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VALUE FOCUSFOOD AND BEVERAGE

Q1: Non-Alcoholic BeveragesQ2: Alcoholic BeveragesQ3: Food ProcessingQ4: Fast Food & Casual Restaurants

2013

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http://mercercapital.com/industries/operating-companies/food-and-beverage/


© 2014 Mercer Capital 1 www.mercercapital.com

Segment Focus

2013 Fourth Quarter

Fast Food & Casual Restaurants

BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES

Intense competition shapes the fast food and chain restaurant industry. Both fast food operators and chain restaurants have implemented

new, healthy menu options in response to changes in consumer health trends and as a means of maintaining margins. According to IBIS-

World, the fast food and chain restaurant market is saturated and is expected to operate in a slow growth environment for the foreseeable

future. Major trends in the industry during 2013 include snack options, gluten free offerings, the introduction of new international and ethnic

cuisines, ongoing growth in the fast casual segment, and an increase in operating costs due to the Patient Protection and Affordable Care

Acts (“PPACA”). The PPACA is expected to disproportionately impact the restaurant industry in part due to its already high labor costs.

Additionally, physical menu board upgrades are expected to be another area of increasing costs.1 Despite being a mature industry, the

restaurant industry still exhibits growth potential within the fast casual segment and through international expansion.

Publicly traded restaurant companies

have seen substantial recovery and

growth since the recession. On average,

stock prices for the selected companies

shown below have increased approxi-

mately 33% annually over the last five

years.

Cracker Barrel shares remained high at

year-end as the company sought to fend

off an acquisition by Biglari Holdings,

owner of Steak ‘n Shake.

DineEquity (up 30% year-over-year) has

also seen its share price rise as activist

investors seek ways to leverage the com-

pany’s franchise model.

Public Company Performance

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12/31/08 6/30/09 12/31/09 6/30/10 12/31/10 6/30/11 12/31/11 6/30/12 12/31/12 6/30/13 12/31/13

Frisch's Restaurants Inc. Denny's Corporation Red Robin Gourmet Burgers Inc. Ruby Tuesday Inc. Bob Evans Farms Inc. Cracker Barrel Old Country Store Inc. Darden Restaurants Inc. DineEquity Inc.

5 Year Change in Stock Prices for Publicly Traded Restaurants





Mercer Capital’s Value Focus: Food and Beverage Industry Fourth Quarter 2013


According to Bloomberg, the restaurant industry had 89 pending

or completed deals with an average value of $19.1 million between

December 31, 2012 and 2013. As a whole, deal volume is up 8.5%

from the previous twelve months when the industry had 82 deals with

an average value of $81.7 million. Major transactions from the last

twelve months are shown.

Merger and Acquisitions

Acquirer Target Date Consideration Price/

RevenuePrice/

EBITDA Segment

Le Duff America, Inc. Mimi's Café 1/28/13 $50 million .13x na Chain - French

Ignite Restaurant Group Romano's Macaroni Grill

2/16/13 $54 million .14x na Chain - Italian

Landry's Holdings Mastro's Restaurants 5/28/13 $220 million 1.69x 10.0x Upscale Chain - Steak & Seafood

Sun Capital/Friendly's The Johnny Rockets Group, Inc.

6/18/13 $90 million na na Fast Food- American

Roark Capital Group Miller's Ale House 7/22/13 $315 million 1.05x na Chain - Casual

Centre Partners Captain D's Holding Corp.

10/8/13 $175 million na 5.8x Fast Food - Seafood

Source: Tully & Holland, December 2013

Restaurant Transactions





Fast Food/Quick Service Restaurants

The fast food segment is expected to

reach $200 billion in sales and have a 5%

profit margin by the end of 2013. Recent

developments in the segment center on

harnessing technological development

like quality of service and point of sale

systems, controlling labor costs, manag-

ing purchases, and competing based on

price and quality perception. Due to the

mature state of the industry, M&A activity

is expected to play a major role in oper-

ating conditions as companies will seek

to gain market share and achieve econ-

omies of scale.

