growth through June 2009

6%

-12%

-8%

-4%

11%

8%

6%

11%

4%

-10%

-15%

-10%

-5%

0%

5%

10%

15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009:YTD

Job Losses Likely to Continue into 2010

Total U.S. Employment – Historical and Projected Growth Rates

Source: Bureau of Labor Statistics; National Restaurant Association

2.2%

0.0%

-1.1%

-0.3%

1.1%

1.7% 1.8%

1.1%

-0.4%

-3.7%

-1.0%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Projected

Consumer Confidence Edging Back Up from Record Lows U.S. Consumer Confidence Index

Source: The Conference Board

0

25

50

75

100

125

150

Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

2.4%

2.9%

2.5%

2.1%

3.0% 3.1% 3.1%

3.6%

4.4%

3.6%

0%

1%

2%

3%

4%

5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Menu Prices Expected to Post Moderate Growth in 2009Menu Prices – Historical and Projected Growth Rates

Source: Bureau of Labor Statistics; National Restaurant Association

Projected

Economy Remains the Top Challenge Facing Operators Top Challenges Facing Restaurant Operators: Sep. 2007, Sep. 2008, Sep. 2009

Source: National Restaurant Association, Restaurant Industry Tracking Survey

SEPTEMBER 2009

The Economy 34%

Sales Volume 29

Labor Costs 6

Government 6

Recruiting Employees 5

Food Costs 3

SEPTEMBER 2007

Recruiting Employees 34%

Sales Volume 16

Food Costs 11

The Economy 9

Competition 7

Labor Costs 3

SEPTEMBER 2008

The Economy 31%

Food Costs 22

Sales Volume 15

Recruiting Employees 8

Gas/Energy Prices 6

Labor Costs 1

Total Monthly Sales Just Slightly Above 2008 Levels Seasonally-adjusted Monthly Sales at Eating and Drinking Places (in billions)

Source: U.S. Census Bureau

$24

$26

$28

$30

$32

$34

$36

$38

$40

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

Mo

nth

ly S

ales

(in

bill

ion

s)

2008

2007

2006

2004

2002

2001

2003

2005

2009

Restaurant Performance Index Below 100 for 22nd Consecutive Month


96

97

98

99

100

101

102

103

104

Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Values Above 100 = Expansion, Values Below 100 = Contraction

Expectations Index Rising as Operators Grow More Optimistic


95

96

97

98

99

100

101

102

103

104

105

Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Current Situation Index Expectations Index

Values Above 100 = Expansion, Values Below 100 = Contraction

Restaurant Operators Continue to Plan for Capital Expenditures

Proportion of operators that made a capital expenditure for equipment, expansion or remodeling in last 3 months and plan to in the next 6 months


40% 41% 38%46%

35%40%

60% 59%

39%46%

0%

10%

20%

30%

40%

50%

60%

70%

Family Dining Casual Dining Fine Dining Quickservice Quick-Casual

Made Capital Expenditure in Last 3 Months Plan to Make Capital Expenditure in Next 6 Months

Industry Segments

Fullservice Restaurant Sales

2008 2009

$181 billion$183 billion

-2.5%Real

Decrease


Pent-Up Demand for Restaurants

Percent of adults NOT eating on-premises at restaurants as often as they would like

Percentage

2007 2008 Point Change

All Adults 31% 33% +2

Household Income:

$50,000 - $74,999 23% 29% +6

$75,000 or more 17% 24% +7


Percent of adults NOT eating on-premises at restaurants as often as they would like


Pent-Up Demand for Restaurants Continues to Grow

October

2007

September

2009

Percentage Point Change

All Adults 31% 36% +5

Household Income:

$50,000 - $74,999 23% 34% +11

$75,000 or more 17% 26% +9

Limited-Service Restaurant Sales

2008 2009

$157 billion

$164 billion

0.4%Real

Increase


Managed Services Sales


2008 2009

$38.3 billion

$40.1 billion

1.2%Real

Increase

Jobs and Careers

Over two out of five American adults have worked in the restaurant industry.


