Changewave Research: Restaurant Spending

ChangeWave Research: Restaurant Spending

ChangeWave Research Report:

Restaurant Spending Benchmark

Restaurant Spending Slows – Upscale & Moderately Expensive ChainsHardest Hit

Overview

Our AugustConsumer Spending survey picked up a slowdown inRestaurant spending. To follow-up,we went back to learn more about the Alliance’s Restaurant spending habits. The survey was conducted September 15 -19, and a total of 1,320 members participated.

Bottom Line: The survey results affirm thatan overall decline isoccurring in restaurant spending, particularly among “upscale” and “moderately expensive” restaurants. Budget constraints and gas/energy prices are the top reasons cited by respondents for decreasedspending.

While respondents report they’redining out less frequently and at less expensive restaurants, somechains – like Panera Bread and Olive Garden –appear to be thriving and show continuedmomentum going forward.

(A) Overall Trends

Decline in Restaurant Spending. We asked respondents about their restaurant spending patterns over the next 90 days, and 29% said their spending would decrease compared to the previous 90 days. Only 18% said their restaurant spending would increase (Net Difference Score = -11).

Dining Less Frequently and at Less Expensive Restaurants. One half (50%) of those reporting a change in their restaurant spending habits say they will be dining out less frequently, compared to 31% who saythey’ll be dining out more frequently (Net Difference Score = -19). Similarly, 27% say they’ll dine at less expensive restaurants, compared to just 10% who say more expensive (Net Difference Score = -17).

Reasons for the Decline. Respondents cited Budget Constraints (30%) and Gas Prices (27%) as the top reasons their restaurant spending is decreasing.

Upscale and Moderately Expensive Restaurants Hardest Hit. Respondents say they’ll be spending less at all types of restaurants, but Upscale establishments($25 or More Per Person; Net Difference Score = -16) and Moderately Expensive establishments($15-25 Per Person; Net Difference Score = -14) have been hardest hit.

(B) Restaurant Chains – Spending Patterns

While overall restaurant spending is declining, some chains are thriving and show continued momentum going forward.

Restaurants Showing Momentum: Panera Bread (PNRA) andOlive Garden (DRI) were the restaurants chains showing the most overall momentum in the survey.
On the down side, Chili’s (EAT), Denny’s (DENN) and Cracker Barrel (CBRL) were the restaurant chainsthathadthe most respondents saying they’dbe dining there less frequently than usual.

Overall Favorite Restaurants. Respondents chose Outback Steakhouse (9%) as their overall favorite restaurant, followed by Panera Bread (7%) and Olive Garden (7%).

Summary of Key Findings

The ChangeWave Alliance is a group of 5,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 2

The Findings...... 4

(A)Overall Trends...... 4

(B)Restaurant Chains - Spending Patterns...... 8

ChangeWave Research Methodology...... 13

About ChangeWave Research...... 14

I. The Findings

Introduction

Our August Consumer Spending survey picked up a slowdown in Restaurant spending. To follow-up, we went back to learn more about the Alliance’s Restaurant spending habits. The survey was conducted September 15 -19, 2005.

Total Respondents (n = 1,320)

(A) Overall Trends

(1) Question Asked: Thinking about your restaurant spending patterns over thenext 90 days, would you say you will increase your spending, decrease your spending, or will your restaurant spending remain the same compared to the previous 90 days?

Increased Spending Over Next 90 Days / 18%
Decreased Spending Over Next 90 Days / 29%
Spending Same Amount of Money But Differently Over Next 90 Days / 9%
Spending Same Amount of Money / 42%
Don't Know / 2%

Decline in Restaurant Spending. We asked respondents about their restaurant spending patterns over the next 90 days, and 29% said their spending would decrease compared to the previous 90 days. Only 18% said their restaurant spending would increase (Net Difference Score = -11).

(1A) Question Asked: For those who say your restaurant spendingwill decrease, what is the primary reason your spending will decrease?(n=308)

Budget Constraints/Other Expenses / 30%
Gas/Energy Prices / 27%
Less Travel/Vacation / 15%
Change of Seasons/Holidays Approaching / 7%
Change in Job/Lifestyle / 5%
Diet/Healthier Eating / 5%
Other / 12%

Reasons for the Decline. Respondents cited Budget Constraints (30%) and Gas Prices (27%) as the top reasons their restaurant spending is decreasing.

These next several questions were asked only of respondents who say restaurant spending will change (increase, decrease, same but different) over the next 90 days.