Some experts conclude that the only

way for major fast food chains to grow

is through international expansion.2

The PPACA will affect industry players

with more than fifty FTE employees and

industry participants will have to find

ways to manage this new cost. Manag-

ing costs and continually updating menu

items are expected to be challenges for

the fast food segment going forward.3

In terms of market share, Yum! Brands’

restaurant portfolio continued to account

for a major portion of U.S. fast food sales.

17.80%

11.10%

6.70%

4.50%

4.50%

2.50% 1.90%

51%

McDonald's Corpora:on Yum! Brands Inc. Subway Wendy's Company Burger King Corpora:on Chick-‐fil-‐A Domino's Inc. Other

Fast Food Restaurants Market Share

Restaurant Period End % Change

Burger King, U.S. & Canada 31-Dec 0.2%

Jack in the Box (corporate) 13-Apr 0.9%

McDonald's, U.S. 30-Jun -1.5%

Popeyes Louisiana Kitchen, U.S. 20-Apr 4.3%

Sonic, America's Drive-In 31-May 5.3%

Steak n Shake (corporate) 3-Jul 4.2%

Wendy's (corporate) 30-Mar 1.3%

Wendy's (franchised) 30-Mar 0.6%

Yum! Brands, China 22-Mar 9.0%

Source: Nation’s Restaurant News

Fast Food/Quick Service Same Store Sales Growth

Source: IBIS World





Fast Food/Quick Service Restaurants (continued)

Same store sales growth for fast food

businesses was mixed. Established

U.S. fast food restaurants largely had flat

growth while other restaurants benefit-

ed from increased sales in international

markets and niche menu offerings.

As a whole, the fast casual segment con-

tinued to outperform traditional fast food.


Chipotle Mexican Grill 30-Jun 17.3%

Così (corporate) 1-Jul -3.6%

Einstein Noah, blended chains (corporate) 1-Apr 1.7%

Fiesta Restaurant Group: Pollo Tropical 30-Mar 6.3%

Taco Cabana 30-Mar 0.8%

Noodles & Company (corporate) 1-Apr -1.4%

Noodles & Company (franchised) 1-Apr -3.3%

Panera Bread 1-Apr 0.1%

Potbelly (corporate) 30-Mar -2.2%

Qdoba Mexican Grill 13-Apr 7.0%

Zoës Kitchen 21-Apr 5.7%


Fast Casual Same Store Sales Growth





Chain Restaurants/Casual Dining

The chain restaurant segment is expected to reach just under $91 billion in sales with a 6.6% profit margin in 2013. The segment continues to recover from recessionary struggles as consumers are gradually be-ginning to spend more on eating out due to increasing disposable incomes.

Chain restaurants face increasing compe-tition from limited service establishments that offer convenient, low cost options.4 Major bankruptcies in recent years (includ-ing Don Pablo’s, Friendly’s, Sbarro, Fox & Hound, and Perkins) highlight the head-winds that traditional eateries face.5 In an effort to address these challenges, Darden Restaurants proposed a spinoff of its Red Lobster brand at the end of 2013 in order to refocus efforts on growing other brands in its portfolio including The Capital Grille and Bahama Breeze.6

Much like the fast food segment, chain restaurants have attempted to respond to changing consumer demand and the need to maintain margins through the introduction of healthy, high margin offerings. Lastly, refranchising has grown increasingly popular, offering private eq-uity numerous opportunities to become involved in the industry through investing in low risk, established franchise brands.7

The casual dining market is still relative-ly fragmented, with the top five restaurant companies representing approximately 30% of the market. For restaurant brands operating within a franchise model, fran-chisees are expected to increasingly be large, sophisticated operators. In 2013, the average franchisee on Franchise Times’ Restaurant 200 list had annual sales of $131.5 million and 101 locations, up 20% from the end of the recession.

