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Restaurant Industry Restaurant Industry 2008 and Beyond2008 and Beyond
Rhode Island Hospitality Rhode Island Hospitality & & Tourism AssociationTourism AssociationEconomic Outlook BreakfastEconomic Outlook Breakfast
Providence, RIProvidence, RIOctober 21, 2008October 21, 2008
Hudson RiehleHudson RiehleSenior Vice President Research and Information Services Senior Vice President Research and Information Services National Restaurant AssociationNational Restaurant Association
Agenda
• Overview• Economic Backdrop• Industry Segments• What’s Hot• Workforce• 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
Annual Sales:
$558 billion
Employees:
13.1 million
Locations:
945,000
38 Years of Restaurant-Industry Sales 1971-2008
Source: National Restaurant Association
2008 Restaurant IndustrySales Gain:
$24 billion
Source: National Restaurant Association
1955: 25% Present: 48.0%
Restaurant Industry’s Share of the Food Dollar
• Fullservice• Quickservice• Cafeterias and buffets• Caterers• Snack and nonalcoholic
beverage bars• Managed services/
contractors at•Industrial plants•Hospital/nursing homes•Schools and universities•Airlines•Recreation and sports centers
• Lodging places• Retail hosts
• Book stores• Service stations• Convenience stores
• Self-operated restaurant services
• Military restaurant services
The Industry Mosaic
Economic Backdrop
3.7%
0.8%
1.6%
2.5%
3.6%
2.9%2.8%
2.0%
1.6%
1.2%
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Economy Expected to Post Modest Growth into 2009Real Growth in U.S. Gross Domestic Product
Source: Bureau of Economic Analysis, National Restaurant Association
Projected
4.8%
1.9%
3.1%
2.2%
3.6%
1.4%
3.5%
2.8%
1.6%
1.0%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Disposable Income Growth Projected to SlowReal Growth in Disposable Personal Income
Source: Bureau of Economic Analysis, National Restaurant Association
Projected
2.2%
0.0%
-1.1%
-0.3%
1.1%
1.7% 1.8%
1.1%
0.0%
-0.5%
-2%
-1%
0%
1%
2%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
National Job Losses Expected to Continue in 2009U.S. Total Employment Growth
Source: Bureau of Economic Analysis, National Restaurant Association
Projected
National Economy Posting Job LossesU.S. economy shed 760,000 jobs in the last nine months
U.S. Total Job Growth
Source: Bureau of Labor Statistics; figures are seasonally-adjusted
140,000
60,00041,000
-76,000 -83,000 -88,000
-67,000-47,000
-100,000
-67,000 -73,000
-159,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
Industry Job Growth FaltersEating and drinking places lost jobs in two of the last three months
Eating and Drinking Place Job Growth
Source: Bureau of Labor Statistics; figures are seasonally-adjusted
33,300
12,60010,100
6,500
13,20015,000 14,400
1,100
7,200
-4,200
1,800
-4,800
-10,000
0
10,000
20,000
30,000
40,000
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
Consumer Confidence Remains at a 15-Year LowU.S. Consumer Confidence Index
Source: The Conference Board
40
60
80
100
120
140
160
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Source: The Conference Board
Consumer Expectations Lowest Since 1991Present Situation and Expectations Indices
0
20
40
60
80
100
120
140
160
180
200
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Present Situation Component
Expectations Component
Regional Consumer ConfidenceSeptember 2008
77.2
88.5
50.0
39.6
63.7
45.0
61.7
Source: The Conference Board
59.8
79.9
Home Equity LoansTotal amount outstanding at the end of each year
Source: Federal Reserve Bank
$215 $222$217 $210 $222 $237$263 $297 $310 $334
$407 $439$501
$593
$776
$915
$1,066$1,129
$0
$200
$400
$600
$800
$1,000
$1,200
Bill
ion
s
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Home Equity Cashed Out Through Refinancing Each QuarterIncludes 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
Gas Prices Fell From Record High of $4.11Weekly average for a gallon of regular gasoline, including taxes
