2013 Restaurant Industry Report

MAZZONE & ASSOCIATES, INC.

Table of Contents
Industry Overview ..................................................................................................................................... 3
Restaurant Industry Defined by M&A ...........................................................................................................................3
Key Factors for Success..................................................................................................................................................4
Key Drivers of External Growth .....................................................................................................................................5
Mergers & Acquisitions Marketplace ............................................................................................................................6
Restaurant Industry Mature Life Cycle ..........................................................................................................................9

QSRs .......................................................................................................................................................... 11
Current Performance .....................................................................................................................................................12
Consolidation and Profit ................................................................................................................................................12
QSR Segment Outlook ...................................................................................................................................................13
Competitive Landscape .................................................................................................................................................14
Cost Structure Benchmarks ...........................................................................................................................................17
QSR Segment Key Statistics ...........................................................................................................................................19

Casual Restaurants .................................................................................................................................... 20

Current Performance .....................................................................................................................................................21
Consolidation and Profit ................................................................................................................................................21
Casual Restaurant Segment Outlook .............................................................................................................................22
Competitive Landscape .................................................................................................................................................24
Cost Structure Benchmarks ...........................................................................................................................................26
Casual Restaurants Key Statistics ..................................................................................................................................27

MAZZONE & ASSOCIATES, INC.

Firm Overview

CONTACT US

Mazzone & Associates, Inc. is a mergers and acquisitions

advisory firm serving the middle market. We provide
comprehensive transactional services for middle market
companies, private equity groups and individuals buying and
selling companies, raising capital and structuring debt. Mazzone
& Associates has experience working on more than 300
transactions valued in excess of $50 billion across a broad range
of industries. We are relationship focused and appreciate that
assignments are life events for many of our clients. Mazzone
& Associates goal is to achieve the maximum results and value
for its clients and their shareholders by executing transactions
with the integrity, premium service and confidence they want,
require and deserve.

OFFICE TOWER AT THE FOUR SEASONS

75 FOURTEENTH STREET, NE
SUITE 2800
ATLANTA, GA 30309

MANAGING DIRECTOR & LEADING

RESTAURANT INDUSTRY EXPERT
DOMINIC MAZZONE
(404) 574-5745
DMAZZONE@GLOBALMNA.COM

The sources for this industry report were IBIS World, Capital IQ, and interviews with leading industry executives.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

Restaurant Industry: Defined by M&A

Mazzone & Associates (M&A) specializes in transactions in the Restaurant Industry. We define the
Restaurant Industry as restaurants within one of two categories:
QSRs: restaurants where patrons pay before
eating and purchases may be consumed on-site,
taken out or delivered, which may commonly be
referred to as fast food restaurants and we refer
to as quick serve restaurants or QSRs (but
specifically excluding coffee and snack shops); and

Casual Restaurants: restaurants that provide

casual dining services to patrons who order and
are served while seated, i.e., waiter or waitress
service, and pay after eating (but specifically
excluding businesses that own only one
establishment).

The Restaurant Industry's business locations are distributed according to population. As a result,
industry establishments are distributed according to population and income distribution, with a larger
concentration in or near areas with higher household income. Since the industry provides a locationcontingent food service to consumers, successful operators need to be located near their customer
base.

QSRs

Revenue

$191.0
billion

$6.9 billion Profit

Annual Growth
2008-2013

1.9%

1.0%
Annual Growth
2013-2018

Businesses 149,052
$47.0
billion

Wages

Casual Restaurants
$86.6

billion

Revenue

Profit $5.7 billion

1.5%
Annual Growth
2013-2018

Annual Growth
2008-2013

2.5%

756 Businesses
$28.1

Wages billion

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

Key Factors for Success

The key factors for success in the Restaurant Industry that M&A looks for are set forth below.
Business expertise of operators: Business expertise is required as this industry has high employee
turnover and inventory turns but low margins; thus, losses are easily experienced if not managed
properly.
Having a clear market position: Clear market positioning gives operators a competitive advantage
over competitors.
Effective cost controls: Cost controls are important in this low-margin industry, particularly
related to minimizing food waste.
Ability to quickly adopt new technology: Adopting new employee training and kitchen and
customer-related technology can increase productivity and lower labor costs.
Proximity to key markets: Being in a good location and understanding customers desire from a
restaurant can drive customer traffic.
Ability to control stock on hand: Controlling orders, stock and food waste, which are major cost
areas, can improve profit.
Fast adjustments made to changing regulations: Industry players must monitor changes to
government regulations in areas such as food safety and handling. Otherwise they may cause
illness, face fines, risk losing their operating license, or be subject to public relations disasters.
In the QSR segment, the additional key factors set forth below are also important for success.

Ability to franchise operations: Franchising both in the United States and overseas is now a
significant component of this industry and can provide necessary support to owners.
Product is sold at high profile outlets: Having high-profile locations for stores, with easy access,
parking and drive-through services increases convenience for customers.

In the Casual Restaurant segment, the additional key factor set forth below is important for success.

Access to multi-skilled and flexible workforce: Access to suitably skilled and trained staff is
required to meet peak customer demand periods.

Successful Restaurant Industry executives have managed

to grow their companies despite a difficult economy.
They have leveraged their business expertise and are laser
focused on their market position, effective cost controls
and using technology to drive efficiencies.
-Dom Mazzone, Managing Director of M&A
Mazzone & Associates 2013 Restaurant Report
www.globalmna.com

Key External Drivers of Growth

M&A believes that the key external drivers of the Restaurant Industry continue to slowly rebound from
the Great Recession. Our analysis of those factors is set forth below.

Revenue vs. employment growth

4
3
2

% change

% change

6
5
4
3
2
1
0
-1
-2
-3
-4
-5
Year

Consumer Spending

1
0
-1
-2

05

07

09

% change revenue

11

13

15

17

19

-3
Year

07

09

11

13

15

17

% change employment

Consumer Spending. Factors that influence growth in consumer spending affect the industry.
During a recession, any spike in unemployment generally leads to declining consumption. Conversely,
when spending is high, consumers will be more likely to spend money on eating at restaurants. As the
economy fell deeper into a recession and unemployment numbers rose from 2007 through 2009,
consumers became more selective about how they spent their disposable income. In 2009, consumer
spending declined 1.9%, and luxuries like eating out were among the first expenditures to go. Some
consumers cut restaurants from their budgets entirely and opted to save money by eating in. This trend
reversed slightly from 2010 and as a result, consumer spending is expected to increase by an annualized
rate of 1.3% in the five years to 2013. The economy has improved since 2010, as some of the fears
surrounding it have subsided.
As a result, M&A expects that more consumers will treat themselves to restaurant trips in 2013. Many of
the consumers who did keep restaurants in their budget chose lower-priced items than they would have
prior to the recession. Others opted for cheaper restaurant options, like QSRs. These trends in reduced
spending and substitution forced restaurants to compete with each other to convince consumers that
they can get the most value at their particular restaurants. As a result, competition has intensified over
the past five years, with restaurants focused on taking existing market share from each other, rather
than trying to win a larger share of a growing market, as they had in years past. Consumer spending is
expected to increase during 2013, providing a potential opportunity for the industry.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

19

Consumer Confidence Index. Changes in consumer

consumers have been more aware of issues related to

weight and obesity, nutrition, and food safety than they
were before. Therefore, as the healthy eating index rises,
demand for some restaurants with fewer healthy options
will decrease. Consequently, major restaurants have
expanded the number of healthy options on their menus in
response. For many restaurants, the health factor has
become a cornerstone of their marketing strategy and has
enabled them to target a new segment of the market and
renew interest in their products. For example, Brinker's
Chili's restaurants have started offering "Guiltless Grill"
options to appeal to health-conscious customers. Healthy
eating is expected to decrease slowly during 2013, but it will
nonetheless remain a potential threat to the industry due to
rising health education.

