Casual Dining
Executive Summary
– Talking Points –
March 2008
III-A. Current Operating Environment
Why is Casual Dining Struggling?
Several elements within the current operating environment are
contributing to the lackluster results currently experienced by many
concepts:
Economic pressures
Various economic factors can create positive or negative drags
on consumer perceptions and spending patterns/habits. Many
of the current trends are creating a negative effect on sales
demand.
Historically aggressive Casual Dining unit growth
In recent years, Casual Dining unit growth rates have
exceeded the overall restaurant industry. This has created a
scenario where restaurant supply arguably is greater than
consumer demand.
3
Why is Casual Dining Struggling?
Lack of differentiation among Casual Dining brands
As concepts look to attract more customers, many are losing
their unique identity. Consumers often see very little difference
among the menu offerings and experience perceptions of
various brands (especially in the Bar and Grill segment).
Changing consumer dining habits
Recent trends show consumers eating more meals at home,
while total meals sourced outside the house have flattened and
even decreased slightly.
4
Economic Pressures
Potential Drivers of Restaurant Industry Sales Demand
Projected Effect on
Factor Restaurant Spending
Rising gasoline prices Negative
Rising wage and salaries Positive
Higher unemployment rate Negative
Lower restaurant unit growth Positive
Rising consumer prices (energy) Negative
Positive wealth effect Positive
Falling consumer sentiment Negative
Consumers are currently experiencing all of the “Negative” influencers,
while the “Positive” elements have been non-existent, or exhibited
minimal influence.
5
Source: UBS
Casual Dining Unit Growth Has Outpaced Demand
An analysis of 146 Leading
Casual Dining Chains
included in the Technomic
Top 500 shows that their
rate of unit expansion has
averaged nearly 5% during
the period 2004-2007 as
shown on the following
chart.
6
Historical Casual Dining Unit Growth
Casual Dining unit growth has outpaced the general restaurant industry three
of the past four years.
6.1%
5.3%
4.7%
3.1%
2.0%
1.0%
0.0% 0.0%
2004 2005 2006 2007
Restaurant Industry Casual Dining
7
Source: UBS
Undifferentiated Concept Landscape
Consumers have almost unlimited
choices.
Little perceived differentiation.
Many concepts have spent too much
time focusing on trying to be “all things
to all people.”
The result is “everyone looks the
same.”
8
Undifferentiated Concept Landscape
When participants were asked to
identify differences among Classic
Casual concepts they struggled to
find differences, reporting that they
are “very similar.”
Other focus group comments
included:
“They all look alike. You walk
in and the waiting area is like a
box. The booths are so close
together. It’s like everyone is on
top of each other.”
“…they all have similar
atmospheres as far as casual
dining goes.”
9
Casual-Dining’s Dinner Traffic Is Down
Dinner Traffic at Casual-Dining
3.1%
2.2%
-2.4% -2.6% -2.7%
-2.9%
-4.3%
-4.9%
-6.6%
SON'05 DJF'06 MAM'06 JJA'06 SON'06 DJF'07 MAM'07 JJA'07 SON'07
Similar trends are noted in fast food as well, but not to this degree.
10
Source: The NPD Group/Foodservice/NPD Crest and UBS
Meals Purchased at a Restaurant Flattening
Consumption Has Decreased Slightly Over
the Past Several Years
– Annual Per Person –
220
210
200
190
180
170
160
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
11
Source: The NPD Group/Foodservice/NPD Crest and UBS
Meals Prepared and Consumed at Home Increasing
Consumption Trending Upward
– Annual Per Person –
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
12
Source: The NPD Group/Foodservice/NPD Crest and UBS
Consumers Report Cutting Back at FSRs (Full-Service
Restaurants)
In a recent survey, approximately a quarter of consumers reported they had
cutback back their usage at FSRs in the past 90 days for lunch and dinner.
% of Consumers Who Have Increased or
Decreased Their FSR Visits in the Past 90 Days
25%
23%
14%
9%
Lunch Dinner
Visiting More Visiting Less
13
Source: American Express Market Brief, March 2008; n=1200
Consumers Report Having Less Discretionary Income
Available for Dining at FSRs
Top Reasons Given for Dining at FSRs “Less Often”
Less money
available to spend
77%
on extras like eating
out
Cost of gas to drive 26%
I don't feel there are
enough healthy 13%
options
14
Source: American Express Market Brief, March 2008; n=1200
Consumers are Most Likely to Blame Gas Prices and
Utility Bills
Factors Impacting Consumers’ Decisions to
Spend Less Money at Restaurants
Gasoline Prices 70%
Utility Bills 50%
Lost Job/Pay Cut 37%
Mortgage/Rent 36%
Higher Credit Card Minimums 19%
Increase in Credit Card Interest Rates 13%
Media Reports on the State of the
13%
Economy
15
Source: American Express Market Brief, March 2008; n=1200
Most of these Meals Have Been Replaced By Meals
Prepared at Home
Meal Types That Replaced What Were FSR Occasions
Food prepared at
and/or eaten at 89%
home
Prepared food from
22%
a retail store
Visit to a LSR 18%
Work cafeteria or
some other 5%
cafeteria
16
Source: American Express Market Brief, March 2008; n=1200