Source: 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
Pri
ce
pe
r g
allo
n
Regional Average on October 13thWeekly average for regular gasoline, including taxes
$3.27
$2.99
$3.19
$3.10
$3.29
$2.99
$3.42
Source: Energy Information Administration
Wholesale Food Prices on Pace for Strongest Gain in 29 Years2007 was strongest gain in 27 years
*Year-to-date growth through September
Source: Bureau of Labor Statistics, National Restaurant Association
-0.3% -0.2%
0.6%
3.2%
-1.2%
5.5% 5.6%
1.8%
0.7%
7.6%8.8%
-4%
-2%
0%
2%
4%
6%
8%
10%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Individual Commodities Posting Stronger GainsYear-to-date Growth Through September 2008
Source: Bureau of Labor Statistics, National Restaurant Association
Milled Rice 63%Flour 55Fats and Oils 55Eggs 34Cheese 14Milk 9
Grocery Store Price Growth Outpacing Menu PricesMenu prices on pace for strongest growth since a 4.7% gain in 1990
*Year-to-date growth through September
Source: Bureau of Labor Statistics, National Restaurant Association
2.5%
1.3%
2.1% 2.2%
3.0%
3.8%
3.1%
1.9%
3.1%
1.7%
3.6%
4.2% 4.3%
6.2%
0%
1%
2%
3%
4%
5%
6%
7%
2002 2003 2004 2005 2006 2007 2008*
Menu Prices Grocery Store Prices
Corn-based Ethanol Requirements Under RFSBillions of Gallons
9
11
1213 13
14 1415
0
2
4
6
8
10
12
14
16
Bill
ion
s o
f G
allo
ns
2008 2009 2010 2011 2012 2013 2014 2015
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Sh
are
of
Co
rn D
ive
rte
d t
o E
tha
no
l
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Share of Corn Diverted to Ethanol Production% of total
U.S. Corn Use – Projected to 2015Billions of Bushels
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Feed & Residual
Ethanol
Food, seed & industrial less ethanol
Exports
Source: USDA
Energy Prices on Pace for Strongest Gain Since 1980Consumer Price Index (CPI) for Energy
Source: Bureau of Labor Statistics, National Restaurant Association *Year-to-date growth through September
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008*
menu reengineering cost management productivity targeted marketing efforts expansion
Typical Restaurant Operator Reactions
September 2008September 2008
The EconomyThe Economy 31% 31%
Food CostsFood Costs 22 22
Sales VolumeSales Volume 15 15
R&R Employees 8R&R Employees 8
Gas/Energy Prices 6Gas/Energy Prices 6
Competition 1Competition 1
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Top Challenge Facing Restaurant OperatorsSeptember 2006, September 2007 and September 2008
September 2006September 2006
R&R EmployeesR&R Employees 32% 32%
Sales VolumeSales Volume 15 15
Gas/Energy Prices 13Gas/Energy Prices 13
The EconomyThe Economy 8 8
CompetitionCompetition 6 6
Food CostsFood Costs 5 5
September 2007September 2007
R&R EmployeesR&R Employees 34% 34%
Sales VolumeSales Volume 16 16
Food CostsFood Costs 11 11
The EconomyThe Economy 9 9
CompetitionCompetition 7 7
Gas/Energy Prices 3Gas/Energy Prices 3
Top Challenges Facing Restaurant Operators% of Operators Saying “The Economy” vs. “Recruiting/Retaining Employees”
Source: National Restaurant Association, Restaurant Industry Tracking Survey
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
The Economy
Recruiting & Retaining Employees
Restaurant Performance Index Fell Below 100…Values Greater than 100 = Expansion; Values Less than 100 = Contraction
Source: National Restaurant Association
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
…but Total Sales Remain Above 2007 LevelsSeasonally-adjusted monthly sales at eating and drinking places
Source: U.S. Census Bureau
$25
$27
$29
$31
$33
$35
$37
$39
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
Restaurant Industry Outperforming Retail Sector in 2008Year-to-date growth through September 2008
Source: U.S. Census Bureau, Bureau of Labor Statistics, National Restaurant Association
4.2% 4.3%
-0.1%
6.1% 6.2%
-0.1%
2.3%
4.6%
-2.3%
-4%
-2%
0%
2%
4%
6%
8%
NominalSales
Menu Prices
Real Sales
NominalSales
GroceryStore Prices