90
80
70
60
50
40

Sept-10
Dec-10
Mar-11
Jun-11
Sept-11
Dec-11
Mar-12
Jun-12
Sept-12
Dec-12
Mar-13
Jun-13
Sept-13

Healthy Eating Index. Over the past five years,

Consumer Confidence is Strengthening

Healthy Eating Index

72
71

sentiment have a significant effect on household

expenditure on discretionary items, including restaurant
dining. During a recession, consumer demand for lowerpriced value products from restaurants increases. Consumer
sentiment is expected to increase during 2013.

70
69

68
Year 04

06

08

10

12

14

16

Households Earning More Than $100,000. Casual Restaurants typically draw their
customers from higher-income households, while QSRs do not. Because of this factor, growth in the
number of households with incomes of more than $100,000 benefits Casual Restaurants and slows QSRs
(and vice versa). The number of households earning more than $100,000 a year is expected to increase
during 2013, so this factor favors growth in Casual Restaurants but is expected to negatively affect QSRs.

Agricultural Price Index. The agricultural price index represents nominal prices received by
farmers for all U.S. agricultural products (both livestock and crops) and is also a strong indicator of the
prices restaurants can expect to pay for the ingredients that go into preparing meals. When the price of
meal ingredients increases, it typically results in lower profit margins because operators generally
cannot pass on the entire cost to consumers. The agricultural price index is expected to increase during
2013, which will impact margins in the industry as a whole, but generally primarily impacts QSRs who
have difficulties passing on those costs to consumers.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

18

Mergers & Acquisitions Marketplace

Like the capital markets as a whole, mergers and acquisitions in the Restaurant Industry have seen a
decrease in volume, or the number of transactions, thus far in 2013 relative to 2012. However, the
transactions that have closed have been characterized with premium values.
We believe that the soft start in 2013 is mostly explained by the influx of transactions consummated in
the Fourth Quarter of 2012 in anticipation of the capital gains tax increase. However, no significant
rebound materialized in the Second or Third Quarter of 2013. On the positive side, based on our deal
pipeline and knowledge of the Restaurant Industry, we believe that the Fourth Quarter of 2013 will see
an increase in the volume of transactions. The Fourth Quarter has traditionally been the strongest
quarter of transaction volume in this industry over the past decade, so we should see a slight uptick in
the number of closings before year end. We have seen a steady increase in volume from financial buyers
since the First Quarter. During that time period, strategic buyers paid the highest premiums for
transactions and are expected to be active in the Fourth Quarter.
Although both strategic and financial buyers have decreased the number of transactions closed in the
Restaurant Industry, spending by strategics has decreased less overall. The decline in spending is partly a
result of the decline in large deals. Transactions in excess of $100 million have been scarce thus far in
2013, with no transactions above $1 billion closed as of the Third Quarter. Although all transaction sizes
are down in volume, transactions less than $10 million have decreased the least. We believe there are
few large attractive brands available and that financial buyers may be favoring smaller add-ons deals in
this current environment.
Nonetheless, transaction comps are currently at post-recession highs within the space. The median
EV/EBITDA through the Third Quarter of 2013 is 8.5x and EV/Revenue is 0.4x. These premiums are likely
contributing to the decrease in the number of transactions as value buys in the space have become
scarce.
Turning to the public equity markets, the Restaurant Industry is also experiencing above average
performance. As of the Third Quarter of 2013, EV/EBITDA trading multiples were at 10.7x. Despite this,
2013 has seen the lowest number of IPOs since 2010. However, secondary offerings are on the rise and
look to be the most in the past decade. Unlike IPOs, secondary offerings can often times indicate
distress. Optimistically, firms could be capitalizing on the premium stock prices and raising needed funds
for future growth and acquisitions.
Behind the increase in transaction and trading multiples in this Restaurant Industry is a resurgence in
the overall spending of consumers. The consumer confidence index has increased over the last few
years and can reasonably be expected to remain high despite predictions of moderate increases in
annual U.S. gross domestic product (GDP) output. With improving economic conditions, this industry is
likely to attract additional buyers. An increase in demand paired with strong multiples should entice
owners to consider selling, thus providing a positive outlook for activity in 2014.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

$12
$10
$8
$6
$4
$2
$-

250

Number of Transactions

Billions

Mergers & Acquisitions Activity

200
150
100
50
-

Reported

Unreported

Reported Value

Although spending is down, the decline in transactions closed is slightly less,

indicating a growing preference for smaller deal sizes.

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-

120
100
80
60
40
20
2009

2010

2011

2012

Number of Transactions

Billions

Financial & Strategic Activity

2013YTD

Strategic Reported Value

Financial Reported Value

Strategic Deals

Financial Deals

Despite the decline in deals, Strategic spending has dominated 2013.

Comparable Median
Transaction Multiples *
EV/EBITDA
EV/Revenue

2009
5.1x
0.5x

2010
8.3x
0.6x

2011
7.9x
0.6x

2012
8.0x
0.8x

2013
8.5x
0.4x

Public Company Median

Trading Multiples *
EV/EBITDA
EV/Revenue

2009
6.9x
0.8x

2010
7.7x
1.0x

2011
7.5x
1.0x

2012
7.8x
1.1x

2013
10.7x
1.4x
*As of September 30, 2013

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

% of Deals Closed

Deal Volume By Transaction Size

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004
2005
2006
2007
2008
<$10M
$10M-$50M
$50M-$100M

2009
2010
2011
2012
$100M-$1,000M
$1,000M+

2013YTD

Buyers are favoring deals less than $10M, indicating a preference for add-on strategies.

2013 Notable Publicly Announced Closed Transactions*

Date

Target

Buyers/Investors

Size
($ in millions)

Jul
May
Oct
Apr
Feb

Millers Ale House

Mastro's Restaurants
Captain D's
Romano's Macaroni Grill
Mimi's Caf (Bob Evans concept)

Roark Capital Group

Landry's Holdings
Centre Partners
Ignite Restaurant Group, Inc.
Le Duff America Inc.