Moving into 2014, the restaurant industry as a whole is forecast to grow sales by 3.6%. Managing cost structures, inno-vating menu items, and investing in both customer-facing and internal technology are expected to be crucial issues in 2014.8

9.60%

8.30%

4.60%

4.30%

2.40%

70.80%

Source: IBISWorld

Darden Restaurants Inc. DineEquity Inc. Bloomin' Brands Inc.

Brinker International Inc. Cracker Barrel Old Country Store Other

Chain Restaurants Market Share





Chain Restaurants/Casual Dining (continued)

Casual Dining Same Store Sales Growth


Applebee's Neighborhood Grill & Bar, U.S. 30-Sep -0.4%

BJ's Restaurants, blended chains (corporate) 1-Jul -1.7%

Bloomin' Brands: Bonefish Grill 30-Mar -1.5%

Carrabba's Italian Grill 30-Mar -1.8%

Fleming's Prime Steakhouse and Wine Bar 30-Mar 1.7%

Outback Steakhouse 30-Mar 0.8%

Bravo Brio: Bravo! Cucina Italiana 30-Mar -5.5%

Brio Tuscan Grille 30-Mar -4.4%

Brinker: Chili's Grill & Bar (corporate) 25-Sep -1.9%

Maggiano's Little Italy (corporate) 25-Sep 0.6%

Buffalo Wild Wings (corporate) 30-Mar 6.6%

Buffalo Wild Wings (franchised) 30-Mar 5.0%

The Cheesecake Factory: The Cheesecake Factory 1-Jul 1.5%

Grand Lux Cafe 1-Jul -2.7%

Chuy's 30-Mar 4.2%

Darden: Specialty Restaurant Group 25-May 2.0%

LongHorn Steakhouse 25-May 2.4%

Olive Garden 25-May -3.5%

Red Lobster 25-May -5.6%

Del Frisco's: Del Frisco's Double Eagle Steak House 17-Jun 5.2%

Sullivan's Steakhouse 17-Jun 0.9%

Famous Dave's (corporate) 29-Dec -2.6%

Famous Dave's (franchised) 29-Dec -1.1%

Ignite: Brick House Tavern + Tap 31-Mar 10.0%

Joe's Crab Shack 31-Mar -6.0%

Romano's Macaroni Grill 31-Mar -4.1%

Kona Grill 31-Dec 3.5%

Mimi's Cafe 25-Jan -4.0%

Red Robin Gourmet Burgers (corporate) 21-Apr 5.4%

Ruby Tuesday (corporate) 3-Dec -7.8%

Ruby Tuesday (franchised) 3-Dec -5.3%

Ruth's Hospitality: Mitchell's Fish Market (corporate) 29-Sep -1.4%

Ruth's Chris Steak House (corporate) 29-Jun 4.2%

Texas Roadhouse (corporate) 1-Apr 2.8%

Texas Roadhouse (franchised) 1-Apr 3.8%






As measured by the Bloomberg Global Food and Beverage Indices,

both the processed food sector and the beverage sector displayed

continued recovery during 2013 with both sectors also enjoying

a healthy pickup in their EBITDA multiples. Despite gains made

throughout the year, both sectors underperformed the S&P 500 in

the fourth quarter, with the S&P up 9.9% compared to 4.2% for the

Global Food Index and 6.5% for the Beverage Index.

Cost-cutting, acquisitions, and expanding product portfolios are

expected to be the major strategies for growth in 2014. A competi-

tive and often saturated market means many companies are shifting

focus to products outside their core offerings, with Starbucks moving

into juice and food items and PepsiCo reviving its carbonated bever-

age portfolio by introducing additional low-calorie products in 2014.

