restaurant monthly update - january 2017

1

J a n u a r y 2 0 1 7

Restaurant Monthly Update

Duff & Phelps Restaurant Monthly Update | January 2017

Market Update K E Y

I N F O R M A T I O N

QSR continued to be the top performing

segment during December for the tenth

consecutive month

December same-store sales and traffic

declined -4.3% and -6.4%, respectively

The restaurant industry will likely face

many difficulties reversing unfavorable

traffic and SSS trends in 2017

Innovative restaurant concepts will

remain an attractive investment for

private equity and strategic investors

December marked the ninth month out of the past ten with declining sales

for the restaurant industry, as the latest survey data indicated a -4.3%

decline in same-store sales and -6.4% decline in traffic. Both same-store

sales and traffic growth deteriorated from November’s results, officially

marking 2016 as the worst year of industry performance since 2009.

California was once again the best performing region in the last month of the

fourth quarter, logging same-store sales of -0.9% in December alongside

declining traffic of -3.9%. The worst performing region of the month was the

Midwest, which reported same-store sales and traffic declines of -6.3% and

-8.0%, respectively, upending Texas and the Southwest for the worst

performance during the period.

Based on same-store sales performance, QSR (Quick Service Restaurants)

continued to be the top performing segment during December for the tenth

consecutive month. Upscale casual and family dining also notched positive

sales growth during December and, along with QSR, were the only three

restaurant segments with positive same-store sales growth in 2016. While

certain segments of the restaurant industry continue to perform better than

others, none of the reported segments generated an increase in overall

guest counts for the year.

Restaurant operators faced a number of challenges in 2016, including the

continued increase in menu prices relative to those of grocers across the

country, restaurant oversupply driven by new entrants, and increased

options from nontraditional formats. With grocer prices declining nearly 1.2%

year-over-year, consumers have increasingly favored eating at home over

visiting their favorite restaurants. Additionally, unit growth and the large

number of new participants in recent years has led to an oversupply of

restaurants, particularly within the fast-casual and coffee, breakfast, and

snacks categories. Increased options from nontraditional formats, such as

home-cooked meal delivery services Blue Apron, Plated and Hello Fresh,

have attracted customers with higher levels of innovation and more

convenience than traditional casual dining concepts. While the industry is

expected to continue facing similar challenges in 2017, concepts with

compelling unit economic models will increasingly entice investors. Given

the decline in traditional brick-and-mortar retail, both private equity and

strategic investors will look to restaurants with strong growth profiles as an

attractive investment option within the Consumer sector.

Source: Nation’s Restaurant News, TDn2K’s Black Box Intelligence, and The WSJ


Restaurant Traffic Expected to

Remain Weak

Restaurant Industry Trends to

Watch for in 2017

Source: Nation’s Restaurant News, TDn2K’s Black Box Intelligence, Morningstar and The WSJ

A number of trends are expected to prevail in the restaurant industry over

the coming year. Beginning with labor, operators will face an overall

increase in costs due to minimum wage hikes in more than 20 states at the

start of 2017. Consumers will likely see increased prices in numerous

sectors of the industry as a response to this legislation, as labor typically

represents 25-35% of the cost of owning a restaurant. Regarding traffic,

restaurant operators will look to reverse declining trends in the coming year

through nontraditional vehicles, such as catering and delivery services. The

proliferation of third-party delivery services, such as Seamless, Amazon,

Postmates and UberEATS, have expanded the opportunity for restaurant

operators to meet consumers’ growing interest in delivery.

Consumers have also been driven toward concepts that offer reward and

loyalty programs for all customers, not just the most frequent buyers. A

recent report by NDP Group found that super light and light buyers,

characterized by customers who visit restaurants one time or fewer per

week, account for nearly 47% of overall restaurant customers in a year. By

focusing on regular discounts, loyalty, and rewards programs, concepts can

tap into a new customer segment to vastly improve traffic trends in the

coming year. Additionally, offering apps and other digital promotional items

can help operators convert Millennial customers into frequent visitors.

Improving menu offerings and overall operational efficiencies can drive

traffic while providing restaurants with cost improvements.

The M&A and financing markets are expected to remain bifurcated in

2017. M&A activity and growth equity investments for growth-oriented

concepts with compelling unit economic models are expected to remain

robust and continue at premium valuations. Private equity investors with

significant dry powder and strong, relatively inexpensive credit, will continue

to fuel investment in innovative and rapidly expanding restaurant

concepts. At the same time, mature concepts will likely appeal to a more

consolidation-minded, value-oriented set of strategic acquirors and financial

investors at decidedly more modest valuations. As traffic and labor

challenges continue to plague the industry, we may see an increasing

number of middle-market businesses considering a sale in 2017 and an

uptick in consolidation amongst mature concepts in order to gain economies

of scale and overhead cost synergies.

After facing its worst year of traffic in six years, the restaurant industry

will likely face similar difficulties in 2017, according to NPD Group, which

studies U.S. eating patterns. The market research firm expects that the

industry will continue to feel pricing pressure from grocers and

convenience stores, which have largely benefited from depressed food

costs over the past few years. Restaurants, on the other hand, are much

more labor intensive than grocers, forcing operators to engage in

aggressive price hikes in the face of rising labor and occupancy costs.