315.0
220.0
175.0
54.1
50.0

*Through October 2013

Restaurant Industry Mature Life Cycle

The Restaurant Industry (both the QSR and Casual Restaurant segment) is in the mature phase of its life
cycle as it begins to reach saturation point in the domestic market. The limits of population size within a
city or town that can profitably support a restaurant are being approached, and competition for highprofile operating sites in other areas is intense. Over the 5 years to 2018, industry value added (IVA),
which measures an industry's contribution to U.S. gross domestic product (GDP), is expected to grow at
an average rate of 2.1% per year. U.S. GDP is also expected to grow at an annualized rate of 2.1%,
showing the Restaurant Industry is growing at a long-term rate in line with overall economic growth.
Therefore, we believe the Restaurant Industry, like most other food service industries, is saturated and
mature.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

Consolidation has been a significant factor in the Restaurant Industry over the past decade, with larger
or major franchise operators taking over multi-establishment or franchised stores in other full- or quickservice categories to achieve growth. Significant price-based competition is continuing as well, as
operators strive to capture an increasing market share of a slow-growth domestic market.
Consequently, profit margins are lower due to significant price-based competition on menu items.
We believe growth will likely only occur from garnering market share and revenue from other food
service industries. Given the state of the domestic market, major franchise operators are currently
receiving most of their revenue growth from overseas expansion, particularly in China.
Fortunately for the Restaurant Industry, there is currently still a growing number of households with a
high disposable income of $50,000 or above in the key 35 to 55-year-old and baby-boomer groups.
Many have only limited time to cook, so they are searching for good-value, quality meals and service in a
hospitable environment. Restaurants that appeal to this demographic are going to see incremental
growth above the long term expected growth rate of the Restaurant Industry.

% Growth in share of economy

Key Features of a Mature Industry

20

Revenue grows at same pace as economy

Company numbers stabilize; industry should consolidate
Established technology & processes
Total market acceptance of product & brand
Rationalization of low margin products & brands

Quality Growth

Maturity

High growth in economic

importance; weaker companies
close down; developed
technology and markets

Company consolidation;
level of economic
importance stable

15

10
Quantity Growth
Many new companies; minor
growth in economic importance;
substantial technology change

Casual Restaurants
QSRs
0

-5

Decline
Shrinking economic
importance

-10
-10

-5

10

15

20

% Growth in number of establishments

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

10

QSRs
Over the past five years, QSRs have experienced a slowdown due to changing consumer tastes and a
struggling economy. Due to their low price points and extra convenience they offer, QSRs did perform
better than other operators in the hospitality sector. However, these factors did not completely shield
QSRs from the economic slowdown. QSR revenue declined 0.6% in 2009 and the subsequent recovery
has been sluggish. Over the five years to 2013, QSR revenue grew at a modest average annual rate of
1.0% to $191.0 billion. In 2013, QSR growth is expected to continue to be modest, with an estimated
increase of 0.5%, as the broader economy continues to work toward a full recovery.
During the recession disposable income decreased and unemployment jumped, meaning consumers
were forced to cut back on luxuries like eating out. Additionally, as consumer eating habits changed,
they became increasingly health conscious and demanded alternatives to traditional greasy fast food
options. While major QSRs responded by expanding the number of healthy menu items, the general
trend toward health awareness decreased demand for traditional QSRs. In response, major chains like
McDonald's have expanded their menus to include healthier options such as salads, fruit and smoothies.
Furthermore, due to slow domestic growth, many major QSRs have invested in their international
operations as part of a long-term strategy to focus on emerging economies. QSRs view China in
particular as a market that has strong potential for growth and long-term profitability.
The industry is expected to perform marginally better over the next five years as the domestic economy
improves and consumers continue to seek convenient meal options. While no severe revenue declines
are expected, QSRs will continue to operate in a slow-growth environment as many segments of the
preferences as the traditional concept of fast food evolves to include a wider variety of options. As
plenty of opportunities remain for new fast food concepts and products, the QSR segment's long era of
growth is far from over. As a result of these trends, QSR revenue is expected to grow 1.9% over the five
years to 2018 to $210.2 billion.

Products and Services Segmentation (2013)

Cafeterias and buffets

4.6%

On premises limited-service
restaurants
49.2%

Off premises (take-out) limited

service restaurants
18.1%
Drive-thru limited-service
restaurants
34.4%
Mazzone & Associates 2013 Restaurant Report
www.globalmna.com

11

Current Performance
Consumers who did not cut fast food out of their budgets during the recession bought lower-price items
that they would not have chosen prior to the recession. This trend induced competition among QSRs,
resulting in the promotion their particular restaurants as the place for consumers to get the greatest
value for their money. As a result, competition has intensified, with QSRs focusing more on taking
market share from each other rather than trying to win a larger share of a growing market as they had
done in the past. This trend reversed from 2010 to 2012, however, when consumer spending rebounded
at an annualized rate of 2.1%. In 2013, consumer spending is forecast to grow an additional 2.1%.

Consolidation and Profit

Merger and acquisition activity has also been a defining characteristic of the QSR segment over the past
five years. In 2008, Wendy's and Arby's agreed to merge (Arby's was then sold off to Roark Capital in
2011), and in 2010, private equity firm 3G Capital acquired Burger King. Growth in consolidation
indicates that major players are recognizing the benefits of economies of scale and attempting to gain a
competitive advantage through acquisitions. Consolidation among QSRs is occurring because
establishments grew faster than enterprises. Over the five years to 2013, establishments grew by 1.3%
per year on average to 232,611 while enterprises grew at an annualized rate of 1.1% to 149,052.
Developing these efficiencies has become increasingly important to maintain profitability in the QSR
segment. Enterprises in the QSR segment operate off slim profit margins. The highly competitive nature
of QSRs and relatively homogenous product range mean high turnover is required for enterprises to
break-even. The average QSR profit margin fell to as low as 1.4% in 2009 as demand slumped and
industry revenue declined. As operators scrambled to cut costs and revenue rebounded, the average
QSR profit margin has since recovered to about 3.6% in 2013.
Over the five years to 2013, employment in QSRs fell at an average annual rate of 0.1% to 3.7 million
employees. IBISWorld estimates that 15 to 16 people are employed per QSR establishment, earning an
average $12,627 each in 2013. The reduction is directly related to the recent decline in revenue and
major operators rationalizing some underperforming locations.
$ in billions
250.0