Source: Bureau of Labor Statistics; National Restaurant Association projections * Projected

1999

10.9 million

2009* 2019*

13.0 million

14.8 million

Total Restaurant-Industry Employment

Restaurants Down 119,500 Jobs from Pre-Recession Peak (-1.2%) Net Change in Eating and Drinking Place Employment (seasonally-adjusted)

Source: Bureau of Labor Statistics

-16,300

-27,300

-25,300

-6,900-10,300

-4,500

2,900

21,500

4,100

-5,700-6,800

-10,500

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

National Economy Down 7.2 Million Jobs (5.2% of Workforce) Net Change in Total U.S. Employment (seasonally-adjusted)


-380,000

-597,000

-681,000-741,000

-681,000-652,000

-519,000

-303,000

-463,000

-304,000

-201,000

-263,000

-800,000

-600,000

-400,000

-200,000

0

Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

Food and Healthy Living

1 Locally grown produce

2 Bite size desserts

3 Organic produce

4 Nutritionally-balanced children’s dishes

5 New/fabricated cuts of meat (e.g. Denver steak, pork flat iron, bone-in Tuscan veal chop)

Source: National Restaurant Association; American Culinary Federation, 2008

Hot/Trendy Food OfferingsFullservice Restaurants

1 Healthy options in kids meals

2 Organic items

3 Locally-sourced items

4 Spicy items

5 Wraps/pitas/tortillas

Source: National Restaurant Association, Quickservice Restaurant Survey 2008

Hot/Trendy Food OfferingsQuickservice Restaurants

1 Micro-distilled/artisan liquor

2 Culinary cocktails (e.g. savory, customized to specific dishes)

3 Organic wine

4 Craft beer/microbrews

5 Specialty beer (e.g. seasonal, fruit)


Hot/Trendy Alcoholic Beverage OfferingsFullservice Restaurants

1 Specialty iced tea (e.g. Thai-style, Southern/sweet, flavored)

2 Organic coffee

3 Flavored/enhanced water

4 Green tea

5 Espresso/specialty coffee


Hot/Trendy Non-Alcoholic Beverage OfferingsFullservice Restaurants

1 Energy drinks

2 Flavored/enhanced water

3 Espresso/specialty coffees

4 Sports drinks

5 Iced tea

Source: National Restaurant Association, Quickservice Restaurant Survey 2008

Hot/Trendy Non-Alcoholic Beverage OfferingsQuickservice Restaurants

Three out of four adults (76 percent) said they are trying to eat healthier now at restaurants than they did two years ago.


Nearly three out of ten adults (27 percent) said they have gone online to search for nutrition information about restaurant food.


Sustainability and Social Responsibility

Going GreenPercent of operators, by type of operation, who plan to devote more oftheir resources to green initiatives in 2009

Source: National Restaurant Association, 2008

Family dining Casual dining Fine dining Quickservice

43% 45% 50% 27%

Forty-four percent of adults said they are likely to make a restaurant choice based on a restaurant’s practices in the areas of energy and water conservation.


Conservation InitiativesPercent of restaurant operators who took the following actions in 2008

Family Casual Fine Quick

Dining Dining Dining Service

Purchase Energy-Saving Lighting Fixtures 64% 52% 63% 41%

Purchase Energy-Saving Kitchen Equipment 44 40 36 36

Purchase Energy-Efficient Refrigeration, Air 40 40 41 30

Conditioning or Heating Systems

Install Water-Saving Equipment and/or Fixtures 34 28 37 26


Fifty-two percent of adults said they are likely to make a restaurant choice based on how much a restaurant supports charitable activities and the local community.


Profitability and Entrepreneurship

The Restaurant Industry Dollar

Source: Deloitte; National Restaurant Association

Fullservice Limited Service

Wages and benefits 33% 30%

Food and beverages 33% 29%

Occupancy costs 6% 9%

Other 24% 23%

Income before taxes 4% 9%

TOTAL 100% 100%

Same-Store Sales and Customer Traffic Remain Soft

Proportion of Restaurant Operators Reporting Higher/Lower Same-Store Sales


26%

60%

29%

60%

26%

60%

23%

66%

31%

55%

29%

56%

24%

63%

26%

59%

26%

60%

22%

61%

26%

58%

17%

68%

0%

25%

50%

75%

Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09

Higher Same-Store Sales Lower Same-Store Sales

A New GenerationProportion of fullservice customers who said they would utilize the option of a touch-screen TV monitor at the table, which gave the options to view the menu, place the order, pay the bill, browse the Internet, watch TV and play video games, if it was offered by a fullservice restaurant