(2A) Question Asked: Will you be dining at restaurants more frequently, less frequently, or about the same amount over the next 90 days as you did during the previous 90 days? (n=742)

More Frequently Than Previous 90 Days / 31%
Less Frequently Than Previous 90 Days / 50%
Same Amount as Previous 90 Days / 16%
Don't Know/No Answer / 3%

(2B) Question Asked: Will you be dining at more expensive restaurants, less expensive restaurants, or similar priced restaurants over the next 90 days as you did during the previous 90 days? (n=742)

More Expensive Restaurants Than Previous 90 Days / 10%
Less Expensive Restaurants Than Previous 90 Days / 27%
Similar Priced Restaurants as Previous 90 Days / 57%
Don't Know / 5%

Dining Less Frequently and at Less Expensive Restaurants. One half (50%) of those reporting a change in their restaurant spending habits say they will be dining out less frequently, compared to 31% who say they’ll be dining out more frequently (Net Difference Score = -19). Similarly, 27% say they’ll dine at less expensive restaurants, compared to just 10% who say more expensive (Net Difference Score = -17).

These next two questions focus on actual restaurant spending.

(3) Question Asked: Please estimate the average amount you and/or your family have spent per person when eating out at a restaurant over the past 90 days?

(3A) Question Asked: Looking ahead, please estimate the average amount you and/or your family will likely spend per person when eating out at a restaurant over the next 90 days?

Spending
Per Person Past 90 Days / Spending
Per Person Next 90 Days / Net Difference Score
$5 or less / 1% / 2% / +1
$5-10 / 13% / 16% / +3
$10-15 / 32% / 33% / +1
$15-25 / 33% / 29% / -4
$25 or More / 18% / 17% / -1
Didn't Spend/Don't Plan to Spend Anything Over the Past/Next 90 Days / 0% / 1% / -1

Less Spending Per Person. The biggest average per person spending decline for the next 90 days is among those spending $15-25 per person (Net Difference Score = -4). In contrast, average per person spending of $5-10 (+3) shows the biggest increase.

These next few questions focus on dining habits.

(4) Question Asked: Looking back at your restaurant spending over the last 90 days, how often did you and/or your family dine at the following types of restaurants?

Several times a week / About once a week / Once or twice a month / A few times a year / Never
(a) Upscale Dining Restaurants – $25 or More Average Per Person (e.g., Ruth's Chris Steakhouse, Morton's) / 3% / 10% / 25% / 42% / 19%
(b)Moderately Expensive Restaurants–$15-25 Average Per Person (e.g., Outback Steakhouse, Cheesecake Factory) / 6% / 24% / 38% / 27% / 4%
(c) Casual Dining Restaurants –$10-15 Average Per Person (e.g., Bennigan's, Applebee's) / 9% / 31% / 33% / 20% / 6%
(d) Family Style/Quick Service Restaurants – $5-10 Average Per Person (e.g., Panera Bread, Corner Bakery, Denny's, Friendly's) / 14% / 23% / 26% / 23% / 12%
(e) Fast Food Restaurants – $5 or Less Average Per Person (e.g., McDonald's, Wendy's, Taco Bell) / 16% / 23% / 22% / 23% / 14%

(5) Question Asked: Looking ahead to the next 90 days, please tell us if you and/or your family will be spending more money on Restaurants, less money, or the same amount of money compared with the previous 90 days.

Spending More Money / Spending Less Money / Net Difference Score
(a) Upscale Dining Restaurants – $25 or More Average Per Person (e.g., Ruth's Chris Steakhouse, Morton's) / 9% / 25% / -16
(b) Moderately Expensive Restaurants – $15-25 Average Per Person (e.g., Outback Steakhouse, Cheesecake Factory) / 11% / 25% / -14
(c) Casual Dining Restaurants – $10-15 Average Per Person (e.g., Bennigan's, Applebee's) / 10% / 19% / -9
(d) Family Style/Quick Service Restaurants – $5-10 Average Per Person (e.g., Panera Bread, Corner Bakery, Denny's, Friendly's) / 8% / 15% / -7
(e) Fast Food Restaurants – $5 or Less Average Per Person (e.g., McDonald's, Wendy's, Taco Bell) / 5% / 15% / -10

Upscale and Moderately Expensive Restaurants Hardest Hit. Respondents say they’ll be spending less at all types of restaurants, but Upscale establishments ($25 or More Per Person; Net Difference Score = -16) and Moderately Expensive establishments ($15-25 Per Person; Net Difference Score = -14) have been hardest hit.

(B) RestaurantChains - Spending Patterns

While overall restaurant spending is declining, some chains are thriving and showing momentum going forward.