QSR Segment Revenue Growth

200.0
150.0

214.6

210.2

205.1

201.4

199.3

195.0

191.0

190.1

188.6

186.3

181.1

182.2

178.1

178.3

175.8

171.6

164.6

50.0

157.6

100.0

0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth %

4.4

4.2

2.5

1.4

-0.1

2.3

-0.6

2.9

1.2

0.8

0.5

2.1

2.2

1.0

1.9

2.5

2.1

Note: 2014-2019 represents projected growth

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

12

QSR Segment Outlook

Over the five years to 2018, IBISWorld forecasts that the QSR segment will continue its trend of longterm growth, beginning with a 2.1% revenue gain in 2014. QSRs will benefit as the economy slowly
improves, unemployment rates decrease and consumers spend more on luxuries like eating out. Over
the next five years, consumer spending is expected to increase at an average annual rate of 2.9%.
Additionally, demand for fast food will increase as restaurants continue to expand healthy menu options
and some of the concerns over the health risks associated with fast food wanes. Furthermore, as more
aggressive international growth will reinvigorate major QSR chains' overall revenue, it will happen at the
expense of domestic revenue and expansion. As a result of these initiatives, QSR revenue is expected to
increase at an average annual rate of 1.9% to $210.2 billion in the next five years.
Competition will likely intensify over the next five years in the QSR segment, especially within the
domestic market. This factor will involve significant price-based competition and a growing emphasis on
the regular introduction of new products. Additionally, most QSR chains will introduce new healthy food
alternatives and expand their current product lines. Major operators will seek to expand revenue and
profit by offering healthier alternatives to red meat products, such as vegetarian burgers, pasta and
fresh salads. They will also likely continue to diversify into new areas, such as cafes and full-service
restaurants that may do business under different names at new locations.
Many domestic QSR operators will also continue to expand internationally, and this move will likely be
the largest source of revenue and profit growth for major players over the next five years. Asia and the
Middle East are regions where domestic fast-food brands have not saturated the market yet and where
operators are thriving. However, strong international revenue growth and expansion will likely limit
domestic expansion and domestic revenue growth opportunities in the QSR segment.
Over the next five years, profitability in the QSR segment is expected to improve only marginally
because of ongoing competition in the low-growth, saturated domestic market. By 2018, average
industry profit is expected to sit at 3.6% of revenue. QSR operators that experience stagnant domestic
profits will likely increase their focus on international expansion to grow company-wide profit margins.
Companies will also try to emulate McDonald's by expanding their beverage options to include more
coffee-based drinks and smoothies. These low-cost and high-profit menu items offer a quick way for
QSRs to perk up their revenue and fatten their bottom line.
Although the domestic economy is projected to slowly improve, QSR operators will continue to face
intense competition for their fair share of revenue. Consolidation among QSR operators has been
underway for some time and is expected to continue, though new growth opportunities will likely offset
those losses. Over the next five years, the number of QSRs is likely to increase at an average rate of 1.2%
per year to 158,436 in 2018. The number of QSR establishments is also projected to grow at an
annualized rate of 1.2% to 247,191 over the same five year period.
In the next five years, employment is projected to grow at an average annual rate of 0.7% to 3.8 million
people by 2018. This number will be partly inflated by the increasing use of part-time employees to

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

13

meet peak customer service periods. IBISWorld projects that the average QSR wage will increase from
$12,627 per worker in 2013 to $13,501 in 2018, with total QSR segment wages growing 1.0% per year on
average. Despite the long-term trend of declining wages due to the increasing automation of food
preparation, wages and employment are forecast to increase over the next five years in the QSR
segment as the economy recovers from the recession.

Competitive Landscape
The QSR segment has a moderate level of market share concentration. The top four players in the QSR
segment account for about 42.7% of available market share, giving the QSR segment of the Restaurant
Industry a medium level of concentration. Given the diversity of food styles and operations, nearly
48.0% of establishments are small-business operators that have nine or fewer employees. An additional
55.0% of establishments have between 10 and 99 employees.
Over time, the QSR segment's concentration has increased. Over the past five years there has been an
increasing trend of the major QSR chain operators selling their company-operated stores to focus on
franchising. The lower capital requirements and less risk associated with selling franchises has helped
chains such as Burger King and Subway grow despite relatively flat restaurant sales. Between 2008 and
2013, the numbers of establishments and enterprises have grown slowly or remained stagnant, causing
a marginal increase in industry concentration. Industry concentration is expected to continue increasing
over the five years to 2018

Wendys International, Inc. 4.8%

Yum Brands, Inc. 12.6%

Major Players (Market Share)

Other
57.3%
McDonalds Corporation 18.6%
Doctors Associates, Inc. 6.7%

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

14

System Sales
40,000
35,000

$ Millions

30,000
25,000

MCD

20,000

YUM

15,000

SUB

10,000

WEN

5,000
2008

2009

2010

2011

2012

2013*

Revenue
10,000

$ Millions

8,000
6,000
4,000
2,000
2008

2009

2010
MCD

2011

YUM

2012

2013*

WEN

Operating Income
4,500
4,000
3,500
3,000

MCD

2,500

YUM

2,000

SUB

1,500

WEN

1,000
500
2008

2009

2010

2011

2012

2013*
*Projected results for 2013

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

15

Yum Brands, Inc. (YUM)

Market Share: 18.6%

Market Share: 12.6%

Brand Names: McDonald's

Brand Names: KFC, Pizza Hut, Taco Bell, Wing Street

6,000

24,500

8,000

36,000

5,000

24,000

6,000

34,000

4,000

23,500

3,000

23,000

4,000

32,000

2,000

22,500

2,000

30,000

1,000

22,000

Rev & Op. Inc.

38,000

System Sales

Rev & Op. Inc.

10,000

28,000

21,500

2008 2009 2010 2011 2012 2013*

Revenue

Operating Income

System Sales

McDonalds Corporation (MCD)

2008 2009 2010 2011 2012 2013*

System Sales

Revenue

Operating Income

System Sales

Financial Highlights: Over the five years to 2013, McDonald's

global revenue is expected to increase at an average annual
rate of 0.9% to $27.8 billion. US system-wide sales are
expected to grow an annualized 3.4% over the five years to
2013 to $35.5 billion. Over the past five years McDonald's has
focused on balancing core menu classics with the
introduction of new, high-margin products and promotional
food events to drive revenue growth.

Financial Highlights: Yum's U.S. revenue is expected to

decline at an annualized rate of 10.7% to $2.9 billion over the
five years to 2013. This represents a strategic decision by Yum
to increase the franchising of its stores, thereby decreasing
the revenue earned from retailing food and beverages as a
result. IBISWorld estimates the company's U.S. system-wide
sales will grow at an annualized rate of 0.3% to $24.1 billion
over the five years to 2013.

Doctors Associates, Inc. (SUB)

Wendys International, Inc. (WEN)

Market Share: 4.8%

Brand Names: Subway

Brand Names: Wendy's

3,500

14,000

3,000

9,200

1,200

12,000

2,500

9,100

1,000

10,000

2,000

9,000

1,500

8,900

1,000

8,800

500

8,700

800

8,000

600

6,000

400

4,000

200

2,000

2008 2009 2010 2011 2012 2013*

Operating Income

System Sales

Financial Highlights: Subway is a private company and does

not publicly disclose its financial results. However, based on
sales per store, IBISWorld estimates that Subway's U.S.
system-wide revenue will grow to $12.8 billion in 2013, up
from about $9.4 billion in 2008, yielding annualized growth of
6.3%. The company has grown aggressively over the past five
years through its flexible franchise model and an overall
societal shift towards healthy eating.

9,300

System Sales

16,000

Rev & Op. Inc.

1,600

1,400

System Sales

Rev & Op. Inc.

Market Share: 6.7%

8,600
2008 2009 2010 2011 2012 2013*

Revenue

Operating Income

System Sales

Financial Highlights: Wendy's total domestic system-wide

sales is expected to grow at an annualized rate of 0.1% over
the five years to 2013 to $9.2 billion. Sales increased during
2012, primarily driven by consumers spending more per
transaction due to higher prices on certain menu items.
However, the company has experienced the lingering effects
of the recession, with slow growth following two years of
declining revenue.