Coca-Cola, PepsiCo, and Green Mountain Coffee Roasters have all

implemented major multi-year productivity plans in hopes of boosting

profitability going forward. Looking into 2014, earnings for consumer

staples are expected to increase 5.8% (down from a consensus of

9.3% in Q3) while revenues are expected to decline 6.0% as the mar-

ket continues to struggle against macroeconomic headwinds.9

General Food & Beverage Overview

1 “10 Trends for 2013,” QSR, Online, Available http://www.qsrmaga

zine.com/reports/10-trends-2013.2 “Fast Food Restaurants in the US,” IBISWorld, June 2014. 3 “10 Trends for 2013,” QSR, Online, Available http://www.qsrmaga

zine.com/reports/10-trends-2013, Accessed July 28, 2014. 4 Chain Restaurants in the US,” IBISWorld, May 2014.5 “Another Restaurant Bankruptcy,” Restaurant Finance Monitor,

Online, Available http://www.restfinance.com/Restaurant-Fi

nance-Across-America/March-2014/.6 Fitch Ratings, December 19, 2013.

7 “Franchise Times’ Restaurant 200,” Franchise Times, Online,

Available http://www.franchisetimes.com/Resources/Restau

rant-200/.8 “2014 Restaurant Industry Forecast,” National Restaurant Associa

tion, Online, Available http://www.restaurant.org/DownloadsPDFs/

News-Research/research/2014Forecast-ExecSummary.pdf.9 “Consumer Staples Stock Outlook – February 2014,” Zacks,

Online, Available http://www.zacks.com/commentary/31352/con

sumer-staples-stock-outlook---feb-2014.

References and Data Sources




© 2014 Mercer Capital // Data Source: Bloomberg 8 www.mercercapital.com

-10%

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9/30/09 3/31/10 9/30/10 3/31/11 9/30/11 3/31/12 9/30/12 3/31/13 9/30/13 Bloomberg Food Index S&P 500

9.99

7.31 7.69 8.3 9.3 9.69

12.44

2007 2008 2009 2010 2011 2012 2013

Change in Bloomberg Global Food Index vs. S&P 500

Historical EV/EBITDA Multiple for Global Food Index

Examples of companies in Bloomberg’s Global Food Index include Grupo Bimbo, Kikkoman, ConAgra Foods, Hillshire Brands, Tyson Foods,

General Mills, Diamond Foods, Sanderson Farms, Kellogg, Nestle, and Hormel Food Corp.




© 2014 Mercer Capital // Data Source: Bloomberg 9 www.mercercapital.com

Examples of companies in Bloomberg’s Global Food Index include Grupo Bimbo, Kikkoman, ConAgra Foods, Hillshire Brands, Tyson Foods,

General Mills, Diamond Foods, Sanderson Farms, Kellogg, Nestle, and Hormel Food Corp.

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20%

40%

60%

80%

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9/30/09 3/31/10 9/30/10 3/31/11 9/30/11 3/31/12 9/30/12 3/31/13 9/30/13

Bloomberg Beverage Index S&P 500

Historical EV / EBITDA MultipleBloomberg Beverage Index

8.51 9.57

10.96 10.29 10.81 11.44

2008 2009 2010 2011 2012 2013

Change in Bloomberg Beverage Index vs. S&P 500

Historical EV/EBITDA Multiple for Beverage Index



© 2014 Mercer Capital // www.mercercapital.com 10


Appendix A: Public Company Performance & Pricing

Food Processors

Food Processors TickerPrice at 12/31/13

High Price

12/31/13

% of High

12/31/13EV/

RevenueEV/

EBITDA Enterprise

Value LTM

RevenueLTM

EBITDA

Forward Revenue YE 2014

Forward EBITDA YE 2014

Revenue Growth

(from LTM)

EBITDA Growth

(from LTM)

PepsiCo Inc PEP $82.94 $87.06 95.3% 2.4 12.7 156,495.3 66,415.0 12,368.0 67,133.09 12,968.67 1.1% 4.9%

ConAgra Foods Inc CAG $33.70 $37.28 90.4% 1.4 12.5 23,757.4 17,312.8 1,903.7 17,719.83 2,348.46 2.4% 23.4%

Grupo Bimbo SAB de CV GRBMF $40.20 $3.75 1072.0% 1.3 14.6 229,397.6 176,362.4 15,726.0 190,010.62 19,786.08 7.7% 25.8%