This gap is widely credited as one of the major causes of traffic and SSS

slowdown seen throughout 2016. While consumers continue to eat

nearly 80% of all meals at home, restaurants will have to find additional

ways to increase traffic in the face of increased menu prices, driven by

rising labor costs. According to Fitch Ratings, restaurant prices are

expected to increase in the 2-3% range in the coming year, leading

experts to believe that the malaise in restaurant traffic will remain

throughout 2017.

As overall traffic remains depressed, many sectors of the restaurant

industry will continue trading market share with one another as a result of

heavy concentration. Limited service restaurants are expected to

continue gaining market share from casual dining, as emerging concepts

attract consumers with greater convenience, higher levels of innovation

and differentiated menu offerings than traditional dine-in restaurants.

Additionally, both full service and limited service chains will look to non-

traditional vehicles, such as catering and delivery services, to drive sales

and offset traffic declines in dine-in eating, which has struggled to spur

traffic amidst the current market conditions. This dynamic will be

particularly visible in the casual space, where restaurant supply largely

outweighs consumer demand. As traffic and same-store sales results

continue to decrease, despite low unemployment and rising wages,

innovation will be a large differentiator for these concepts. Overall, NPD

Group expects full service restaurants to face traffic declines of up to 2%

in 2017 as a result of these dynamics, while limited service restaurants

are expected to grow 1% over the same period.

Capital Markets Industry Insights | Q1 2016 Duff & Phelps Restaurant Monthly Update | January 2017

Restaurant Sector Monthly Same-Store Sales and Traffic Growth

Source: Nation’s Restaurant News, TDn2k’s Black Box Intelligence

December marks nine out of the past ten months

with negative same-store sales and traffic growth

6.5%

2.1%

1.5% 2.2%

1.6% 2.3%

2.0% 2.1%

1.4%

0.0% 0.6% 0.7%

(0.8%)

0.7%

(0.5%) (0.8%)

0.0%

(1.1%) (1.4%)

(0.6%) (1.1%) (0.9%)

(1.3%)

(4.3%)

2.4%

(1.0%)

(1.7%) (1.0%)

(1.8%)

(1.1%) (0.6%) (0.6%) (1.0%)

(2.5%) (1.5%)

(1.9%)

(3.1%)

(1.1%)

(2.4%)

(3.2%) (2.3%)

(3.5%) (3.9%)

(2.7%) (3.5%) (3.4%) (3.3%)

(6.4%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

1/2

01

5

2/2

01

5

3/2

01

5

4/2

01

5

5/2

01

5

6/2

01

5

7/2

01

5

8/2

01

5

9/2

01

5

10

/20

15

11

/20

15

12

/20

15

1/2

01

6

2/2

01

6

3/2

01

6

4/2

01

6

5/2

01

6

6/2

01

6

7/2

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8/2

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6

9/2

01

6

10

/20

16

11

/20

16

12

/20

16

Same-Store Sales Traffic Same-Store Sales


Quarterly Same-Store Sales Performance –

Last 2 Years

Source: SEC filings, Capital IQ, MergerMarket, Company Press Releases,

and various news sources (e.g. NY Times Dealbook, the Deal, Wall Street Journal, etc.)

Same store sales represents the change in year-over-year sales for restaurants that have been open for at least 18 months.

Represents most actively traded public restaurant companies

2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Mass Casual

Cracker Barrel Old Country Store, Inc. 3.3% 7.9% 5.2% 3.8% 2.5% 0.6% 2.3% 3.2% 1.3%

Brinker International, Inc.

Chili's Grill & Bar 2.3% 4.2% 2.2% 0.1% (1.1%) (2.1%) (3.6%) (1.8%) (1.4%)

Maggiano's Little Italy 0.6% 2.3% 0.1% (0.1%) (1.7%) (1.8%) 0.2% (1.7%) (0.6%)

Bloomin' Brands, Inc.

Bonefish Grill 2.6% 0.7% 0.9% (4.6%) (6.1%) (5.4%) (2.7%) 0.9% 1.7%

Carrabba's Italian Grill (1.2%) 0.3% 1.9% 0.9% (2.0%) (4.0%) (2.0%) (4.8%) (2.1%)

Fleming's Prime Steakhouse & Wine Bar 4.8% 3.4% 3.0% 3.2% (0.6%) (0.3%) 1.3% (0.8%) (1.9%)

Outback Steakhouse 4.8% 6.4% 5.0% 4.0% 0.1% (2.2%) (1.3%) (2.5%) (0.7%)

DineEquity, Inc.

Applebee's 1.7% 2.8% 2.9% 1.0% (0.5%) (2.5%) (3.7%) (4.2%) (5.2%)

IHOP 2.4% 6.1% 4.8% 6.2% 5.8% 1.4% 1.5% 0.2% (0.1%)

Bob Evans Farms, Inc. 0.0% 3.8% 2.1% (0.3%) (3.2%) (3.6%) (3.0%) (3.2%) (1.8%)

Biglari Holdings Inc. 2.6% 2.9% 6.0% 4.8% 3.0% 3.6% 1.8% (0.7%) 0.2%

Denny's Corporation 2.4% 4.7% 7.2% 7.3% 6.1% 2.9% 2.5% (0.5%) 1.0%

Red Robin Gourmet Burgers Inc. 1.4% 4.3% 3.8% 3.6% 3.7% (1.6%) (2.2%) (3.2%) (3.6%)

Ruby Tuesday, Inc. 1.1% (1.0%) (0.3%) (1.7%) 0.6% 0.8% (3.1%) (3.7%) (2.7%)

Luby's, Inc. 0.4% 0.2% 3.1% (1.0%) 0.2% 1.2% 3.1% (0.6%) 0.7%

Ignite Restaurant Group, Inc.