Restaurants Showing Momentum: Panera Bread (PNRA) and Olive Garden (DRI) were the restaurants chains showing the most overall momentum in the survey.
On the down side, Chili’s (EAT), Denny’s (DENN) and Cracker Barrel (CBRL) led the other restaurants in terms of having the most respondents who said they would be dining there less frequently than usual.

Chart 1
Restaurant ChainsShowing Momentum
(Ranked by Overall Company) / Price Level / # of Outlets / Last 90 Days:Dining at More Frequently vs. Less Frequently – Net Difference Score1 / Next 90 Days:Spending More Money vs. Less Money
– Net Difference Score2 / Overall Favorite Restaurant3
Panera Bread (PNRA) / $ / 740 / +7 / +5 / 7%
Darden Restaurants (DRI)
Olive Garden / $$ / 547 / +3 / +5 / 7%
Red Lobster / $$ / 680 / -2 / +2 / 5%
International House of Pancakes (IHOP; IHP) / $ / 1198 / +1 / +2 / 3%
Cheesecake Factory (CAKE) / $$$ / 96 / 0 / +2 / 4%
P.F. Chang's China Bistro (PFCB) / $$$ / 116 / -1 / +3 / 6%
Outback Steakhouse Inc. (OSI)
Outback Steakhouse / $$$ / 888 / -4 / +2 / 9%
Carrabba's Italian Grill / $$$ / 176 / +1 / +2 / 3%
Bonefish Grill / $$$ / 72 / 0 / +1 / 1%
Bertucci's Brick Oven Pizzeria / $$$ / 90 / +2 / +1 / 1%
Bennigan's / $$ / 400 / +1 / +1 / 0%
Chart 2
Restaurant Chains Showing Signs of A Slowdown
(Ranked by Overall Company) / Price Level / # of Outlets / Last 90 Days:
Dining at More Frequently vs. Less Frequently – Net Difference Score1 / Next 90 Days: Spending More Money vs. Less Money
– Net Difference Score2 / Overall Favorite Restaurant3
Denny's (DENN) / $ / 1603 / -4 / 0 / 3%
CBRL Group (CBRL)
Cracker Barrel / $ / 506 / -4 / +1 / 2%
Logan's Roadhouse / $$$ / 133 / +1 / 0 / 1%
Brinker International (EAT)
Chili's Grill & Bar / $$ / 1000 / -6 / +2 / 4%
On The Border Mexican Grill / $$ / 135 / 0 / +1 / 1%
Corner Bakery Cafe / $ / 90 / 0 / +1 / 0%
Romano's Macaroni Grill / $$$ / 235 / -1 / +1 / 4%
Maggiano's Little Italy / $$$ / 33 / -1 / 0 / 1%
Ruth's Chris Steak House (RUTH) / $$$$ / 86 / -1 / -1 / 4%
Landry's Restaurants (LNY)
Joe's Crab Shack / $$$ / 131 / -1 / -1 / 1%
Rainforest Café / $$$ / 26 / 0 / -1 / 0%
Chart House / $$$$ / 27 / 0 / -1 / 1%
Ryan's Restaurant (RYAN) / $$ / 276 / 0 / -1 / 1%
Smith & Wollensky (SWRG) / $$$$ / 16 / 0 / -1 / 1%
Fox and Hound (FOXX) / $$$ / 59 / 0 / -1 / 0%
McCormickSchmick's Seafood (MSSR) / $$$$ / 54 / 0 / -1 / 3%
O'Charley's Inc. (CHUX)
O'Charley's / $$$ / 221 / 0 / 0 / 1%
Ninety Nine Restaurant / $$ / 99 / 0 / -1 / 0%
RARE Hospitality International (RARE)
LongHorn Steakhouse / $$$ / 224 / 0 / 0 / 1%
Bugaboo Creek Steak House / $$$ / 28 / 0 / -1 / 0%
Benihana (BNHN) / $$$ / 93 / -1 / 0 / 1%
Tony Roma's / $$$ / 260 / -2 / 0 / 1%
Chart 3
Restaurant ChainsShowing
Little to No Change
(Ranked by Overall Company) / Price Level / # of Outlets / Last 90 Days: Dining at More Frequently vs. Less Frequently – Net Difference Score1 / Next 90 Days: Spending More Money vs. Less Money
– Net Difference Score2 / Overall Favorite Restaurant3
Bob Evans Farms (BOBE)
Mimi's Café / $$ / 92 / +1 / +1 / 2%
Bob Evans / $ / 591 / 0 / 0 / 1%
Buca di Beppo (BUCA) / $$$ / 94 / 0 / +1 / 1%
Ruby Tuesday (RL) / $$ / 825 / 0 / +1 / 2%
Red Robin (RRGB) / $$ / 275 / 0 / +1 / 2%
Steak 'n Shake (SNS) / $ / 430 / 0 / +1 / 1%
LegalSea Foods / $$$$ / 32 / +1 / 0 / 5%
Texas Roadhouse (TXRH) / $$$ / 193 / +1 / 0 / 2%
Chevy's Fresh Mex / $$ / 131 / +1 / 0 / 1%
Cosi (COSI) / $ / 92 / +1 / 0 / 0%
Applebee's (APPB) / $$ / 1700 / -1 / +1 / 6%
Main Street Restaurant (MAIN)
TGI Fridays / $$ / 759 / -1 / +1 / 3%
California Pizza Kitchen (CPKI) / $$$ / 175 / -1 / +1 / 2%
Frisch's Restaurants (FRS)
Big Boy / $ / 118 / -1 / +1 / 0%
Golden Corral / $ / 472 / -1 / +1 / 1%
Fuddruckers / $ / 202 / -1 / +1 / 0%
Famous Dave's (DAVE) / $$ / 109 / 0 / 0 / 1%
ELXSI Corp. (ELXS)
Bickford's Family Restaurants / $ / 63 / 0 / 0 / 0%
Friendly's (FRN) / $ / 535 / 0 / 0 / 0%
Max & Erma's (MAXE) / $$ / 100 / 0 / 0 / 0%
Nathan's Famous (NATH)
Kenny Rogers Roasters / $ / 50 / 0 / 0 / 0%
Miami Subs / $ / 85 / 0 / 0 / 0%
Rank Group (RNK.L)
Hard Rock Café / $$$ / 122 / 0 / 0 / 1%
Lone Star Steakhouse & Saloon (STAR) / $$$ / 251 / 0 / 0 / 1%
Worldwide Restaurant Concepts (SZ)
Sizzler / $$ / 311 / 0 / 0 / 0%
WesterN SizzliN (WSZZ.OB) / $$ / 154 / 0 / 0 / 0%
Perkins Restaurant & Bakery / $ / 498 / 0 / 0 / 1%
Pizzeria Uno Chicago Bar & Grill / $$ / 190 / 0 / 0 / 1%
Roadhouse Grill (GRLL.PK) / $$$ / 80 / +1 / -1 / 0%
Rubio's Fresh Mexican Grill (RUBO) / $ / 150 / +1 / -1 / 0%

