Restaurant.org/Research Annika Stensson Director Research Communications National Restaurant Association Washington, D.C. @WeRRestaurants /RestaurantDotOrg Restaurant.org/Research /NationalRestaurantAssociation

Agenda Overview Economic Backdrop Consumer Trends Technology Trends Food Trends Wrap-Up

Industry Overview

DEFINITION: “Restaurant Industry” “Food Away from Home” All meals/snacks prepared away from home, including all takeout meals and beverages.

Restaurant Industry 2015 Source: National Restaurant Association, 2015 Restaurant Industry Forecast

45 Years of Restaurant Industry Sales (1971-2015) Source: National Restaurant Association, 2015 Restaurant Industry Forecast

An Economic Powerhouse Annual sales are larger than 90% of the world’s economies. Sales will grow by $26 billion in 2015 – more than double Hollywood’s annual domestic box office sales.

Foodservice Sales by Segment Tableservice Quickservice & Fast Casual $220 billion $201 billion $213 billion $193 billion 2.9% 4.3% 2014 2015 2014 2015 Snack & Nonalcoholic Beverage Bars Retail Hosts $33 billion $41 billion $31 billion $38 billion 5.2% 5.7% 2014 2015 2014 2015 8 Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Restaurant Sales Growth in 2015 (Projected) Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Restaurant Employment Growth 2015 to 2025 (Projected) Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Where Do Consumers Spend? SPENDING CATEGORY PERCENT OF TOTAL Housing 34% Transportation 18% Food 13% Insurance/pensions 11% Health care 7% Entertainment 5% Apparel and services 3% Other 9% Total 100% Source: Bureau of Labor Statistics, 2013 Consumer Expenditure Survey; National Restaurant Association

Restaurant Industry’s Share of the Food Dollar 1955 Present 1955: 25% 2015: 47% Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Economic Backdrop

Gradual improvement continues 2015 U.S Economic Outlook Gradual improvement continues INDICATOR 2014 2015 Real Gross Domestic Product 2.4% 3.4% Real Disposable Personal Income 3.1% Consumer Price Index 1.7% 2.0% Total U.S. Employment 1.9% 2.2% Source: National Restaurant Association, projections as of December 2014

Economy 2M Jobs Above Pre-Recession Peak 15 Economy 2M Jobs Above Pre-Recession Peak 31 states have more jobs than before losses started in Feb. 2008 National average: 1.4% more jobs Source: Bureau of Labor Statistics

Restaurants Added More Than 360,000 Jobs During 2014 Eating-and-drinking-place employment – change from previous month Source: Bureau of Labor Statistic; figures are seasonally-adjusted

Consumer Confidence Remains Near Post-Recession Highs U.S. Consumer Confidence Index Source: The Conference Board

Gas Prices Fell Sharply in the Last Half of 2014 Average price per gallon for regular gasoline Down $1.49 Since End of June Jan-15 Source: U.S. Department of Energy, Energy Information Administration

Rising Food Costs is Top Challenge DECEMBER 2014 Food Costs 31% Government 20% Sales Volume 14% Recruiting Employees 13% The Economy 8% DECEMBER 2012 The Economy 29% Government 24% Food Costs 18% Sales Volume 10% Recruiting Employees 5% DECEMBER 2013 Government 30% The Economy 21% Recruiting Employees 11% Food Costs 10% Sales Volume 10% Source: National Restaurant Association, Restaurant Tracking Survey 19

Wholesale Food Prices Post Strongest Growth in 3 Years Annual growth in Producer Price Index – All food Source: Bureau of Labor Statistics

Menu Price Growth Remains Moderate Annual growth in Consumer Price Index – Food Away from Home Source: Bureau of Labor Statistics

Share of total restaurant spending by household income level Higher-Income Households Prime Restaurant Customers Share of total restaurant spending by household income level Source: Bureau of Labor Statistics, 2013

International arrivals to the United States (in millions) International Travel and Tourism Continues to Rise International arrivals to the United States (in millions) Source: U.S. Department of Commerce, Office of Travel and Tourism Industries *Projected

Consumer Trends

Quality Time Consumers who say dining out is a better use of time than cooking and cleaning up. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Unique Experiences Consumers who say restaurants provide tastes and flavors that aren’t easily duplicated at home. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Top Attributes for Choosing a Restaurant Good service Food quality Good value Favorite items on the menu Convenient location to home or work Healthy menu items Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Noticing Healthful Options Consumers who say there are more healthful options on restaurant menus now than two years ago. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Choosing Healthy Options Consumers who say they are more likely to choose a restaurant that offers healthy menu options. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Actually Choosing Healthy Options Consumers who say they are ordering more healthful options in restaurants now than two years ago. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Opting for Local Sourcing Consumers who say they are more likely to visit a restaurant that offers locally sourced food items. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Eco-Friendly Matters Consumers who say they are more likely to visit a restaurant that offers organic or environmentally friendly food. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Adventurous Palates Consumers who say they are more adventurous in their restaurant food choices now than two years ago. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Different Kind of Takeout Consumers who say they would buy fresh, uncooked food items from restaurants. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Consumers who wish restaurants served breakfast items all day Breakfast for Dinner Consumers who wish restaurants served breakfast items all day 35 Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Technology Trends