Brick House Tavern + Tap 7.5% 5.7% 5.4% 2.8% (0.7%) (2.8%) (4.5%) (6.3%) (8.9%)

Joe's Crab Shack (4.4%) (4.5%) (3.8%) (4.0%) (6.6%) (2.9%) (1.3%) (6.8%) (6.5%)

Famous Dave's of America Inc. (2.3%) (4.0%) (4.9%) (9.2%) (9.8%) (10.6%) (7.7%) (6.4%) (1.0%)

Median 2.0% 3.2% 3.0% 1.0% (0.6%) (2.0%) (1.7%) (2.2%) (1.2%)

Mean 1.7% 2.6% 2.5% 0.9% (0.6%) (1.6%) (1.2%) (2.4%) (1.8%)



Last 2 Years





2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Specialty Casual

Darden Restaurants, Inc.

Bahama Breeze 1.1% (0.6%) 3.2% 1.7% 1.8% 2.4% 9.9% 5.4% 3.9%

The Capital Grille 3.9% 5.0% 6.1% 4.4% 7.2% 1.5% 5.3% 1.5% (1.2%)

Eddie V's 2.5% 4.9% 9.6% 5.2% 5.1% 1.1% 4.1% 0.9% (1.7%)

LongHorn Steakhouse 2.8% 2.6% 5.4% 5.2% 4.4% 2.6% 5.2% 1.1% 0.6%

Olive Garden (1.3%) 0.5% 2.2% 3.4% 2.7% 1.0% 6.8% 1.6% 2.0%

Seasons 52 (0.3%) 1.2% 5.2% 3.1% 3.9% 4.5% 5.7% 3.7% 0.7%

Yard House 2.3% 3.7% 5.4% 3.2% 3.4% 1.7% 3.9% 1.4% 0.0%

Texas Roadhouse, Inc. 5.8% 6.8% 8.7% 8.0% 7.0% 4.4% 4.3% 4.5% 3.4%

Buffalo Wild Wings Inc. 5.8% 5.5% 6.5% 3.3% 2.6% 1.0% (2.0%) (2.1%) (1.7%)

Dave & Buster's Entertainment, Inc. 8.7% 10.5% 9.9% 11.0% 8.8% 6.0% 3.6% 1.0% 5.9%

BJ's Restaurants, Inc. 0.3% 1.2% 3.2% 0.5% 2.3% 0.7% 0.6% (0.2%) (3.4%)

Chuy's Holdings, Inc. 3.0% 3.8% 1.9% 3.2% 4.2% 3.2% 3.2% 1.0% 0.3%

Median 2.7% 3.8% 5.4% 3.4% 4.1% 2.1% 4.2% 1.3% 0.5%

Mean 2.9% 3.8% 5.6% 4.4% 4.5% 2.5% 4.2% 1.7% 0.7%



Last 2 Years

2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Polished Casual

The Cheesecake Factory Incorporated 2.1% 1.4% 4.2% 2.8% 2.2% 1.1% 1.7% 0.3% 1.7%

J. Alexander's Holdings, Inc.

J. Alexander's/Redlands Grill N/A N/A N/A N/A (0.2%) 1.4% (3.0%) (1.8%) 1.4%

Stoney River Steakhouse and Grill N/A N/A N/A N/A 4.7% 6.2% 0.7% 1.8% 1.8%

Kona Grill Inc. 2.7% 3.1% 2.2% 1.0% 1.6% 3.2% 3.6% 2.5% 0.7%

Bravo Brio Restaurant Group, Inc.

Bravo! Cucina Italiana (6.7%) (3.9%) (1.7%) (2.1%) (3.1%) (5.2%) (4.1%) (8.4%) (8.0%)

Brio Tuscan Grille (5.2%) (4.2%) (1.0%) (1.6%) (3.8%) (4.3%) (2.1%) (6.4%) (3.7%)

Median (1.6%) (1.3%) 0.6% (0.3%) 0.7% 1.3% (0.7%) (0.8%) 1.1%

Mean (1.8%) (0.9%) 0.9% 0.0% 0.2% 0.4% (0.5%) (2.0%) (1.0%)

Fine Dining

Ruth's Hospitality Group Inc. 4.8% 5.0% 2.8% 4.2% 3.3% 3.2% 3.1% 1.5% 2.1%

Fogo de Chao, Inc. N/A N/A N/A 4.2% 2.8% 3.5% 1.1% (1.6%) 0.6%

Del Frisco's Restaurant Group, Inc.

Del Frisco's Double Eagle Steak House 8.4% 4.8% 2.3% 1.0% (1.4%) (1.6%) (0.1%) (1.9%) (3.7%)

Del Frisco's Grille N/A N/A (3.5%) (6.3%) (3.5%) (4.5%) (2.8%) (2.0%) (1.4%)

Sullivan's Steakhouse 0.6% 1.8% 4.8% (3.0%) 1.2% (1.8%) (1.8%) 2.9% (3.2%)

The ONE Group Hospitality, Inc. 5.7% 2.6% (3.5%) 3.1% 0.3% (0.8%) 2.8% (5.2%) (4.2%)

Median 5.3% 3.7% 2.3% 2.1% 0.8% (1.2%) 0.5% (1.8%) (2.3%)

Mean 4.9% 3.6% 0.6% 0.5% 0.5% (0.3%) 0.4% (1.1%) (1.6%)