1 Question Asked: From the above list of restaurants, which ones – if any – have you and/or your family dined at more/less frequently than usual over the past 90 days? (n=326)

2 Question Asked: Looking ahead, which of the following restaurants do you think you'll be spending more/less money at over the next 90 days compared to the previous 90 days?

3 Question Asked: Finally, of all the restaurants mentioned in this survey, which one or two are your overall favorites and why?

(6) Question Asked: Finally, of all the restaurants mentioned in this survey, which one or two are your overall favorites and why?(n=899)

Overall Favorite Restaurants. Respondents chose Outback Steakhouse (9%) as their overall favorite restaurant, followed by Panera Bread (7%) and Olive Garden (7%).

Outback Steakhouse / 9%
Panera Bread / 7%
Olive Garden / 7%
Applebee's / 6%
P.F. Chang's China Bistro / 6%
Red Lobster / 5%
LegalSea Foods / 5%
Ruth's Chris Steak House / 4%
Chili's Grill & Bar / 4%
Romano's Macaroni Grill / 4%
The Cheesecake Factory / 4%
International House of Pancakes (IHOP) / 3%
TGI Fridays / 3%
McCormick & Schmick's Seafood / 3%
Carrabba's Italian Grill / 3%
Denny's / 3%
Cracker Barrel / 2%
Red Robin / 2%
Texas Roadhouse / 2%
Mimi's Café / 2%
California Pizza Kitchen / 2%
Ruby Tuesday / 2%
Other Chains Mentioned in the Survey / 34%
Local Restaurant/No Chain/Other / 36%

II. ChangeWave Research Methodology

This report presents the findings of a recent ChangeWave Alliance survey on RestaurantSpending. The survey was conducted September15– 19, 2005, and a total of 1,320Alliance members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

III. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries.

ChangeWave has a very unique asset in its 5,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.

The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change.

This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 5,000Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at

ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

ChangeWave ResearchTelephone: 301-279-4200

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Helping You Profit From A Rapidly Changing World ™

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