Tyson Foods Inc TSN $33.46 $34.38 97.3% 0.4 6.7 13,318.4 34,769.0 1,999.0 37,340.11 2,162.00 7.4% 8.2%

Hormel Foods Corp HRL $45.17 $46.18 97.8% 1.4 13.4 12,159.4 8,751.7 910.3 9,279.57 1,045.43 6.0% 14.8%

Sanderson Farms Inc SAFM $72.33 $75.53 95.8% 0.6 6.2 1,705.0 2,683.0 276.0 2,781.25 448.00 3.7% 62.3%

Darden Restaurants Inc DRI $54.37 $55.25 98.4% 1.2 11.4 10,009.3 8,059.0 880.7 8,780.18 945.83 8.9% 7.4%

Unilever NV UN $40.23 $42.99 93.6% 2.5 14.5 125,555.2 49,797.0 8,668.0 50,224.57 8,365.63 0.9% -3.5%

Nestle SA NESN $65.30 $39.50 165.3% 2.5 12.8 230,023.9 92,373.0 17,936.0 na na nm nm

Average $51.97 $46.88 211.8% 1.5 11.6 89,157.9 50,724.8 6,740.9 47,908.7 6,008.8 4.8% 17.9%

Median $45.17 $42.99 97.3% 1.4 12.7 23,757.4 34,769.0 1,999.0 27,530.0 2,255.2 4.8% 11.5%

Source: Bloomberg






Restaurants

Restaurants TickerPrice at 12/31/13

High Price

12/31/13

% of High

12/31/13EV/

RevenueEV/

EBITDA Enterprise

Value LTM

RevenueLTM

EBITDA



Revenue Growth

(from LTM)

EBITDA Growth

(from LTM)

Frisch's Restaurants Inc FRS $25.63 $26.44 96.9% 0.7 6.3 142.4 205.0 22.5 206.0 na 0.5% nm

Ruby Tuesday Inc RT $6.93 $9.90 70.0% 0.6 58.1 698.7 1,189.4 12.0 1,165.3 39.8 -2.0% 230.3%

Darden Restaurants Inc DRI $54.37 $87.06 62.5% 1.2 11.4 10,009.3 8,059.0 880.7 8,780.2 945.8 8.9% 7.4%

Denny's Corp DENN $7.19 $7.51 95.7% 1.8 11.8 814.7 462.6 69.0 464.8 81.7 0.5% 18.3%

Bob Evans Farms Inc/DE BOBE $50.59 $60.22 84.0% 1.2 11.1 1,658.3 1,339.3 148.9 1,334.5 142.7 -0.4% -4.2%

DineEquity Inc DIN $83.55 $85.74 97.4% 4.6 12.0 2,971.9 640.5 247.6 644.0 270.3 0.6% 9.2%

Red Robin Gourmet Burgers Inc RRGB $73.54 $86.83 84.7% 1.1 11.1 1,144.8 1,017.2 103.5 1,148.8 118.9 12.9% 14.8%

Cracker Barrel Old Country Store Inc CBRL $110.07 $118.63 92.8% 1.1 11.3 3,019.2 2,666.3 267.1 2,679.6 283.8 0.5% 6.3%

Average $51.48 $60.29 85.5% 1.6 16.6 2,557.4 1,947.4 218.9 2,052.9 269.0 2.7% 40.3%

Median $52.48 $72.98 88.7% 1.2 11.3 1,401.6 1,103.3 126.2 1,157.0 142.7 0.5% 9.2%

Source: Bloomberg





Non-Alcoholic Beverages

Non-Alcoholic Beverages TickerPrice at 12/31/13

High Price

12/31/13

% of High

12/31/13EV/

RevenueEV/

EBITDA Enterprise

Value LTM

RevenueLTM

EBITDA



Revenue Growth

(from LTM)

EBITDA Growth

(from LTM)

PepsiCo Inc PEP $82.94 $9.90 837.8% 2.4 12.7 156,495.3 66,415.0 12,368.0 67,133.1 12,968.7 1.1% 4.9%