Last 2 Years

2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Fast Casual

Chipotle Mexican Grill, Inc. 19.8% 16.1% 10.4% 4.3% 2.6% (14.6%) (29.7%) (23.6%) (21.9%)

Panera Bread Company 1.4% 3.0% 0.7% 1.8% 2.8% 2.3% 4.7% 2.6% 3.4%

Shake Shack Inc. N/A 7.2% 11.7% 12.9% 17.1% 11.0% 9.9% 4.5% 2.9%

El Pollo Loco Holdings, Inc. 7.9% 7.6% 5.1% 1.3% 0.6% 1.8% 0.7% 2.4% 1.6%

Zoe's Kitchen, Inc. 5.9% 7.8% 7.7% 5.6% 4.5% 7.7% 8.1% 4.0% 2.4%

The Habit Restaurants, Inc. N/A 13.2% 12.6% 8.9% 2.9% 3.3% 2.0% 4.0% 0.2%

Noodles & Company 1.7% 1.3% 0.9% 0.1% (0.9%) (1.1%) (0.1%) (1.0%) (0.7%)

Potbelly Corporation 0.5% 3.7% 5.4% 4.9% 3.7% 3.7% 3.7% 1.7% 0.6%

Fiesta Restaurant Group, Inc.

Pollo Tropical 5.9% 7.7% 6.4% 4.3% 4.2% 0.4% 0.0% (1.4%) (1.0%)

Taco Cabana 3.5% 6.1% 3.8% 5.6% 4.8% 3.3% 1.7% (3.8%) (4.1%)

Wingstop Inc. 12.4% 12.5% 10.7% 9.0% 6.3% 5.9% 4.6% 3.1% 4.1%

Median 5.9% 7.6% 6.4% 4.9% 3.7% 3.3% 2.0% 2.4% 0.6%

Mean 6.6% 7.8% 6.9% 5.3% 4.4% 2.2% 0.5% (0.7%) (1.1%)







Last 2 Years

2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Quick Service

McDonald's Corp. (3.3%) (1.7%) (2.6%) (2.0%) 0.9% 5.7% 5.4% 3.1% 3.5%

Yum! Brands, Inc.

KFC 2.0% 6.0% 7.0% 3.0% 0.0% 3.0% 1.0% 2.0% 4.0%

Pizza Hut (2.0%) 0.0% (1.0%) 1.0% 0.0% 2.0% 5.0% 0.0% (1.0%)

Taco Bell 3.0% 7.0% 6.0% 6.0% 4.0% 4.0% 1.0% (1.0%) 3.0%

Restaurant Brands International Inc.

Burger King 3.6% 4.2% 6.9% 7.9% 5.2% 2.8% 4.4% 3.9% 1.7%

Tim Hortons 6.8% 4.1% 8.9% 7.0% 4.3% 5.8% 5.8% 4.8% 2.0%

Domino's Pizza, Inc. 7.7% 11.1% 14.5% 12.8% 10.5% 10.7% 6.4% 9.7% 13.0%

The Wendy's Company 0.8% 1.7% 3.2% 2.2% 3.1% 4.8% 3.6% 0.4% 1.4%

Jack in the Box Inc. 3.1% 4.4% 8.9% 7.3% 6.2% 1.4% 0.0% 1.1% 2.0%

Papa John's International Inc. 7.4% 4.1% 6.5% 5.5% 3.0% 1.9% 0.1% 4.8% 5.5%

Sonic Corp. 3.5% 8.5% 11.5% 6.1% 4.9% 5.3% 6.5% 2.0% (2.0%)

Popeyes Louisiana Kitchen, Inc. 7.2% 10.7% 7.0% 7.9% 5.6% 2.0% 1.1% 0.7% 1.8%

Bojangles', Inc. 5.3% 7.0% 7.9% 4.4% 4.1% 0.6% 2.0% 0.2% 0.8%

Del Taco Restaurants, Inc. N/A N/A 7.7% 6.0% 5.6% 5.8% 3.2% 3.3% 6.7%

Nathan's Famous Inc. 3.0% (2.0%) (2.8%) (0.7%) 0.5% (1.3%) 0.2% (2.2%) (6.3%)

Papa Murphy's Holdings, Inc. 4.6% 8.4% 5.6% 4.5% 1.4% (3.1%) (2.8%) (4.0%) (5.8%)

Median 3.5% 4.4% 7.0% 5.8% 4.1% 2.9% 2.6% 1.6% 1.9%

Mean 3.5% 4.9% 6.0% 4.9% 3.7% 3.2% 2.7% 1.8% 1.9%







Last 2 Years





2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Coffee, Breakfast, and Snacks

Starbucks Corporation 5.0% 5.0% 7.0% 8.0% 9.0% 9.0% 7.0% 4.0% 5.0%

Dunkin' Brands Group, Inc.

