Q2 2016BDO’S RESTAURANT PRACTICE BENCHMARKING UPDATE

THE COUNTER: Restaurant Industry Scorecard – Q2 20162

Same-store salesAs fierce competition and higher anticipated labor costs squeeze the restaurant industry, same-store sales—while net positive at 0.3 percent growth through Q2—are not quite on pace with figures reported for fiscal year 2015. This slowdown comes as restaurants report lower traffic counts, resulting from unattractive or inconvenient locations, increased menu prices, inability to market to evolving consumer preferences, and expansion of smaller chains, independents and chef-driven concepts.

Softer same-store sales do not, however, mean that restaurant openings are also on the decline. In fact, as interest rates remain low and investors eye strong yield potential in the restaurant industry, new restaurants continue to open their doors. The pizza segment experienced the most significant growth through Q2 with a same-store sales increase of 3.6 percent, led by Domino’s for the seventh consecutive quarter, reporting a 6.5 percent increase through Q2. What’s contributing to Domino’s success? It could be a combination of added healthy menu options, late-night traffic, their new loyalty program gifting free pizzas to customers with a certain amount of points, and the newly unveiled “no click ordering” on their branded app.

At 1.5 percent growth, the quick-serve segment was the only other sector to report same-store sale increases exceeding 1 percent through Q2. At the forefront of the quick-serve segment are Sonic and McDonald’s, reporting same-store sales of 3.7 percent and 3.5 percent, respectively. By adding touchscreens for ordering and payment in stores and focusing on their social media marketing, Sonic has enhanced its competitive edge in the space.

Meanwhile, McDonald’s expanded their all-day breakfast menu and implemented new technology to improve accuracy at their drive-thrus.

A stark contrast to the 4.7 percent growth posted for fiscal year 2015, the fast casual segment reported a 0.2 percent decrease in same-stores sales through Q2. Chipotle’s 26.5 percent decrease is working against the average as the brand seeks to win back

Through Q2 2016 FY 2015

BEEF POULTRY PORK CHEESE WHEAT BASKET3.3%

-10.0%

-1.6%-3.2%

-23.4%

-2.9%

-13.5%

-5.2%

-10.0%-7.1%

-3.4%-2%

Commodities

The pizza segment experienced the most significant growth through Q2, with a same-store sales increase of

3.6%.

THE COUNTER: Restaurant Industry Scorecard – Q2 2016 3

customers through their new loyalty program and burger concept. Winners of the fast casual segment through Q2 were Wingstop and Shake Shack, reporting increases of 7.9 percent and 6.9 percent, respectively. Targeting younger demographics, Wingstop added social media to their online order options. Shake Shack looked to attract customers by adding a chicken sandwich to their menu.

Commodities and cost of sales Cost of sales decreased across all segments through Q2 by an average of 0.7 percent, primarily as a result of declining commodity costs. Most notably, higher beef supplies pushed costs down by 10 percent through Q2. Some restaurants—including Taco Bell and Wendy’s—are taking this opportunity to offer customers new promotions and menu items.

Labor costs Labor costs increased across all segments for the second consecutive quarter most significantly in the fast casual segment. Between the Department of Labor’s new overtime rules, certain states’ minimum wage hikes and more stringent labor laws, reducing labor costs are top-of-mind across the industry. Being proactive in restructuring exempt positions will better position restaurants to reduce labor costs while battling lower same-store sales.

Labor increased 0.7% across all segments.

Looking ahead As the industry grows increasingly saturated and uncertainty around the potential impacts of new labor regulations drives slower same-store sales, the fight to capture consumer dollars remains heated. Winning restaurants are adjusting their strategies to appeal to their target customers’ dining habits, from how they make food decisions to their ordering and delivery preferences. For instance, knowing that Millennials seek inspiration for dining on social media, some brands are allocating more resources to building out their social media offerings. Others are considering the attractiveness of their store locations or are looking to invest in in-store technologies to improve processes and customer satisfaction.

As always, the restaurant sector remains a fast-moving business, and it’s clear that those at the front of the pack are companies demonstrating creativity, nimbleness and an entrepreneurial spirit—all necessities in a time of tight resources and growing costs.

Cost of sales

decreased 0.7% across all segments.

ABOUT THIS UPDATE: Each quarter, we compile the operating results of publicly traded restaurant companies to provide you with timely benchmarking information.

Cost of sales includes food and beverage for all segments. Quick serve and fast casual segments also include packaging costs. Labor costs include restaurant level wages, payroll, taxes and benefits.

Prior results have been restated to conform to current-year data availability.

THE COUNTER: Restaurant Industry Scorecard – Q2 20164

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Through Q2 2016 Through Q2 2015 Inc. (Dec) FY 2015 FY 2014 Inc. (Dec.)

Quick ServeSame Store Sales 1.5% 4.2%

Cost of Sales 29.7% 31.3% -1.6% 31.0% 32.0% -1.0%

Labor 29.2% 28.6% 0.6% 28.4% 28.6% -0.2%

Prime Costs 59.1% 60.0% -0.9% 59.6% 60.7% -1.1%

Fast CasualSame Store Sales -0.2% 4.7%

Cost of Sales 30.1% 30.8% -0.7% 30.7% 30.9% -0.2%

Labor 28.7% 27.6% 1.1% 27.9% 27.8% 0.1%

Prime Costs 58.9% 58.4% 0.5% 58.6% 58.8% -0.2%

CasualSame Store Sales -0.6% 1.6%

Cost of sales 28.3% 28.7% -0.3% 28.6% 28.8% -0.1%

Labor 32.3% 31.7% 0.6% 32.1% 32.3% -0.2%

Prime costs 60.6% 60.3% 0.3% 60.8% 61.1% -0.3%

Upscale CasualSame Store Sales 0.3% 1.6%

Cost of sales 27.6% 28.1% -0.5% 28.0% 28.8% -0.8%

Labor 29.8% 29.2% 0.6% 29.3% 28.9% 0.4%

Prime costs 57.6% 57.4% 0.2% 57.4% 57.8% -0.4%

PizzaSame Store Sales 3.6% 6.4%

Cost of Sales 25.6% 25.9% -0.3% 25.8% 27.7% -1.9%

Labor 30.5% 30.0% 0.5% 30.2% 29.5% 0.7%

Prime Costs 57.5% 57.0% 0.5% 57.1% 58.5% -1.4%

Grand AverageSame Store Sales 0.3% 2.9%

Cost of Sales 28.8% 29.5% -0.7% 29.4% 29.9% -0.5%

Labor 30.2% 29.5% 0.7% 29.7% 29.7% 0.0%

Prime Costs 59.2% 59.2% 0.0% 59.3% 59.8% -0.5%