65%

56%53%

38%

21%

13%

0%

10%

20%

30%

40%

50%

60%

70%

18 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65 & over

Age Group


A New GenerationProportion of fullservice customers who said they would utilize the option of receiving cell phone text message notifications of daily specials, if it was offered by a fullservice restaurant


24%

19% 19%

14%

6% 6%

0%

5%

10%

15%

20%

25%

18 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65 & over

Age Group

A New PerspectiveSeventy-five percent of adults would patronize fullservice restaurants more if they were offered discounts for dining on less busy days of the week.


Regional Outlook

U.S. Jobless Rate Stood at 9.8% in September

Seasonally-adjusted Unemployment Rates in August 2009


< 7%

7 to 8.9%

9 to 10.9%

11% +

Dramatic Consumer Confidence Variations By Region

Present Situation: September 2009

Source: The Conference Board

REGION INDEX

West South Central 75.2

West North Central 40.0

East South Central 32.3

South Atlantic 22.8

Middle Atlantic 21.5

New England 19.0

Mountain 18.0

Pacific 12.3

Growth in Key Indicators


2010 Rhode Island

Population +0.1%

Real Disposable Personal Income (DPI) +0.1%

Construction Employment +0.2%

Wrap Up

Unfulfilled Demand for Restaurant Services Remains High


Over one-third of adults are NOT dining on-premises or using take-out as often as they would like

Americans Love RestaurantsPercent of adults who said they enjoy going to:

Restaurants 90%

Grocery Stores 55%


Wrap-Up Modest real GDP growth resumes

Patchy and prolonged recovery

Job market remains weak

With soft economic backdrop, value emphasis continues

However, 2010 environment will be better than prior two years

Menu — healthy kids’ meals, local produce, mini- desserts, artisan spirits

Workforce — higher productivity through greater focus on technology

Growing role of green initiatives

Pent-up demand for restaurants + nudging / incenting consumer = positive future despite challenges

Restaurant Industry 2009 and Beyond

Hudson RiehleSenior Vice President

Research and Knowledge Group

Rhode Island Hospitality Association Economic Outlook Breakfast

Providence, RI

October 14, 2009

rhode island

hospitalityEconomic Outlook Breakfast

October 14, 2009

Rachel J. Roginsky, [email protected]

164 Canal Street Boston, MA 02114 ~ 617/722-9916www.pinnacle-advisory.com

The State of the Hospitality Industry in

Rhode Island

NATIONAL LODGING MARKET

U.S. Occupancy Percent 2000 – 2010P

Source: Smith Travel Research

63.3

59.7 5959.2 61.3

63.1 63.3 63.160.4

55.4 55.1

40

46

52

58

64

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009P 2010P

$85.37$84.07 $82.82 $82.96

$86.41

$91.16

$98.00

$104.08

$106.72

$96.43$93.16

$70

$75

$80

$85

$90

$95

$100

$105

$110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009P 2010P


U.S. Average Daily Rate 2000 – 2010P

U.S. RevPAR Percent Change 2000 – 2010P

6.1

-6.9

-2.6

0.5

7.9 8.5 7.85.7

-1.8

-17.1

-4

-12.0

-7.0

-2.0

3.0

8.0

13.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009P 2010P


20 yr. Ave. 2.9%

86.41 91.16 104.08 106.72 96.43 93.1684.0785.30 98.0082.9682.82

$87.73$89.11

$91.15

$93.57

$96.74

$99.86

$105.90$107.81$106.65

$85.30

$102.71

80

90

100

110

Nominal ADRYr 2000, Grown by CPI


Total U.S. Room Rates Actual vs. Inflation Adjusted 2000 – 2010P

If year 2000 ADR had increased by CPI each year…

2009 2010Segment RevPar Chg RevPar Chg

Luxury -25.0 / -28.0 -7.0 / -10.0

Upper Upscale -18.0 / -21.0 -1.0 / -4.0

Upscale -16.0 / -19.0 -5.0 / -8.0

Midscale with F&B -12.5 / -15.5 -3.0 / -6.0

Midscale without F&B -10.5 / -13.5 +1.0 / -2.0

Economy -13.0 / -16.0 Flat / -3.0

STR Chain Scale Forecast


1990/1991

2001/2002

Current(Q2-09)