Dr Pepper Snapple Group Inc DPS $48.72 $50.37 96.7% 2.0 9.5 12,219.6 5,997.0 1,280.0 6,038.3 1,396.6 0.7% 9.1%

National Beverage Corp FIZZ $20.16 $21.47 93.9% 1.5 12.2 971.0 652.6 79.4 na na nm nm

Coca-Cola Co/The KO $41.31 $43.43 95.1% 4.7 17.9 218,925.6 46,854.0 12,205.0 46,655.7 13,173.9 -0.4% 7.9%

Monster Beverage Corp MNST $67.77 $68.33 99.2% 5.0 19.0 11,305.5 2,246.4 595.7 2,454.2 725.7 9.2% 21.8%

Starbucks Corp SBUX $78.39 $82.50 95.0% 4.0 20.0 61,091.2 15,332.2 3,052.4 16,500.0 3,771.2 7.6% 23.5%

Average $56.55 $46.00 219.6% 3.3 15.2 76,834.7 22,916.2 4,930.1 27,756.3 6,407.2 3.6% 13.5%

Median $58.25 $46.90 95.9% 3.2 15.3 36,655.4 10,664.6 2,166.2 16,500.0 3,771.2 1.1% 9.1%

Source: Bloomberg






Alcoholic Beverages

Alcoholic Beverages TickerPrice at 12/31/13

High Price

12/31/13

% of High

12/31/13EV/

RevenueEV/

EBITDA Enterprise

Value LTM

RevenueLTM

EBITDA



Revenue Growth

(from LTM)

EBITDA Growth

(from LTM)

Anheuser-Busch InBev NV BUD $106.46 $106.83 99.7% 5.1 12.8 220,292.4 43,195.0 17,188.0 47,764.5 19,234.2 10.6% 11.9%

Craft Brew Alliance Inc BREW $16.42 $18.70 87.8% 1.8 27.0 323.3 179.2 12.0 207.0 na 15.5% nm

Constellation Brands Inc STZ $70.38 $71.62 98.3% 4.8 19.6 20,507.9 4,272.4 1,046.7 4,863.2 1,369.7 13.8% 30.9%

Diageo PLC DEO $132.42 $134.08 98.8% 30.4 88.6 342,242.9 11,260.0 3,863.0 10,519.9 3,680.7 -6.6% -4.7%

Boston Beer Co Inc/The SAM $241.79 $265.53 91.1% 4.2 22.2 3,082.9 739.1 139.0 917.0 175.0 24.1% 25.9%

Molson Coors Brewing Co TAP $56.15 $56.49 99.4% 3.5 15.6 14,563.9 4,206.1 932.6 4,234.6 1,285.4 0.7% 37.8%

Brown-Forman Corp BF/B $75.57 $76.73 98.5% 6.2 18.3 18,182.0 2,925.9 993.4 3,987.2 1,024.6 36.3% 3.1%

Average $99.88 $104.28 96.2% 8.0 29.2 88,456.5 9,539.7 3,453.5 10,356.2 4,461.6 13.5% 17.5%

Median $75.57 $76.73 98.5% 4.8 19.6 18,182.0 4,206.1 993.4 4,234.6 1,327.6 13.8% 18.9%

Source: Bloomberg




Mercer CapitalFood & Beverage Industry Services

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quotations with source attribution are encouraged. Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry

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visit our web site at www.mercercapital.com.

Mercer Capital has expertise providing business valuation and financial advisory services to companies in the food and beverage industry.

Industry Segments

Mercer Capital serves the following industry segments:

• Food processing

• Restaurants

• Nonalcoholic Beverages

• Malt, Wine, and Spirits

Services Provided

• Valuation of food and beverage industry companies

• Transaction advisory for acquisitions and divestitures

• Valuations for purchase accounting and impairment testing

• Fairness and solvency opinions

• Litigation support for economic damages and valuation and shareholder disputes

Contact a Mercer Capital professional to discuss your needs in confidence.

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