Dunkin' Donuts 2.0% 1.4% 2.7% 2.9% 1.1% 1.8% 2.0% 0.5% 2.0%

Baskin Robbins 5.8% 9.3% 8.0% 3.4% 7.5% 4.4% 5.0% 0.6% (0.9%)

Jamba, Inc. 3.7% 4.9% 5.0% (5.9%) 6.6% 5.4% (2.1%) 4.2% (1.1%)

Median 4.4% 5.0% 6.0% 3.2% 7.1% 4.9% 3.5% 2.3% 0.6%

Mean 4.1% 5.2% 5.7% 2.1% 6.1% 5.2% 3.0% 2.3% 1.3%

Franchisees

Alsea, S.A.B. De C.V. 2.0% 2.4% 6.3% 8.0% 11.4% 10.4% 10.1% 9.6% 9.0%

Domino's Pizza Enterprises Limited N/A N/A N/A N/A N/A N/A N/A N/A N/A

Arcos Dorados Holdings, Inc. 7.4% 15.4% 9.4% 8.5% 9.4% 12.0% 15.9% 9.5% 15.6%

Domino's Pizza Group plc N/A N/A N/A N/A N/A N/A N/A N/A N/A

Carrols Restaurant Group, Inc. 3.3% 3.6% 8.4% 10.3% 6.5% 5.1% 5.7% 0.7% 0.0%

Median 3.3% 3.6% 8.4% 8.5% 9.4% 10.4% 10.1% 9.5% 9.0%

Mean 4.2% 7.1% 8.0% 8.9% 9.1% 9.2% 10.6% 6.6% 8.2%


-40.0%

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20.0%

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40.0%

50.0%

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Mass Casual Specialty Casual Polished Casual Fine Dining Fast Casual Quick Service Coffee, Breakfast, and Snacks Franchisees

Indexed Stock Price Performance – Last 12 Months

Source: Capital IQ; data as of 12/31/2016. Fast Casual index includes Chipotle Mexican Grill, Panera Bread Company, Shake Shack Inc., Wingstop Inc., Fiesta Restaurant Group, El Pollo Loco Holdings,

Zoe’s Kitchen, The Habit Restaurants, Potbelly Corporation, Noodles & Company. Quick Service index includes McDonald’s Corp, Yum! Brands, Restaurant Brands International Inc., Domino’s Pizza, The

Wendy’s Company, Jack in the Box Inc., Papa John’s International Inc., Sonic Corp., Popeyes Louisiana Kitchen, Bojangles, Del Taco Restaurants, Nathan’s Famous Inc., Papa Murphy’s Holdings. Coffee,

Breakfast, & Snacks index includes Starbucks Corporation, Dunkin’Brands Group, Jamba. Franchisees index includes Domino’s Pizza Enterprises Limited, Alsea S.A.B., Domino’s Pizza Group, Arcos

Dorados Holdings, Carrols Restaurant Group. Mass Casual index includes Brinker International, Cracker Barrel Old Country Store, Bloomin’ Brands, DineEquity, Bob Evans Farms, Biglari Holdings, Denny’s

Corporation, Red Robin Gourmet Burgers, Ruby Tuesday, Luby’s, Ignite Restaurant Group, Famous Dave’s of America. Specialty Casual index includes Darden Restaurants, Texas Roadhouse, Buffalo Wild

Wings, Dave & Buster’s Entertainment, BJ’s Restaurants, Chuy’s Holdings. Polished Casual index includes The Cheesecake Factory, J. Alexander’s Holdings, Kona Grill, Bravo Brio Restaurant Group. Fine

Dining index includes Ruth’s Hospitality Group, Fogo de Chao, Del Frisco’s Restaurant Group, The ONE Group Hospitality.


Post-Election

Market


Public Restaurant Valuations

Source: Capital IQ as of December 31, 2016


($ in millions, except per share data) Stock Enterprise Value as a Multiple of LTM

Price % of Market Enterprise Revenue EBITDA EBITDA

% Franchised 31-Dec-16 52 Wk High Value Value LTM 2016E 2017E LTM 2016E 2017E Margin

Mass Casual

Brinker International, Inc. 40% $49.53 88.7% $2,459 $3,871 1.19x 1.19x 1.19x 8.1x 8.2x 8.8x 14.8%

Cracker Barrel Old Country Store, Inc. 0% 166.98 95.4% 4,014 4,305 1.47x 1.46x 1.42x 11.6x 11.3x 10.7x 12.7%

Bloomin' Brands, Inc. 11% 18.03 90.2% 1,900 3,078 0.72x 0.72x 0.70x 7.2x 7.1x 7.1x 10.0%

DineEquity, Inc. 100% 77.00 77.9% 1,393 2,695 4.14x 4.21x 4.11x 10.3x 10.2x 10.2x 40.3%

Bob Evans Farms, Inc. 0% 53.21 96.5% 1,052 1,409 1.07x 1.07x 1.06x 11.7x 9.9x 9.7x 9.1%

Biglari Holdings Inc. 30% 473.20 96.2% 978 1,171 1.36x 1.34x 1.31x 20.5x 18.5x 17.4x 6.6%

Denny's Corporation 90% 12.83 97.5% 941 1,183 2.36x 2.33x 2.24x 12.8x 12.0x 11.3x 18.5%

Red Robin Gourmet Burgers Inc. 16% 56.40 81.8% 725 1,026 0.79x 0.79x 0.75x 7.1x 7.5x 7.0x 11.2%

Ruby Tuesday, Inc. 12% 3.23 57.4% 191 346 0.32x NA NA 5.0x NA NA 6.4%

Luby's, Inc. 37% 4.28 83.9% 124 160 0.40x NA NA 8.3x NA NA 4.8%

Ignite Restaurant Group, Inc. 1% 0.54 12.1% 14 127 0.27x 0.28x 0.31x 6.4x 5.5x 5.4x 4.3%

Famous Dave's of America Inc. 75% 4.95 70.2% 34 41 0.40x 0.41x 0.42x 9.5x 8.1x 7.0x 4.2%