Estimate 2008/10

Demand 3 5 6 9

Occupancy 7 6 7 11

ADR 0 5 3 9

RevPAR 5 5 4 9

Room Revenue 2 5 4 7

Total US Industry Consecutive Quarterly Declines – Key Indicators


Takeaways:• Decline is global• Supply growth still an issue• Demand declines may be near bottom• ADR weakness continues • “Less Worse” 2H 2009• Moderate improvement 2010• Meaningful growth anticipated 2011


NEW ENGLAND LODGING MARKET

57.2%

61.6%

58.1%

56.7%

58.8%

52.0%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

57.8%

New England Occupancy - 2008

Source: Smith Travel Research/Pinnacle Advisory Group

$106.36

$126.41 $140.77

$109.79$102.65 $94.93

$30.00

$50.00

$70.00

$90.00

$110.00

$130.00

$150.00

New England Average Daily Rate - 2008


New England RevPAR - 2008


RHODE ISLAND LODGING MARKET

40

50

60

70

80

1999200020012002200320042005200620072008

73.1%72.2%

66.9%67.3%

66.2%

68.2%

64.2%62.2%

60.8% 57.1%

Rhode Island Occupancy 1999-2008


40

60

80

100

120

140

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$101.37

$114.25$116.14

$114.12

$111.37

$112.46

$116.99

$122.92$128.78

$126.52

Rhode Island Average Daily Room Rate 1999-2008


Rhode Island RevPAR 1999-2008


2008 2009

Occupancy 58.7% 54.9%

ADR $128.32 $114.50

RevPAR $75.31 $62.84 Down 16.5%

Rhode Island Year-to-Date August Comparison


CITY OF PROVIDENCE LODGING MARKET

Providence Occupancy 2000-2008


40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008

76.5%

69.7% 72.5%70.9%

72.9%

67.2%

63.6% 63.1%60.7%

$130

$135

$140

$145

$150

$155

$134.39

$137.40

$132.56 $134.59

$137.88

$143.06

$151.64

$154.35

$145.86

2000 2001 2002 2003 2004 2005 2006 2007 2008

Providence Average Daily Room Rate 2000-2008


$77

$82

$87

$92

$97

$102

2000 2001 2002 2003 2004 2005 2006 2007 2008

$102.82

$95.74 $96.06

$95.19

$100.41

$96.19 $96.48$97.35

$88.50

Providence RevPAR 2000-2008


2008 2009


ADR $145.53 $133.12

RevPAR $88.52 $75.59 Down -14.6%

US Down -18.3%

DC Down -7.4%

Phil Down -16.6%

Boston Down -18.7%

NY Down -32.4%

Providence YTD August

Providence - Future

•Convention•Office Market

•Other Demand Factors•New Supply•Projections

Comparison of Events by Type – FY2007 – FY2008

Source: Rhode Island Convention Center Authority

# of Events FY 2007

Attendance FY 2007

Associated RoomNights

FY 2007

# of Events FY 2008

Attendance FY 2008

Associated RoomNights

FY 2008

Public Shows 36 223,400 3,686 47 204,250 4,048Tradeshows 21 30,300 19,510 22 41,450 15,127Conventions 12 15,100 16,972 12 9,450 10,894Meetings 169 47,310 5,832 184 59,796 12,015Banquets 89 42,450 0 84 24,953 2548

TOTALS 327 358,560 46,000 349 339,899 44,632

Fiscal Year July 1-July 30

Comparison of Events by Type – FY2009-FY2010

Source: Rhode Island Convention Center Authority

Note 2010 includes August and September actuals & estimates for October-June

# of Events

FY 2009Attendance

FY2009

Associated Room Nights

FY2009

# of Events FY2010

Attendance FY2010

Associated Room Nights FY2010

Public Trade Shows 52 215,150 7,340 41 196,900 7,124

Tradeshows 12 17,450 9,588 18 21,750 20,809

Conventions 21 25,535 37,901 18 25,325 22,743

Meetings 171 41,651 6,747 70 32,755 5,888

Banquets 63 19,270 0 45 18,940 1459

Totals 319 319,056 61,576 192 295,670 58,023

Providence – Downtown Office Market

Source: CB Richard Ellis

Total SF Vacancy Absorption

12/31/99 6,035,318 12.4% 4,465

12/31/00 5,908,818 11.5% 129,073

12/31/01 5,704,318 13.8% (18,275)