*Projected results for 2013

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

16

Cost Structure Benchmarks

The QSR segments flat growth over the past five years has meant that many operators have struggled
with low profit margins. The QSR segment has high product turnaround, but its low profit margins make
it vulnerable to any adverse changes in demand, including recessionary declines. Changes in household
preferences, in disposable incomes and other health and food safety concerns also influence demand.

Profit
QSR segment profit is calculated as operators' earnings before interest and taxes. Profit varies among
players depending on the size of the firm, with larger operators benefiting from economies of scale. For
large players such as McDonalds, profit margins at company-operated restaurants can be as high as
15.0% due to the large economies of scale the organization has access to. However, the profit margin of
a small enterprise that operates only one restaurant will be much lower. In 2013, the average QSR will
obtain a profit margin of 3.6%. This explains the high turn-over rate of businesses and the highly
competitive nature of the industry. Typically, an operator's major costs are food and beverages
purchased for sale and wages paid, and if these are not managed skillfully an operator's profit margin
will take a hit.

Purchases
Food and beverages are usually purchased from wholesalers, particularly from operators that can
guarantee prompt delivery and quality. Fluctuations in the cost of food and beverages significantly
influence industry revenue and profit. In the short term, many of these cost increases cannot be passed
on to the consumer or client. Therefore, menus, portion sizes and other inputs into food service have to
be continually monitored. A major source of inefficiency is wastage due to fluctuations in demand,
oversupply of meals or excess ingredients that cannot be used and subsequently spoil. In 2013,
purchases will account for an estimated 31.0% of an average QSR's revenue.

Wages
Operators in the QSR segment have high wage costs due to the labor-intensive nature of food
preparation, cooking, serving and cleaning up. Over the past five years, labor costs have fallen slightly as
a percentage of total revenue due to productivity gains by the industry's largest employers. These costs
include wages and benefits, such as health, workers' compensation and unemployment insurance.
Growing labor intensity brings down menu prices and industry profitability; given the weak economic
conditions and unemployment, cost increases cannot simply be passed down to consumers in the form
of higher prices. Industry wage costs account for an estimated 24.6% of an average QSR's revenue in
2013.

Rent and Utilities

Rent costs can be significant for an operator in the QSR segment due to the need to be situated in a
high-traffic location to attract passing foot traffic. Many businesses that operate under franchise
agreements pay rent directly to the franchisor that also owns the building. Over the past five years
average QSR segment rent as a percentage of revenue has increased as it has become increasingly

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

17

common for enterprises to rent, rather than own, the property they operate out of. Utility costs are also
considerable due to the energy-intensive nature of cooking, storing, cooling and cleaning.

2013 Projected Industry vs. QSR Segment Costs

100%

3.6

7.0

24.6

22.0

80%

60%

31.0
38.1
40%

3.6

3.0
4.1

2.8
7.6

14.0

18.4

20.2

Average Costs of Consumer Discretionary Industries

(2013)

QSR Segment Costs (2013)

20%

0%

Other

Rent & Utilities

Marketing

Depreciation

Purchases

Wages

Profit

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

18

QSR Segment Data: Key Statistics

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Sales
($ millions)
171,558.4
175,825.7
178,313.4
178,116.3
182,178.3
181,065.7
186,317.3
188,575.0
190,098.7
191,033.2
195,045.4
199,336.7
201,377.3
205,132.4
210,222.3

IVA
($ millions)
53,314.1
51,299.8
52,771.7
53,659.2
56,042.3
55,328.5
58,141.8
59,764.9
60,272.3
60,770.1
61,708.7
63,067.8
63,718.7
63,982.3
65,479.1

Establishments
(Units)
201,667
207,396
211,023
217,992
217,938
217,622
220,492
225,122
228,723
232,611
236,333
240,115
241,379
243,698
247,191

Enterprises
(Units)
131,805
135,937
137,611
139,835
141,274
140,747
142,964
145,395
147,285
149,052
150,841
152,651
154,383
156,263
158,436

Employment
(Units)
3,390,317
3,514,631
3,620,389
3,640,517
3,671,781
3,577,393
3,514,483
3,588,288
3,620,583
3,653,168
3,686,048
3,712,415
3,729,653
3,748,365
3,777,535

Wages
($ millions)
43,568.2
44,519.8
45,451.9
46,375.6
46,364.0
46,293.0
47,035.4
47,145.2
47,155.5
47,015.7
47,626.9
48,294.2
49,089.1
50,062.5
51,001.9

U.S. Consumer
Spending
($ billions)
8,515.8
8,803.5
9,054.5
9,262.9
9,211.7
9,032.6
9,196.2
9,428.8
9,604.9
9,782.5
10,010.0
10,327.4
10,653.7
11,016.1
11,302.5

Employment
2.8
3.7
3.0
0.6
0.9
-2.6
-1.8
2.1
0.9
0.9
0.9
0.7
0.5
0.5
0.8

Wages
2.1
2.2
2.1
2.0
0.0
-0.2
1.6
0.2
0.0
-0.3
1.3
1.4
1.6
2.0
1.9

Consumer
Spending
3.3
3.4
2.9
2.3
-0.6
-2.0
1.8
2.5
1.9
1.8
2.3
3.2
3.2
3.4
2.6

Annual Change (%)

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Revenue
4.2
2.5
1.4
-0.1
2.3
-0.6
2.9
1.2
0.8
0.5
2.1
2.2
1.0
1.9
2.5

IVA
1.3
-3.8
2.9
1.7
4.4
-1.3
5.1
2.8
0.8
0.8
1.5
2.2
1.0
0.4
2.3

Establishments
2.3
2.8
1.7
3.3
0.0
-0.2
1.3
2.1
1.6
1.7
1.6
1.6
0.5
1.0
1.4

Enterprises
4.5
3.1
1.2
1.6
1.0
-0.4
1.6
1.7
1.3
1.2
1.2
1.2
1.1
1.2
1.4

IVA/
Revenue (%)

Revenue/
Employment ($)

Wages/
Revenue (%)

Employees/
Establishment

Wages/
Employee ($)

31.1

50,600

25.4

16.8

12,850.8

29.2

50,000

25.3

16.9

12,667.0

29.6

49,300

25.5

17.2

12,554.4

30.1

48,900

26.0

16.7

12,738.7

30.8

49,600

25.4

16.8

12,627.1

30.6

50,600

25.6

16.4

12,940.4

31.2

53,000

25.2

15.9

13,383.3

31.7

52,600

25.0

15.9

13,138.6

31.7

52,500

24.8

15.8

13,024.3

31.8

52,300

24.6

15.7

12,869.8

31.6

52,900

24.4

15.6

12,920.9

31.6

53,700

24.2

15.5

13,008.8

31.6

54,000

24.4

15.5

13,161.8

31.2

54,700

24.4

15.4

13,355.8

31.1

55,700

24.3

15.3

13,501.4

Key Ratios
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Figures are inflation adjusted 2013 dollars