Median 86.3% $960 $1,177 0.93x 1.13x 1.12x 8.9x 9.1x 9.3x 9.6%

Mean 79.0% $1,152 $1,618 1.21x 1.38x 1.35x 9.9x 9.8x 9.5x 11.9%








Specialty Casual

Darden Restaurants, Inc. 3% $72.72 91.6% $8,950 $9,274 1.33x 1.32x 1.29x 10.0x 10.2x 9.2x 13.3%

Texas Roadhouse, Inc. 17% 48.24 95.5% 3,402 3,381 1.72x 1.69x 1.53x 12.9x 12.6x 11.2x 13.4%

Buffalo Wild Wings Inc. 49% 154.40 88.2% 2,810 2,896 1.46x 1.44x 1.31x 9.4x 9.5x 8.5x 15.5%

Dave & Buster's Entertainment, Inc. 0% 56.30 97.1% 2,367 2,631 2.71x 2.62x 2.29x 11.5x 11.1x 9.7x 23.7%

BJ's Restaurants, Inc. 0% 39.30 82.6% 914 997 1.04x 1.00x 0.95x 7.8x 8.0x 7.5x 13.3%

Chuy's Holdings, Inc. 0% 32.45 85.9% 546 532 1.65x 1.60x 1.36x 13.1x 12.6x 11.0x 12.6%

Median 89.9% $2,589 $2,764 1.56x 1.52x 1.33x 10.7x 10.7x 9.5x 11.9%

Mean 90.1% $3,165 $3,285 1.65x 1.61x 1.45x 10.8x 10.7x 9.5x 11.3%

Polished Casual

The Cheesecake Factory Incorporated 5% $59.88 93.0% $2,726 $2,759 1.25x 1.22x 1.16x 9.9x 9.5x 9.5x 12.7%

J. Alexander's Holdings, Inc. 0% 10.75 88.8% 158 177 0.80x 0.80x 0.72x 8.3x 7.5x 6.2x 9.6%

Kona Grill Inc. 0% 12.55 72.7% 132 151 0.92x 0.88x 0.74x 12.6x 11.2x 7.9x 7.3%

Bravo Brio Restaurant Group, Inc. 1% 3.80 39.7% 56 107 0.26x 0.26x 0.26x 4.2x 4.6x 3.8x 6.2%

Median 80.8% $145 $164 0.86x 0.84x 0.73x 9.1x 8.5x 7.0x 8.4%

Mean 73.6% $768 $798 0.81x 0.79x 0.72x 8.7x 8.2x 6.9x 8.9%








Fine Dining

Ruth's Hospitality Group Inc. 54% $18.30 93.1% $561 $595 1.55x 1.54x 1.43x 10.2x 10.0x 9.3x 15.3%

Fogo de Chao, Inc. 0% 14.35 80.2% 404 531 1.86x 1.87x 1.67x 7.7x 9.6x 8.8x 24.3%

Del Frisco's Restaurant Group, Inc. 0% 17.00 91.9% 400 399 1.15x 1.14x 1.05x 8.7x 8.8x 7.9x 13.2%

The ONE Group Hospitality, Inc. 0% 2.22 64.7% 56 69 0.97x 0.91x 0.76x NM 10.1x 5.0x NM

Median 86.1% $402 $465 1.35x 1.34x 1.24x 8.7x 9.8x 8.3x 15.3%

Mean 82.5% $355 $398 1.39x 1.36x 1.23x 8.8x 9.6x 7.7x 17.6%

Fast Casual

Chipotle Mexican Grill, Inc. 0% $377.32 69.6% $10,923 $10,564 2.73x 2.69x 2.32x 38.1x 47.9x 17.9x 7.2%

Panera Bread Company 54% 205.09 91.5% 4,798 5,152 1.87x 1.84x 1.72x 13.2x 12.6x 11.5x 14.1%

Shake Shack Inc. 48% 35.79 81.4% 1,297 1,273 5.17x 4.79x 3.61x 46.1x 28.4x 21.8x 11.2%

Wingstop Inc. 98% 29.59 88.5% 851 1,004 11.52x 10.96x 9.82x 33.3x 29.1x 25.3x 34.6%

Fiesta Restaurant Group, Inc. 11% 29.85 77.5% 798 863 1.20x 1.20x 1.12x 9.1x 9.2x 8.3x 13.2%

El Pollo Loco Holdings, Inc. 57% 12.30 79.7% 473 574 1.54x 1.51x 1.38x 9.1x 8.9x 8.4x 16.8%

Zoe's Kitchen, Inc. 2% 23.99 57.4% 467 485 1.82x 1.75x 1.47x 20.7x 20.9x 17.6x 8.8%

The Habit Restaurants, Inc. 4% 17.25 70.6% 449 436 1.61x 1.54x 1.28x 15.8x 14.4x 12.4x 10.2%

Potbelly Corporation 6% 12.90 86.1% 325 296 0.74x 0.73x 0.64x 7.5x 7.7x 6.7x 9.8%

Noodles & Company 14% 4.10 30.0% 114 196 0.41x 0.40x 0.39x 7.9x 7.6x 7.2x 5.3%

Median 78.6% $636 $718 1.71x 1.65x 1.43x 14.5x 13.5x 11.9x 10.7%

Mean 73.2% $2,050 $2,084 2.86x 2.74x 2.37x 20.1x 18.7x 13.7x 13.1%








Quick Service

McDonald's Corp. 82% $121.72 92.2% $101,082 $124,822 5.01x 5.07x 5.52x 13.5x 13.2x 12.7x 37.1%