12/31/02 5,736,118 12.8% 53,006

12/31/03 5,399,118 9.3% 125,287

11/30/04 5,737,542 8.5% 124,475

12/31/05 5,437,427 10.1% (117,000)

12/31/06 6,664,927 11.2% 184,000

12/31/07 6,049,233 14.8% 116,541

12/31/08 6,025,453 15.2% 13,371

Providence Other Factors

•I-195 Relocation•Economic Outlook

•Civic Center

Providence – New Supply

• No New Supply

Providence – Projections

• 2009 – 55% @ $131: REVPAR - $72.05

• 2010 – 56% @ $128: REVPAR - $71.68

WARWICK LODGING MARKET

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 2008

79.8%

72.7%72.4% 71.1%74.2%

70.1%

69.1%65.7%

61.5%

Warwick Occupancy 2000-2008


$70

$80

$90

$100

$110

2000 2001 2002 2003 2004 2005 2006 2007 2008

$102.05

$106.44

$100.92

$96.39$93.27

$95.81$97.31$98.76

$94.36

Warwick Average Daily Room Rate 2000-2008


$40

$50

$60

$70

$80

$90

2000 2001 2002 2003 2004 2005 2006 2007 2008

$81.46$77.40

$73.10$68.49$69.22 $67.19 $67.20

$64.90

$58.07

Warwick RevPAR 2000-2008


2008 2009


ADR $95.58 $83.18

RevPAR $61.11 $48.56 Down -20.5%

Warwick YTD August


Warwick – Future

Issues•Airport Factors – YTD Passengers Down 6.5%• Intermodal Underway•No New Supply•Continued Economic Slowdown

Projections•2009: 58% @ $83: REVPAR - $48.14•2010: 60% @ $80: REVPAR - $48.00

NEWPORT LODGING MARKET

52%

54%

56%

58%

60%

62%

64%

66%

68%

2000 2001 2002 2003 2004 2005 2006 2007 2008

66.1%

58.8%

62.9%

61.0%63.2%

61.0%

58.7%59.9%

56.8%Occupancy

Newport Occupancy 2000-2008


$100

$120

$140

$160

$180

$200

$155.40$154.23

$154.23$152.06

$157.20

$164.04$176.56

$189.90

2000 2001 2002 2003 2004 2005 2006 2007 20082000 2001 2002 2003 2004 2005 2006 2007 20082000 2001 2002 2003 2004 2005 2006 2007 20082000 2001 2002 2003 2004 2005 2006 2007 2008

$190.15

Newport Average Daily Rate 2000-2008


$60

$70

$80

$90

$100

$110

$120

2000 2001 2002 2003 2004 2005 2006 2007 2008

$102.74

$90.75$97.08

$92.83

$99.38$100.69

$103.56

$113.67

$108.00

Newport RevPAR 2000-2008


2008 2009


ADR $195.07 $94.40

RevPAR $112.95 $94.40 Down -16.4%

Newport YTD August


Newport – Future

Issues:•No New Supply

•Downturn In Economy Is Impacting Leisure Market

•Discover New England in Newport – April 2010

Projections:2009 – 56% @ $171: REVPAR - $95.76

2010 – 58% @ $168: REVPAR - $97.44

Rachel J. Roginsky, ISHC164 Canal Street Boston, MA 02114 ~ 617/722-9916

www.pinnacle-advisory.com

PINNACLE ADVISORY GROUP

Rhode Island and US Tourism:

There Is Light At The End Of The Tunnel

Copyright © 2009 IHS Global Insight, Inc. 113

• Quick Introduction to IHS Global Insight

• What is Tourism Satellite Accounting?

• 2008 Rhode Island Tourism Results

• What Do Visitors Mean to RI?