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

19

Casual Restaurants
The Casual Restaurant segment experienced a slowdown during the recession due to reduced consumer
spending. In the battle for consumers' shrinking budgets, restaurants increasingly lost out to homecooked meals or QSRs. On average, consumers cut spending on small luxuries like eating out, and when
they did eat out, they opted for less expensive items. During the past five years, consumers have also
become increasingly health conscious. Although major restaurants have responded by expanding the
number of nutritious options on their menus, the general trend toward better eating has hurt many of
the less-healthy Casual Restaurant chains. As a result, the revenue of the Casual Restaurant segment of
the Restaurant Industry has grown slowly at an average annual rate of 1.5% in the five years leading up
to 2013.
After revenue declined 3.7% to $77.5 billion in 2008 and 2009, Casual Restaurant revenues began
rebounding from 2010 as consumer confidence improved. Over the past two years, industry growth has
returned to pre-recessionary levels. The major Casual Restaurant chains are again expanding rapidly,
opening new stores and investing in technology to improve efficiency and labor productivity. The Casual
Restaurant segment is expected to grow an additional 3.8% in 2013, pushing revenue to $86.6 billion,
well above the prerecession high.
In the five years to 2018, many major Casual Restaurant chains are expected to continue their push
overseas as the potential from domestic growth become sparse. QSRs such as McDonald's and Yum!
Brands (owner of KFC) initially beat Casual Restaurants to the overseas chase. However, most Casual
Restaurants now have a significant international presence and are earning greater percentage of
revenue through their overseas segments each year. For example, in October 2010, Darden Restaurants
signed an area-development agreement with one of the Middle East's largest restaurant franchising
companies. This agreement marked Darden's first foray outside of North America. Many of these foreign
markets have huge potential for growth and promise long-term profitability. Industry revenue is forecast
to grow at an average annual rate of 2.5% to $97.8 billion over the five years to 2018.

Products and Services Segmentation (2013)

8%
Mexican food

40%
Varied cuisine
restaurants

20%
Asian food

10%
Pizza shops
10%
European food
12%
American food
Mazzone & Associates 2013 Restaurant Report
www.globalmna.com

20

Current Performance

Industry Revenue
6
4

% change

Over the past few years, adverse economic and social

conditions have battered the Casual Restaurant segment.
Contributing factors include weakened consumer
spending, the rapid rise in unemployment and, to a lesser
extent, society's increasing awareness of the health risks
associated with a diet high in fat, salt and sugar. In the
face of these obstacles, the industry has tried to respond
to changing consumer preferences by lowering their
prices and offering healthier options. As a result, Casual
Restaurant revenue grew at an annualized rate of 1.5% to
$86.6 billion in the five years to 2013 in the Casual
Restaurant segment, including an expected 3.8% upward
surge in 2013.

2
0
-2
-4
05

07

09

11

13

15

17

Consolidation and Profit

The number of Casual Restaurants is expected to rise only marginally at an annualized rate of 1.4% to
40,228 over the next five-year period. During the past decade, many operators invested in and acquired
other specialty Casual Restaurant chains, although many divested these chains to focus on core
businesses during the five years to 2013. Examples of this trend include Darden selling its Smokey Bones
stores, Brinker selling Romano's Macaroni Grill and Cracker Barrel Old Country Store selling Logan's
Restaurants.
Nonetheless, competitive pressures and declining demand have been forcing some companies to
consolidate their operations and streamline employment. In 2007, Darden acquired LongHorn
Steakhouse and Capital Grille restaurants. Meanwhile, DineEquity acquired Applebee's. The trend
toward consolidation indicates that major players are acknowledging the benefits of economies of scale
and attempting to gain a competitive advantage through acquisition and growth. Despite these costsaving efforts, industry profit margins have fallen slightly. Profit has declined because of lower sales
volumes and customers opting for lower-priced items, as well as high competition and saturation in the
domestic market. Also, rising wages have put pressure on profit margins, especially among operators
that have limited ability to raise menu prices. Over the past five years, industry wages increased by an
average annual 1.9% to $28.1 billion to represent a higher percentage of total revenue than in 2008.
During 2013, competition within this Casual Restaurant segment and from other food services industries
will remain brutal, putting further pressure on profit margins. In any subdued economy, all industry
segments are affected; however, mid-price restaurants are affected more, with competition increasing
from the lower and upper industry segments since the latter segment has the leeway to reduce menu
prices dramatically.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

21

19

$ in billions
120.0

Casual Restaurant Segment Revenue Growth

100.0
80.0
60.0

99.3

97.8

96.0

96.1

93.9

89.5

86.6

83.4

80.5

78.7

77.5

80.3

81.3

77.8

74.1

72.6

69.8

70.2

68.2

20.0

66.9

40.0

0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth %

0.0

2.0

2.9

-0.6

4.0

2.0

5.0

4.5

-1.3

-3.4

1.6

2.2

3.7

3.8

3.4

4.9

2.4

-0.1

1.9

1.5

Note: 2014-2019 represents projected growth

Casual Restaurant Segment Outlook

The Casual Restaurant segment will resume its long-term growth trend in 2013 and onward, with
revenue growing an expected 3.4% in 2014. Casual dining full-service restaurants will benefit as
unemployment rates decline and consumers spend more on luxuries like eating out. Overall, consumer
spending is forecast to increase at an annualized rate of 2.9% during the five years to 2018. As a result,
the Casual Restaurant segment revenue will grow an annualized 2.5% to $97.8 billion during the period.
Despite the return to long-term growth, intense competition will likely persist throughout the next five
years. Fierce price-based competition and an increased emphasis on regularly introducing new products
will become primary focuses for many companies. Most Casual Restaurants will expand their current
product lines and introduce healthy alternatives. For example, many operators will emphasize
alternatives to red meat menu items, such as chicken and pasta, and provide a variety of other meal
options like fresh salads as they seek to expand revenue and profit.
International growth is now also becoming a part of many major Casual Restaurant chains' long-term
strategy. For example, Darden Restaurants signed an area-development agreement with one of the
Middle East's largest restaurant franchising companies in October 2010, marking Darden's first venture
outside North America. Many of these foreign markets have huge potential for growth and long-term
profitability for these brands, although they unfortunately do not improve the performance of the
domestic industry.
Consumer research has highlighted changing consumer tastes in the Casual Restaurant segment. For
instance, there has been a decline in the popularity of French, German, Scandinavian and soul foods and
a shift toward Italian, Mexican, Japanese, Thai, Caribbean and Middle Eastern foods. These changes will
continue as immigration patterns influence new flavors, meals and choices. To generate business, casual
dining restaurants will need to stay on the cutting edge of these trends to adapt to their customers'
changing tastes.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