Yum! Brands, Inc. 77% 63.33 68.8% 23,242 29,597 2.30x 4.63x 5.16x 9.9x 14.2x 14.5x 23.2%

Restaurant Brands International Inc. 99% 47.66 94.9% 11,158 23,827 5.82x 5.75x 5.45x 13.6x 12.9x 11.9x 42.7%

Domino's Pizza, Inc. 97% 159.24 92.2% 7,656 9,857 4.12x 4.05x 3.67x 21.0x 20.3x 17.9x 19.6%

The Wendy's Company 90% 13.52 96.1% 3,321 5,528 3.48x 3.86x 4.73x 13.8x 13.9x 14.0x 25.1%

Jack in the Box Inc. 75% 111.64 98.5% 3,627 4,605 2.88x 2.83x 2.84x 13.8x 13.6x 12.1x 20.9%

Papa John's International Inc. 85% 85.58 94.6% 3,157 3,471 2.05x 2.02x 1.91x 18.0x 18.1x 16.8x 11.4%

Sonic Corp. 89% 26.51 72.9% 1,238 1,238 2.10x 2.09x 2.59x 7.3x 7.4x 7.9x 28.7%

Popeyes Louisiana Kitchen, Inc. 97% 60.48 95.8% 1,254 1,403 5.26x 5.21x 5.12x 16.2x 15.9x 14.6x 32.5%

Bojangles', Inc. 58% 18.65 92.6% 680 864 1.66x 1.62x 1.47x 10.8x 10.7x 9.9x 15.4%

Del Taco Restaurants, Inc. 45% 14.12 92.2% 553 712 1.64x 1.58x 1.49x 11.5x 10.1x 9.3x 14.2%

Nathan's Famous Inc. 98% 64.90 97.6% 271 347 3.57x NA NA 12.8x NA NA 27.9%

Papa Murphy's Holdings, Inc. 90% 4.22 32.6% 72 183 1.46x 1.41x 1.29x 8.4x 9.4x 8.9x 17.4%

Median 92.6% $3,157 $3,471 2.88x 3.34x 3.26x 13.5x 13.4x 12.4x 23.2%

Mean 86.2% $12,101 $15,881 3.18x 3.34x 3.44x 13.1x 13.3x 12.5x 24.3%








Coffee, Breakfast, and Snacks

Starbucks Corporation 47% $55.52 89.9% $81,584 $82,988 3.89x 3.81x 3.50x 17.0x 15.7x 14.0x 22.9%

Dunkin' Brands Group, Inc. 100% 52.44 93.4% 4,810 6,980 8.54x 8.43x 8.21x 16.5x 15.3x 14.6x 51.8%

Jamba, Inc. 92% 10.30 74.2% 158 144 1.75x 1.82x 1.84x NM 21.6x 12.4x NM

Median 89.9% $4,810 $6,980 3.89x 3.81x 3.50x 16.7x 15.7x 14.0x 37.3%

Mean 85.8% $28,851 $30,037 4.73x 4.68x 4.52x 16.7x 17.5x 13.7x 37.3%

REV

Franchisees

Domino's Pizza Enterprises Limited 77% $47.00 80.5% $4,265 $4,457 6.67x 5.87x 4.86x 38.4x 29.3x 22.8x 17.4%

Alsea, S.A.B. De C.V. 0% 2.88 81.5% 2,408 3,048 1.74x 1.69x 1.49x 12.6x 12.2x 10.5x 13.8%

Domino's Pizza Group plc 98% 4.45 89.0% 2,301 2,314 5.53x 5.09x 4.61x 22.8x 20.6x 18.4x 24.3%

Arcos Dorados Holdings, Inc. 26% 5.40 81.8% 1,138 1,639 0.57x 0.56x 0.52x 5.8x 7.5x 6.7x 9.7%

Carrols Restaurant Group, Inc. 0% 15.25 99.7% 668 873 0.94x 0.92x 0.86x 9.8x 9.7x 8.8x 9.6%

