Restaurant Industry Overview

The restaurant industry is approximately a $550 billion industry with a broad
reach throughout the U.S. economy and society. The $550 billion sales total includes
about $390 billion of eating and drinking place sales, what investors and consumers
consider the core of the restaurant industry. The National Restaurant Association
estimates there are 945,000 restaurants throughout the country. Although our focus is
on the larger, publicly owned restaurant businesses, more than 70% of the total
restaurants in operation are run by independent operators. In addition, the larger chain
systems, especially in the quick service restaurant (QSR) or fast food sector of the
industry, are mostly franchised. In many restaurant systems, franchisees operate 80% or
more (with the emphasis on more in recent years) of the total restaurants. The large
number of independents and the franchised nature of many of the large chains make
restaurants a “Mom & Pop” industry. This is true despite the significant presence of
large chains with nationally advertised brands. Chains have been gaining market share
in both the casual dining and QSR sectors for many years.
The restaurant industry enjoyed significant growth from the 1960’s through the
1980’s as Americans shifted their lifestyles to eat more meals away from home.
This growth coincided with the increasing presence of women in the workforce and the
growth of the two-wage earner household. Two wage-earner households have more
income but less time for household tasks and this combination of greater affluence and
time pressure pushed Americans to eat more meals away from home. The American
mindset toward eating out shifted from considering it a special occasion to embracing
eating out as part of daily life. For many years, restaurant sales steadily increased as a
percentage of consumers’ overall food budget spending at the expense of more
traditional food at home sources. This shift in eating patterns seems to have been
arrested in recent years (see Exhibit 1.), perhaps reflecting cyclical pressures on the
consumer but also coinciding with a leveling of women’s participation in the work
force. The latter development suggests that this recent shift in consumers’ food
purchasing behavior may reflect secular or life style change. Nevertheless, the

National Restaurant Association is forecasting sales growth in 2008 at a 4.4% rate to a
total of $558 billion, which represents about 4% of the country’s gross domestic
product. Within that forecast, eating and drinking place sales are also expected to grow
at a 4.4% rate. Through May, eating and drinking place sales as compiled by the
Department of Commerce have grown about 5%.