Real Sales
NominalSales
ConsumerPrices
Real Sales
Eating & Drinking Places Grocery Stores Total Retail (excluding food)
Operators Are Uncertain about Sales GrowthRestaurant operators’ outlook for sales volume in six months compared to the same period in the previous year
Source: National Restaurant Association, Restaurant Industry Tracking Survey
47%
16%
39%
25%
29%28%
31% 30%32%31%
30%34%
29%
38%
29%
34%
29%
37%
29%
38%
29%34%
30%33%
0%
10%
20%
30%
40%
50%
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
Higher Sales in Six Months Lower Sales in Six Months
Quickservice Operators Are Most OptimisticRestaurant operators’ outlook for sales volume in six months compared to the same period in the previous year
Source: National Restaurant Association, Restaurant Industry Tracking Survey
26%
36%
28%32% 32% 31%
40%
26%
28%33%
0%
10%
20%
30%
40%
50%
Family Dining Casual Dining Fine Dining Quickservice Quick-Casual
Higher Sales in 6 Months Lower Sales in 6 Months
Operators Are Pessimistic about the EconomyRestaurant operators’ outlook for the economy in six months
Source: National Restaurant Association, Restaurant Industry Tracking Survey
26%
21%
19%
40%
16%
41%
16%
44%
21%
37%
14%
46%
16%
44%
14%
42%
12%
45%
15%
43%
21%
29%
24%
33%
0%
10%
20%
30%
40%
50%
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
Better Conditions in Six Months Worse Conditions in Six Months
Operators Are Pessimistic about the EconomyRestaurant operators’ outlook for the economy in six months
Source: National Restaurant Association, Restaurant Industry Tracking Survey
22%
40%
20%
29%32%
25%
21%
36%
19%
34%
0%
10%
20%
30%
40%
50%
Family Dining Casual Dining Fine Dining Quickservice Quick-Casual
Better Than Now Worse Than Now
Industry Segments
Total Restaurant Industry Sales2008 Forecast
Source: National Restaurant Association
2007 2008
$535 billion$558 billion
Fullservice Restaurant Sales2008 Forecast
2007 2008
$180 billion$187 billion
Source: National Restaurant Association
Limited-Service Restaurant Sales2008 Forecast
2007 2008
$150 billion
$157 billion
Source: National Restaurant Association
Snack and Nonalcoholic BeverageBar Sales2008 Forecast
2007 2008
$19.6 billion
$20.9 billion
Source: National Restaurant Association
Managed Services Sales2008 Forecast
2007 2008
$36.2 billion
$38.3 billion
Source: National Restaurant Association
Segments With Negative Real Sales GrowthSegments With Negative Real Sales Growthin 2008in 2008
Source: National Restaurant Association
Cafeterias, grill buffets/buffetsCafeterias, grill buffets/buffets - 4.6%- 4.6%
Bars and tavernsBars and taverns - 0.6- 0.6
Managed ServicesManaged Services
- Manufacturing/industrial plants- Manufacturing/industrial plants - 0.3- 0.3
- In-transit restaurant services- In-transit restaurant services - 4.6- 4.6
Segments With Negative Real Sales GrowthSegments With Negative Real Sales Growthin 2008 (cont’d)in 2008 (cont’d)
Source: National Restaurant Association
Mobile caterersMobile caterers - 0.7%- 0.7%
Non-CommercialNon-Commercial
- Employee restaurant services- Employee restaurant services - 4.0 - 4.0
- Elementary/secondary schools- Elementary/secondary schools - 0.8- 0.8
- Colleges/universities- Colleges/universities - 3.1- 3.1
0%
10%
20%
30%
40%
50%
60%
70%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Per
cen
t in
Lab
or
Fo
rce
Female Labor Force Participation Rate1950 to 2007
Source: Bureau of Labor Statistics
What’s Hot
Hot Items1 Bite-size desserts
2 Locally grown produce
3 Organic produce
4 Small plates/tapas/mezze
5 Specialty sandwiches
Source: National Restaurant Association; American Culinary Federation, 2007
Food
Wraps/pitas/tortillas 64%
Entrée salads 59%
Chicken sandwiches 59%
Breakfast sandwiches 59%
Source: National Restaurant Association, 2007
Operator Survey:Menu Trends in Quickservice RestaurantsPercent of quickservice operators reporting increase in popularity of the following items
Beverage
Energy drinks 77%
Espresso/specialty coffees 75%