Median 81.8% $2,301 $2,314 1.74x 1.69x 1.49x 12.6x 12.2x 10.5x 13.8%

Mean 86.5% $2,156 $2,466 3.09x 2.83x 2.47x 17.9x 15.9x 13.4x 15.0%


6.2x

8.1x

9.7x

7.1x

8.2x 8.2x

7.4x

5.3x

10.8x

16.4x

10.0x

9.3x

11.6x

13.2x

11.2x

12.8x

8.8x

10.5x

8.6x

11.0x

9.4x

10.4x

9.6x 9.3x

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

Mass Casual Specialty Casual Polished Casual Fine Dining

2007 2012 2013 2014 2015 LTM

Source: Capital IQ; LTM values as of 12/31/2016

Segments weighted based on market cap values at period end


Mean: 11.1x

Mean: 9.4x

Mean: 9.1x

Mean: 9.2x

Historical Public Restaurant Trends

Enterprise Value as a Multiple of EBITDA


17.6x

10.9x 10.7x

8.9x

12.9x

10.2x

15.8x

11.2x

19.7x

11.3x

18.9x

13.8x

19.9x

11.5x

16.7x

13.3x

14.8x

13.5x

19.8x

16.2x

20.4x

13.1x

16.8x

14.1x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

23.0x

25.0x

Fast Casual Quick Service Coffee, Breakfast, and Snacks Franchisees

2007 2012 2013 2014 2015 LTM

Enterprise Value as a Multiple of EBITDA

Historical Public Restaurant Trends

Mean: 11.7x

Mean: 16.5x

Mean: 12.9x

Mean: 17.5x

Source: Capital IQ; LTM values as of 12/31/2016

Segments weighted based on market cap values at period end



Recent Restaurant M&A Transaction Activity

AP Franchised Concepts Invests in The Kebab Shop

On January 10, 2017, AP Franchised Concepts, a restaurant and retail

growth equity company, announced its completion of an investment in The

Kebab Shop, a California-based Mediterranean chain. Founded in 2007,

the fast-casual concept operates eight units in the Greater San Diego and

Northern California markets. The company plans to utilize the investment

to double its company-owned store footprint in the Los Angeles and

Northern California areas over the next three years.

Cheddar’s Scratch Kitchen Acquires Largest Franchisee

On January 5, 2017, Dallas-based casual dining concept Cheddar’s

Scratch Kitchen announced the completion of its acquisition of 44

restaurant locations owned by its largest franchisee, Greer Restaurant

Operation Entities. Cheddar’s financed the transaction by taking on $370M

in new debt. There are currently 164 company-owned and franchised

Cheddar’s locations in 29 states. Greer owns the Cheddar’s locations

within the Midwest and Southern regions of the U.S., which comprise

about a quarter of all Cheddar’s outlets.

Lee Equity Acquires K-MAC Enterprises

On January 3, 2017, Lee Equity acquired K-MAC Enterprises, the Fort

Smith, Arkansas franchisee and operator of 294 Taco Bell, KFC, Long

John Silver’s and Golden Corral locations. Founded in 1964, K-MAC has

over 7,500 employees across the U.S. and was acquired by Brentwood

Partners and Arlon Capital in March 2011. The acquisition was the second

restaurant acquisition by Lee Equity in 2016 and comes after the

completion of a $315M raise for its second fund.

GPS Hospitality Acquires 194 Burger King Units

On December 19, 2016, GPS Hospitality, the Atlanta, Georgia-based

franchisee and operator of Burger King restaurants, added another 194

locations in the South to its unit total count. Founded in 2012 by former

Arby’s CEO Tom Garrett, the company previously operated Burger King

locations in Indiana, Kentucky, Ohio, Georgia, and West Virginia. The

transaction brings GPS Hospitality’s total Burger King store count to 424

locations across the country, as it looks to grow the company to $1 billion

in system-wide sales by 2022.

Source: MergerMarket Group Intelligence

CITIC, Carlyle, TPG acquire McDonald’s Chinese Business for $2.1B

On January 9, 2017, Chinese state-backed conglomerate CITIC and

Carlyle agreed to acquire the majority of McDonald’s China and Hong

Kong business for $2.1B in cash. Under the deal, CITIC will own about

52% of the business while Carlyle will retain a 20% stake in the Chinese

operations. CITIC and Carlyle will look to add more than 1,500 locations in

mainland China and Hong Kong over the next five years in response to the

increased urbanization and income growth in China.

Argosy and MTN Capital Acquire Rita’s Franchise Co.

On January 3, 2017, Argosy Private Equity and MTN Capital acquired a

controlling take in Rita’s Franchise Co., a Trevose, Pennsylvania-based

Italian ice chain. Founded in 1984, the company offers Italian ice, frozen

custard, milkshakes, and other frozen treats through its 600 locations

across the U.S. Argosy and MTN Capital will look to utilize their deep

experience in the restaurant space to expand Rita’s international footprint

in the Philippines, Canada, and the Middle East.

Imvescor Restaurant Group Acquires Ben & Florentine for $19M

On December 20, 2016, Imvescor Restaurant Group, the Canadian-based

restaurant franchisee and licensing company, acquired Ben & Florentine, a

Saint-Laurent, Canada-based polished casual operator of brunch and

dinner restaurants, for $19M in cash. Ben & Florentine was founded in

2009 and now operates 40 locations across Quebec, Ontario and

Manitoba. Imvescor will look to utilize the acquisition to expand upon its

success in the polished casual franchising category. The multiple for the

transaction was 0.71x Ben & Florentine’s LTM revenue of $26.8M.

Stripes Groups Invests in Snooze

On December 5, 2016, New York-based private equity and venture capital

firm Stripes Group completed an investment in Snooze, the Denver,

Colorado-based fast casual concept which specializes in brunch and

dinner dishes. Founded in 2006, the company is committed to locally

sourced ingredients and composting 90% of wastes from each of its

stores. Stripes Group will look to continue to expand the concept across

the Southwestern market, as well as new geographical areas in the

coming year.


Selected Recent Duff & Phelps Restaurant Transactions

has secured senior debt

financing from

has been acquired by


has been acquired by has completed a going-

private transaction.

Sell-Side Advisor

Sell-Side Advisor

Placement Agent

Sell-Side Advisor

Sell-Side Advisor


Board Advisor


Sell-Side Advisor


Sell-Side Advisor

has completed a leveraged

dividend recapitalization

transaction.

Board Advisor

has completed a spin-off of

Four Corners Property

Trust.

Board Advisor



Joshua Benn Global Head of Restaurants

Retail, Consumer and Food

New York

+1 212 450 2840

[email protected]

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Duff & Phelps Restaurant Monthly | January 2017

Darren Gange Managing Director

New York

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Farzad Mukhi Director

Los Angeles

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London

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