22

To cater to the increasingly digital-savvy consumer market, full-service Casual Restaurant operators will
continue to invest in technology. Operators will increasingly use websites, text messages, Facebook and
e-mail to contact customers and take reservations. Technology investment will also involve improving
back-of-house operations and systems. These technologies will include electronic customer ordering,
labor scheduling and electronic product ordering systems. These systems are not only designed to
increase customer service, but also labor productivity and, therefore, profit margins. Even with hightech equipment, though, quality staff training at all levels will remain critically important.
Successful operators will also need to keep up to date with planned regulatory changes. Continuing the
trends of the past five years, operators will increasingly contend with food-handling and safety
regulations and the expansion of a total nonsmoking policy instituted by government legislation.
Operators must also monitor changes in their customers' desires. Important elements include ambiance,
high-quality food at decent prices, the range and price of menu items, and some increased flexibility in
cooking arrangements and service. Casual Restaurants that continue to focus on meeting customers'
expectations of the total meal experience are projected to outperform their peers.
As economic activity improves, Casual Restaurants will place less emphasis on value offers and specials;
however, enterprises will continue to compete ferociously for their shares of the saturated market. For
this reason, consolidation among establishments is expected to continue, although new growth
opportunities abroad and a rebounding domestic economy will offset those losses for industry players.
During the next five years, the number of establishments is forecast to increase at an average rate of
only 1.1% per year to 42,400.
Many domestic Casual Restaurant operators will continue to expand internationally, or dust off
international expansion plans that have been shelved since 2009. In fact, international expansion is
projected to be a major source of revenue and profit growth for major players through 2018, although
this does not directly impact the domestic Casual Restaurant segment. Asia and the Middle East are
regions where the industry has failed to make a significant imprint on the market, and operators hope to
experience aggressive growth in these untapped regions.
Over the next five years, the Casual Restaurant segment profitability is expected to only marginally
improve because of ongoing competition in the low-growth, saturated domestic market. Operators that
experience stagnant profit domestically will likely double down on international expansion to grow
company-wide profit margins.

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

23

Competitive Landscape
The Casual Restaurant segment of the Restaurant Industry has a low level of market share
concentration. In 2013, the four largest players in the Casual Restaurant segment are estimated to
account for about 26.8% of available market share. The Casual Restaurant segment is made up of a vast
array of chain and franchised restaurant operators and food concepts, as well as the extensive number
of sites they operate. A number of chains and franchised operators have establishments that are spread
nationally and even internationally. In the past five years, the industry's concentration level has fallen
slightly because a number of conglomerates have offloaded underperforming chains to private equity
firms. One example being Brinker's sale of chains On The Border Mexican Grill and Cantina and
Romano's Macaroni Grill. Private equity firms play a significant role in the industry, often purchasing
underperforming restaurant chains with the aim of quickly turning around their performance, increasing
their profitability and selling the business at a profit. Franchising activity has also increased substantially
over the past five years as many chains see more of a profit to be made in collecting royalties rather
than being in the business of buying and selling food and beverages. This has also added to the
industry's fragmentation. Given the Casual Restaurant segment's nature, particularly its fragmentation
by food types, the concentration is not expected to change significantly in the near future.

Brinker International Inc. 4.3%

DineEquity 8.2%

Major Players (Market Share)

Other 70.7%

Darden Restaurants 9.6%

Bloomin Brands Inc. 4.7%
Cracker Barrel 2.5%

Operating Income

10,000

1,200

8,000

1,000

$ Millions

$ Millions

Sales

6,000
4,000
2,000

800
600
400
200

2008
DRI

2009
DIN

2010
BLMN

2011
EAT

2012
CBRL

2013*

2008
DRI

2009
DIN

2010
BLMN

2011
EAT

2012
CBRL

*Projected results for 2013

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

24

2013*

DineEquity Inc. (DIN)

Market Share: 8.2%

Brand Names: Red Lobster, Olive Garden, LongHorn

Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52

Brand Names: Applebees, IHOP

12,000

1,050

1,000

10,000

1,000

7,200

950

7,100

900

7,000

850

6,900

800

6,800

800

8,000

600

6,000

400

4,000

200

2,000

Operating Income

1,200

Sales

Operating Income

Market Share: 9.6%

7,300

750

Sales

Darden Restaurants Inc. (DRI)

6,700
2008 2009 2010 2011 2012 2013*
Operating Income
Sales

Financial Highlights: Over the five years to fiscal 2013 (yearend May), Darden's U.S.-specific revenue grew at an average
rate of 4.9% per year, with revenue forecast to grow 5.4% to
$8.4 billion in fiscal 2013. U.S. revenue grew in fiscal 2011 and
2012, largely due to the addition of new restaurants. Darden
owns all of its restaurants in the U.S.

Financial Highlights: In the five years to 2013, U.S.-specific

network sales increased 0.6% per year on average to $7.1
billion. While the Applebees chain has performed relatively
well during the past five years, IHOP has dragged the
company's performance down. IHOP's same-restaurant sales
have not increased since late 2010 and DineEquity has
resolved to revamp the chain's menu to be more affordable.

Bloomin Brands Inc. (BLMN)

Brinker International Inc. (EAT )

Estimated Market Share: 4.3%

Brand Names: Outback Steakhouse, Flemings, Bonefish Grill,

Carrabas Italian Grill, Roys

Brand Names: Chili's Grill & Bar, Maggiano's Little Italy

4,200

600

6,000

500

4,000

500

5,000

400

3,800

400

4,000

300

3,600

300

3,000

200

3,400

200

2,000

100

3,200

100

1,000

3,000
2008 2009 2010 2011 2012 2013*

Operating Income

Sales

Financial Highlights: In the five years to 2013, Bloomin'

Brands' U.S.-specific sales grew at an annualized rate of 2.3%
to an estimated $4.1 billion. Sales in the U.S. have grown due
to an increase in comparable restaurant sales and the
opening of new restaurant locations. Operating profit has
also improved on the back of larger average check values and
fewer fluctuations in the price of food and is expected to hit
$529.3 million in 2013.

Operating Income

600

Sales

Operating Income

Market Share: 4.7%

Sales

2008 2009 2010 2011 2012 2013*

Operating Income
Sales

2008 2009 2010 2011 2012 2013*

Operating Income

Sales

Financial Highlights: In the five years to fiscal 2013, U.S. sales

fell at an average rate of 5.4% per year to $3.7 billion. The
company has sold, closed and refranchised a number of
restaurants during the past five years, which has contributed
to the drop in revenue. Comparable restaurant sales also
struggled during and following the recession. In an attempt
to improve performance, Brinker has kept its restaurant
menu prices competitive and reduced its costs.

*Projected results for 2013

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

25

Cracker Barrel Old Country Store (CRBL)

Financial Highlights: During the five years to

fiscal 2013, industry-specific revenue increased
at an average annual rate of 2.8% to $2.2
billion. Cracker Barrel earns a healthy operating
margin of about 13.1%, with industry-specific
operating income expected to reach $282.2
million in 2013. Restaurant sales increased from
fiscal 2010 to 2012, due to an increase in
average menu prices. All restaurants are
company owned and operated.

