MorrisAnderson

State of the Industry

• According to the National Restaurant Association’s 2011 Restaurant Industry Forecast, total restaurant-industry sales are projected to reach a record high of $604.2 billion in 2011. The estimate represents a 3.6% increase over 2010 and the first time in history that industry sales should top the $600 billion level.
• Commodity pricing continues to move higher. The American Restaurant Association Restaurant Commodity Index increased 15% in 2010 and is expected to grow another 4% in 2011.
• According to the Bureau of Labor Statistics information, menu pricing remains consistently below inflationary price increases with an overall increase of 1.9% for the twelve months ended March 2011.

Insights from our clients

• Labor costs continue to moderate as unemployment remains high in most operating areas. Operators are increasing pay rates for the better skilled and trained workers but overall rates continue to be about the same as 18-24 months ago.
• Sales trends are climbing higher with average same store sales growth above 5% for the first quarter of 2011. Operators surveyed anticipate similar growth throughout 2011.
• The financing market for under $10 million EBITDAR companies remains weak. Financing in still an issue for small and medium sized entities as bank credit availability has declined. The Small Business Administration reported that outstanding loans to small businesses dropped $43 billion or 6.2% for the period June 2009 to June 2010. About 50% of that drop was due to reducing credit availability from credit cards.

6- to 12-month Outlook

• Food costs will increase menu pricing this year. The key to profitability will be if companies can maintain guest counts without reducing total margins due to discounting and promotions.
• McDonald’s has announced price increases slated for the summer of 2011 in response to 2% commodity cost growth from their suppliers.
• Same store sales growth appears to be evening out and starting to grow. We believe that sales will increase slowly throughout the year. Holiday sales in the fourth quarter will be the bellwether; if they are solid, 2012 will be good, if they are soft, we will have limited growth in 2012.