• Outlook for Travel

Agenda


About IHS Global Insight:

Premier economic analysis, forecasting, & consulting organization

Formed in 2001 by combining WEFA and DRI

Provides the most comprehensive coverage of countries, regions and industries available from any single source

Brings a common analytical framework and a consistent set of assumptions to diverse capabilities and products

Significant Travel & Tourism practice, with major public and private clients

We are now part of IHS, an $800B publicly traded information company

• Provides a broad range of consulting capabilities covering:

• Strong reputation and experience within the travel & tourism sector

• Provides a broad range of consulting capabilities covering:

• Strong reputation and experience within the travel & tourism sector

Market Analysis Business Planning Investment Strategy Risk Assessment Infrastructure Analysis Policy Evaluation Economic Development Economic Impact


Travel and Tourism Practice

• Visitation & Spending ForecastsVisitation & Spending Forecasts –by category and by country, region, state, or U.S. city. Market size, growth, and share.

• Market Feasibility & Investment FacilitationMarket Feasibility & Investment Facilitation market analysis & research, demand/supply review, policy evaluation, development cost analysis.

• Destination Impact & Concession SupportDestination Impact & Concession Support economic impact of the construction and operations of individual facilities –resort, convention center, entertainment venue, event…

• Tourism Economic Impact & Tourism Satellite AccountingTourism Economic Impact & Tourism Satellite Accounting conforming to the UN/WTO standards. What does travel & tourism contribute in jobs, wages, spending, and taxes to a national or local economy?

• Tourism Policy AnalysisTourism Policy Analysis travel & tourism policy evaluation and rationalization.


Tourism Satellite Accounting

• The Tourism Satellite Account is the international (UN/WTO, OECD) standard for measuring the contribution of tourism to an economy

• Measuring the industry “tourism” is difficult: Tourism is not measured in standard economic accounting terms. Most industries are accounted via the supply-side:

firms are categorized into NAICS codes and asked about jobs, revenues, costs.

But tourism is a demand-side activity: the focus is on what the traveler buys before and during a trip( hotel, food, transportation, retail…).

As a result, tourism touches many industries

• Why a TSA? -the 4”Cs”: Credibility, Comprehensiveness, Comparability, Consistency

116


Tourism Economic Impact: Definitions

• Visitor:Visitor: GT 50 miles, non-commuting; All overnight trips• Resident Tourism: Resident Tourism: Outbound purchases made in advance of a trip only. Resident

usage of RI tourism assets are not included.

• Tourism Expenditures:Tourism Expenditures: A TSA concept, includes all spending by all constituents on travel made in the state (RI), including tourism related investments

• Visitor Spending: Visitor Spending: Spending in the jurisdiction by visitors (see above) (on accommodations, food & beverage, shopping, transportation, entertainment,…

• Economic Impact: “GDP” definition…spending less value of supply chain purchases made outside RI. The amount retained in the RI economy.

• Import Leakages:Import Leakages: The value of supply chain purchases made outside of RI.

• DirectDirect Spending/Jobs/Wages/Taxes: Spending/Jobs/Wages/Taxes: Industries that “touch” the visitor (e.g. hotels, restaurants, museums,…)

• IndirectIndirect Spending/Jobs/Wages/Taxes: Spending/Jobs/Wages/Taxes: Industries that supply those that touch the visitor

• Induced Induced Spending/Jobs/Wages/Taxes:Spending/Jobs/Wages/Taxes: Workers of industries that touch or supply spend their wages locally

• Core ImpactCore Impact:: Impact results based purely off of visitor expenditures• Total ImpactTotal Impact:: Impact results Include investment, government support, and expenditures


2008 Rhode Island Tourism Results


State Overview: 2008 Totals At A Glance

Source: IHS Global Insight

Tourism Concept 2008 2007’07 – ’08 Growth

VisitsVisits 7.34 M7.34 M 7.87 M -6.8%

ExpendituresExpenditures $3.60 B$3.60 B $4.15 B -13.2%

Total Economic ImpactTotal Economic Impact $2.26 B$2.26 B $2.56 B -11.9%

Core Economic Impact (GSP)Core Economic Impact (GSP) $1.74 B$1.74 B $1.81 B -3.8%