Operating Income

Brand Names: Cracker Barrel

300

2,200

250

2,100

200

2,000

150

1,900

100

1,800

50

1,700

1,600
2008 2009 2010 2011 2012 2013*
Operating Income

Sales

*Projected results for 2013

Cost Structure Benchmarks

Profit
Casual Restaurant segment profit is based on earnings before interest and taxes. Profit varies depending
upon the size of the company, with larger operators generally benefiting from economies of scale. In
2013, the average Casual Restaurant segment operator will obtain profit equivalent to 6.6% of revenue.
Profit margins were negatively affected by a drop in consumer spending during the recession, with the
average Casual Restaurant segment profit margin falling to as low as 5.4% in 2009. Margins have since
increased because many Casual Restaurant chains have implemented cost cutting measures and
investing in technology to reduce their reliance on labor.

Purchases
Food and beverages are usually purchased from wholesalers, particularly from those that can guarantee
both prompt delivery and quality foodstuffs. Fluctuations in the cost of food and liquor significantly
impact Casual Restaurant segment revenue and profit. Beverages generally have higher margins than
food. In the short term, many cost increases cannot be passed onto the consumer or client. Therefore,
menus, portion sizes and other inputs into food service have to be continuously monitored. The other
major source of inefficiency is waste due to fluctuations in demand, an oversupply of meals or excess
ingredients that cannot be used and subsequently spoil. In 2013, purchases are expected to account for
28.8% of an average Casual Restaurant segment company's revenue. Purchase costs, as a percentage of
total industry revenue, have fallen slightly since 2008, as efficiencies in production have been found.

Wages
Wages and associated labor costs represent the Casual Restaurant segment's single biggest cost. Wages
are high due to the labor-intensive nature of food preparation, cooking, serving and bussing tables.
These costs include wages and benefits, such as health, workers' compensation and unemployment
insurance. Menu prices and industry profitability are affected by labor intensity, since increased labor

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

26

Sales

Market Share: 2.5%

costs cannot simply be passed directly onto consumers in the form of higher prices, especially given the
weak economic conditions and sustained unemployment levels. Wage costs will account for an
estimated 32.5% of an average Casual Restaurant segment company's revenue in 2013. During the past
five years, labor costs have increased as a percentage of total revenue as operators have been forced to
keep prices low to attract patronage at the same time as maintaining a high level of service.

Rent and utilities

Rent and utilities expenses are high for the Casual Restaurant segment because of the need for locations
in high traffic areas with high visibility. Many operators try to locate near a main thoroughfare or in a
high foot traffic location. Rent and utilities expenses are expected to equal 6.2% of an average Casual
Restaurant segment company's revenue in 2013. As a percentage of revenue, rent and utilities have
remained relatively constant over time.

Other
Operators in the Casual Restaurant segment are subject to a range of other costs including professional
fees, administrative costs and marketing or advertising. Due to the high number of franchised
businesses operating in the industry, franchise royalties and other fees can account for a significant
proportion of industry revenue. An additional marketing fee is sometimes paid to the franchiser as well.

2013 Projected Industry vs. Casual Restaurant

Segment Costs
100%

6.6

7.0
22.0

80%

32.5

60%

38.1

28.8

40%

4.1

3.9

2.8
7.6

3.0
6.2

18.4

19.0

Average Costs of Consumer Discretionary

Industries (2013)

Casual Restaurant Segment Costs (2013)

20%

0%

Other

Rent & Utilities

Marketing

Depreciation

Purchases

Wages

Profit

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

27

Casual Restaurant Segment Data: Key Statistics

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Revenue
($ millions)
72,605.2
74,082.5
77,796.9
81,321.5
80,254.6
77,534.3
78,743.2
80,468.6
83,440.0
86,570.8
89,501.2
93,862.7
96,085.5
95,965.3
97,831.0

IVA
($ millions)
29,913.3
31,411.0
33,297.1
35,462.0
34,429.2
32,641.9
33,544.6
34,440.6
35,795.7
37,225.4
38,575.0
40,548.7
41,508.9
41,457.0
42,263.0

Establishments
(Units)
32,857
34,470
35,609
36,864
37,520
37,881
38,814
39,242
39,712
40,228
40,671
41,159
41,694
41,859
42,400

Enterprises
(Units)
651
659
673
699
715
728
745
751
749
756
755
759
771
772
778

Employment
(Units)
1,462,119
1,513,776
1,574,913
1,592,609
1,637,326
1,573,894
1,571,502
1,609,456
1,650,811
1,686,486
1,737,590
1,807,620
1,855,684
1,864,672
1,922,016

Wages
($ millions)
22,292.3
23,177.4
24,406.4
25,869.5
25,635.2
25,424.2
26,102.0
26,796.0
27,502.5
28,099.8
29,034.9
30,313.4
30,954.4
30,859.1
31,433.0

U.S. Consumer
Spending
($ billions)
8,515.8
8,803.5
9,054.5
9,262.9
9,211.7
9,032.6
9,196.2
9,428.8
9,604.9
9,782.5
10,010.0
10,327.4
10,653.7
11,016.1
11,302.5

Employment
4.2
3.5
4.0
1.1
2.8
-3.9
-0.2
2.4
2.6
2.2
3.0
4.0
2.7
0.5
3.1

Wages
3.8
4.0
5.3
6.0
-0.9
-0.8
2.7
2.7
2.6
2.2
3.3
4.4
2.1
-0.3
1.9

Consumer
Spending
3.3
3.4
2.9
2.3
-0.6
-2.0
1.8
2.5
1.9
1.8
2.3
3.2
3.2
3.4
2.6

Annual Change (%)

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Revenue
4.0
2.0
5.0
4.5
-1.3
-3.4
1.6
2.2
3.7
3.8
3.4
4.9
2.4
-0.1
1.9

IVA
0.4
5.0
6.0
6.5
-2.9
-5.2
2.8
2.7
3.9
4.0
3.6
5.1
2.4
-0.1
1.9

Establishments
3.9
4.9
3.3
3.5
1.8
1.0
2.5
1.1
1.2
1.3
1.1
1.2
1.3
0.4
1.3

Enterprises
3.2
1.2
2.1
3.9
2.3
1.8
2.3
0.8
-0.3
0.9
-0.1
0.5
1.6
0.1
0.8

IVA/
Revenue (%)

Revenue/
Employment ($)

Wages/
Revenue (%)

Employees/
Establishment

Wages/
Employee ($)

41.2

49,700

30.7

44.5

15,246.6

42.4

48,900

31.3

43.9

15,311.0

42.8

49,400

31.4

44.2

15,497.0

43.6

51,100

31.8

43.2

16,243.5

42.9

49,000

31.9

43.6

15,656.7

42.1

49,300

32.8

41.5

16,153.7

42.6

50,100

33.1

40.5

16,609.6

42.8

50,000

33.3

41.0

16,649.1

42.9

50,500

33.0

41.6

16,660.0

43.0

51,300

32.5

41.9

16,661.7

43.1

51,500

32.4

42.7

16,709.9

43.2

51,900

32.3

43.9

16,769.8

43.2

51,800

32.2

44.5

16,680.9

43.2

51,500

32.2

44.5

16,549.3

43.2

50,900

32.1

45.3

16,354.2

Key Ratios
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Figures are inflation adjusted 2013 dollars

Mazzone & Associates 2013 Restaurant Report

www.globalmna.com

28