Bottled water 58%
Iced tea/hot tea 42%
Better Food QualityPercent of consumers who say:
Food quality is better in sit-down tableservice restaurantsthan it was two years ago 76%
Food quality is better in fast food restaurants than it wastwo years ago 64%
Source: National Restaurant Association, consumer research 2007
Going to restaurants with family and friends is a better use of leisure time than cooking and cleaning up: 82%
Source: National Restaurant Association, October 2007 consumer survey
What Consumers Think About RestaurantsPercentage of adults who say:
E-mail Notificationof Daily Specials
30 percent of adults likely to useif offered by their favorite
tableservice restaurant
Source: National Restaurant Association, Consumer Survey, 2007
Going GreenPercent of operators, by type of operation, who say they intend to spend a larger proportion of their budget in 2008 to green initiatives
Source: National Restaurant Association, October 2007
Family dining Casual dining Fine dining Quickservice
23% 31% 32% 21%
Workforce Outlook
Source: Bureau of Labor Statistics, National Restaurant Association * Projected
1998
10.6 million
2008* 2018*
13.1 million
15.1 million
Total Restaurant-Industry Employment
Potential Labor ShortageGrowth in Key Indicators: 2008–2018
Source: National Restaurant Association projections, based on historical data from the Bureau of Labor Statistics
Restaurant Industry Employment
16%
Total U.S. Labor Force
16-to-24 Year Old Labor Force
9%
-7%
One-Half of Restaurant
Industry Labor Pool
Source: National Restaurant Association
1983: 6% 2006: 21%
Foodservice Occupations:Proportion of Employees that are Hispanic
Table Top PaymentSystems on Rise
Over half of adults (53 percent)would use if offered by their
favorite tableservice restaurant
Source: National Restaurant Association Consumer Survey, 2007
Wrap-Up
Unfulfilled Demandfor Restaurant Services
Remains HighOver 30 percent of adults are NOT
dining on-premises or usingtake-out as often as would like
Source: National Restaurant Association
Opportunities
• Convenience demand• Decrease on-site labor needs• Develop simple cost/benefit analysis• Energy efficiency and long-term cost
savings• Value emphasis
Opportunities
• Long term health/nutrition trend• Joint testing/marketing initiatives• Promotional opportunities—menu,
table tents, off-premises, on-line• May 16-19, 2009 NRA Show -
Chicago
Growth in Key IndicatorsGrowth in Key Indicators
Source: National Restaurant Association *projected
20072007 20082008* * 20092009**
• Gross Domestic ProductGross Domestic Product 2.0% 1.6% 1.2% 2.0% 1.6% 1.2%
• Real Disposable Personal Income 2.8Real Disposable Personal Income 2.8 1.6 1.0 1.6 1.0
• Total EmploymentTotal Employment 1.1 1.1 0.0 -0.5 0.0 -0.5
Growth in Key IndicatorsGrowth in Key Indicators
Source: National Restaurant Association, 2008
20082008 U.S.U.S. Rhode IslandRhode Island
PopulationPopulation +0.9% -0.1% +0.9% -0.1%
Real Disposable Personal Income (DPI) Real Disposable Personal Income (DPI) +1.6% -0.1% +1.6% -0.1%
Construction EmploymentConstruction Employment -5.1% -5.9% -5.1% -5.9%
2008 and Beyond
• Restaurant-industry sales will reach a record high• Record levels also for employees and locations• Weak economic fundamentals• Energy and food cost challenges will remain• Menu — small is big, alternative sourcing, ethnic
ingredients• Workforce — higher productivity• Technology more critical• Modest industry growth expected
Restaurant Industry Restaurant Industry 2008 and Beyond2008 and Beyond
Rhode Island Hospitality Rhode Island Hospitality & & Tourism AssociationTourism AssociationEconomic Outlook BreakfastEconomic Outlook Breakfast
Providence, RIProvidence, RIOctober 21, 2008October 21, 2008
Hudson RiehleHudson RiehleSenior Vice President Research and Information Services Senior Vice President Research and Information Services National Restaurant AssociationNational Restaurant Association
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