Total JobsTotal Jobs 45,53845,538 52,528 -13.3%

WagesWages $1.37 B$1.37 B $1.59 B -13.8%

TaxesTaxes $843 M$843 M $957 M -12.0%


0.1% 2.4%

9.3%

-13.2%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2005 2006 2007 2008

$ M

illi

on

Core Tourism Total Impact TourismExpenditures

10.8%4.6%

3.0%

2.4%3.2%0.5%

-11.9%

-3.8%

Total Tourism (TSA) Expenditures

• RI visitation fell by 6.8% in ‘08 • Spending per visit increased by 1.4% in ‘08

• Visitor spending fell 5.5% ’08• Investment spending fell 67% in ‘08

Tourism expenditures tallied $3.6 billion in 2008

Source: IHS Global Insight


-6.8%

2.8%-1.7%-13.8%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2005 2006 2007 2008

Vis

ito

rs (

Mil

lio

n)

Business Leisure

Total

3.7%0.4%-15.0%

-0.9%-9.3%-9.0%

-4.3%

-17.8%

Visitors to Rhode Island*

Total visitors fell -6.8% in 2008, but length of stay increased nearly 15%.

* Visitors from GT 50 miles or overnight only, provided by DK Shifflet & Associates, Ltd. Business travel results were estimated by IGI.


Total Impact of Tourism

• In 2008, the total economic impact of travel & tourism (direct and indirect)

was $2.26 billion. This represents 5.4% of RI Gross State Product

• The ratio of the total impact to total expenditures reveals that 63¢ of each

tourism dollar spent in Rhode Island is retained in the state. The

remainder represents import leakages. This share is fairly typical for a

diversified state like Rhode Island and higher than many other states.

• 45,538 jobs – direct and indirect – were created by travel & tourism (TSA)

economic activity. This accounts for 9.4% of total employment in the

state

• Tourism (TSA) generated $843 million in federal, state, and local

government taxes in 2008, making up 13.8% of all RI state gov. revenue.


Category Distribution of Expenditures

The category changes shown below, with expenditures in Entertainment, Accommodations and Transportation holding steady while travelers are cutting

back heavily on Food and Shopping, is very common in US destinations.

2008 2007‘07 – ‘08 Growth

Entertainment** 779 768 1.5%

Accommodation 716 724 -1.1%

Transportation 804 823 -2.3%

Food 693 777 -10.8%

Shopping 435 534 -18.6%

Total * 3,427 3,626 -5.5%

* Direct and Indirect Tourism Expenditures (w/o construction & investment)

Source: IHS Global Insight** Entertainment category includes all marina and boating activity

Food20%

Shopping13%

Transportation

23%

Entertainment

23%

Accommodation

21%


Travel & Tourism 37.8 -7.5% 8.0% 37.8

Ranking Core Tourism – EmploymentTravel & tourism is RI’s 4th largest private sector employer.

Rank IndustryReported

Employment(Thousands)

2007-2008

Growth% of State

Tourism-Extracted

Employment (Thousands)

1 Health Care and Social Assistance 76.58 0.7% 16.2% 76.6

2 Retail Trade 49.42 -4.0% 10.5% 47.43 Accommodation and Food Services 42.86 -0.7% 9.1% 25.84 Manufacturing, Durables 31.08 -5.4% 6.6% 31.15 Finance and Insurance 26.91 -4.4% 5.7% 26.96 Administrative and Waste Services 23.88 -4.2% 5.1% 21.37 Educational Services 23.33 0.6% 4.9% 23.38 Other Services 22.80 -1.6% 4.8% 22.89 Professional, Scientific, and Tech. Services 21.57 -0.3% 4.6% 21.6

10 Construction 20.47 -7.8% 4.3% 20.511 Wholesale Trade 16.93 -1.6% 3.6% 16.912 Manufacturing, Nondurables 16.92 -5.5% 3.6% 16.913 Information 10.62 0.3% 2.3% 10.614 Transportation and Warehousing 9.87 -0.9% 2.1% 9.015 Management of Companies and Enterprises 9.18 -2.9% 1.9% 9.2

Other Industries 15.9 -2.6% 3.4% 0.8Government 53.5 -2.0% 11.3% 53.5

Total Nonfarm 471.8 -0.1% 100.0% 434.1

Core Tourism represented

37,758 jobs in 2008.

Source: Bureau of Labor Statistics and IHS Global Insight


Talking Points: What Do Visitors Mean to RI?

Each RI visitor/traveler generates about $467 in Each RI visitor/traveler generates about $467 in expenditures, $58 of which goes to RI businesses that do expenditures, $58 of which goes to RI businesses that do not directly “touch” that visitornot directly “touch” that visitor

Every 160 visitors creates a new RI jobEvery 160 visitors creates a new RI job Each visitor creates about $115 in tax receipts, $63 of Each visitor creates about $115 in tax receipts, $63 of

which goes to state & local authoritieswhich goes to state & local authorities It takes only 235 visitors to pay for one Rhode Island It takes only 235 visitors to pay for one Rhode Island

public school student for one yearpublic school student for one year

Each visitor adds about $333 to RI Gross State ProductEach visitor adds about $333 to RI Gross State Product If tourism didn’t exist, each household would pay $1,159 If tourism didn’t exist, each household would pay $1,159

more in taxes to maintain the current level of state and more in taxes to maintain the current level of state and local tax receiptslocal tax receipts


-0.2

-0.1

-0.1

0.0

0.1

2008Q1 2009Q1 2010Q1 2011Q1

Business Trips Leisure Trips

IGI Travel Insights - Domestic Travel Forecast(Percent)

Outlook for Travel: Quarterly Outlook Through 2011

• After 3 consecutive years of falling domestic trips, growth returns in Q1 2010, led by After 3 consecutive years of falling domestic trips, growth returns in Q1 2010, led by leisure travelleisure travel• Business travel will continue to decline through 2010 – economics triggered the Business travel will continue to decline through 2010 – economics triggered the collapse, but changing viewpoints on biz travel will further slow recoverycollapse, but changing viewpoints on biz travel will further slow recovery• International arrivals remain the most positive story. 2010: +3.0% 20: +4.9%International arrivals remain the most positive story. 2010: +3.0% 20: +4.9%• Rebound in leisure travel helpful for RI, as over 80% of RI visitors are leisure, Rebound in leisure travel helpful for RI, as over 80% of RI visitors are leisure, compared to 75% nationallycompared to 75% nationally

Source: IHS Global Insight, D.K. Shifflet & Associates


2007 2008 2009 2010 2011 2012 2013

Total Person-Trips (mn) 1,999 1,948 1,873 1,883 1,902 1,930 1,942

Business 503 480 439 428 429 433 430

Leisure 1,496 1,468 1,434 1,455 1,473 1,497 1,512

Total Spending (mn$) 770,853$ 742,787$ 670,740$ 679,020$ 705,048$ 741,312$ 775,274$

Business 231,396$ 223,347$ 198,350$ 199,842$ 204,805$ 212,052$ 218,285$

Leisure 539,458$ 519,441$ 472,390$ 479,178$ 500,243$ 529,261$ 556,988$

2007 2008 2009 2010 2011 2012 2013 2008-2013

Total Person-Trips -0.1% -2.6% -3.8% 0.5% 1.0% 1.5% 0.6% -0.1%

Business -1.1% -4.6% -8.4% -2.5% 0.3% 0.8% -0.7% -2.2%

Leisure 0.3% -1.9% -2.3% 1.4% 1.2% 1.7% 1.0% 0.6%

Total Spending 5.9% -3.6% -9.7% 1.2% 3.8% 5.1% 4.6% 0.9%

Business 8.0% -3.5% -11.2% 0.8% 2.5% 3.5% 2.9% -0.5%

Leisure 5.1% -3.7% -9.1% 1.4% 4.4% 5.8% 5.2% 1.4%

Travel Prices 1.7% 1.5% -7.3% -0.4% 0.1% 1.0% 1.4% -1.1%

Outlook for Travel: US Domestic Travel Metrics

Source: IHS Global Insight, D.K. Shifflet & Associates

Thank You!

Shane NortonSenior Consultant, Travel & [email protected]

restaurant industry 2009 and beyond hudson riehle senior vice president research and knowledge group...

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