Consumers who factor in technology when choosing a restaurant. Tech Influences Consumers who factor in technology when choosing a restaurant. Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Smartphone/Tablet Ownership or Usage All adults 70% 18-34 90% 35-44 89% 45-54 62% 55-64 60% 65+ 34% Source: National Restaurant Association, October 2014

Consumers More Likely to Use Restaurant Technology Compared to two years ago Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Restaurant Technology Usage Percent of adults Look up restaurant locations, directions and hours of operation 88% Look at menus 70% Read reviews from apps or sites like Yelp and TripAdvisor 57% Use rewards or special deals 54% Order takeout or delivery directly from a restaurant’s website or branded app Source: National Restaurant Association, 2015 Restaurant Industry Forecast – Base own/use smartphone/tablet

Restaurant Technology Usage Percent of adults Look up restaurant nutrition information 49% Make reservations 43% Pay for meals 26% Order takeout or delivery via an aggregate service like Seamless or GrubHub 22% Source: National Restaurant Association, 2015 Restaurant Industry Forecast – Base own/use smartphone/tablet

Technology Is Growing 79% of consumers say tech options increase convenience 70% say tech options speed up service 70% say tech options increase order accuracy 37% of consumers report technology makes restaurant visits and ordering more complicated Source: National Restaurant Association, 2015 Restaurant Industry Forecast

What’s In It for Restaurateurs? 45% of consumers say tech options make dining out more fun 35% say tech options make them choose one restaurant over another 34% say tech options make them dine out or order takeout/delivery more often Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Food Trends

What’s Hot in 2015 1) Local meat/seafood 6) New cuts of meat Tableservice Restaurants 1) Local meat/seafood 6) New cuts of meat 2) Local produce 7) Hyper-local 3) Sustainability 8) Sustainable seafood 4) Healthy kids’ meals 9) Food waste reduction 5) Natural ingredients 10) Farm-branding Source: National Restaurant Association, What’s Hot in 2015 chef survey

What’s Hot in 2015 1) Gluten-free items 6) Gourmet grilled cheese Limited-Service Restaurants 1) Gluten-free items 6) Gourmet grilled cheese 2) Sustainability 7) Build-your-own 3) Local produce 8) Healthy kids’ meals 4) Kids’ veggie sides 9) Local meat/seafood 5) Mini-desserts 10) Milk/juice in kids’ meals Source: National Restaurant Association, 2015 Restaurant Industry Forecast

What’s Hot in 2015 1) Artisan spirits 2) Local beer/wine/spirits ALCOHOL 1) Artisan spirits 2) Local beer/wine/spirits 3) Onsite barrel-aged drinks 4) Regional signature cocktails 5) Culinary cocktails Source: National Restaurant Association, What’s Hot in 2015 chef survey

Movers & Shakers in 2015 Underutilized fish Ethnic condiments Ramen Warming trends Underutilized fish Ethnic condiments Ramen Southeast Asian cuisine Gourmet grilled cheese (QSR) Mini-desserts (QSR) Source: National Restaurant Association

What’s Hot in 2015 Local sourcing Environmental sustainability Umbrella trends Local sourcing Environmental sustainability Nutrition/Kids’ nutrition Ethnic cuisines and flavors Source: National Restaurant Association

Perennial Favorites in 2015 Tableservice restaurants 1) Barbecue 6) Oatmeal 2) Italian cuisine 7) Comfort foods 3) Fried chicken 8) Fruit desserts 4) French toast 9) Pulled pork 5) Frying 10) Chicken wings Source: National Restaurant Association, What’s Hot in 2015 chef survey

Perennial Favorites in 2015 Limited-service restaurants 1) French fries 6) Hamburgers 2) Poultry items 7) Side salads 3) Bacon 8) Onion rings 4) Bottled water 9) Soft drinks 5) Beef items 10) Pizza Source: National Restaurant Association, 2015 Restaurant Industry Forecast

TOP Developments : Food & Menu Future Trends TOP Developments : Food & Menu There will be significant upgrades in product quality and emphasis on “fresh.” Local sourcing will become more prevalent. Healthy eating will continue to grow. There will be a greater demand for authentic items and flavor profiles. Fresh produce options will become more plentiful. Source: National Restaurant Association, Restaurant Industry 2020

Wrap-Up

Americans Love Restaurants Consumers who say they enjoy going to: 90% 66% Restaurants Grocery stores Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Consumers who are NOT dining out as often as they would like Unfilled Demand Consumers who are NOT dining out as often as they would like Source: National Restaurant Association, 2015 Restaurant Industry Forecast

Restaurant Operators Are More Optimistic about Sales Growth Operators’ outlook for sales in six months vs. same period previous year Source: National Restaurant Association

Key Takeaways Real sales growth for sixth consecutive year. Food cost growth will remain a challenge. While consumer confidence will improve, they will still be managing their check and need “nudging.” Positive future despite challenges. More technology integration to aid productivity and boost loyalty. Average Americans are turning into “foodies.” Local sourcing, environmental sustainability, nutrition and ethnic cuisine are key menu trends.

Restaurant.org/Research Annika Stensson Director Research Communications National Restaurant Association astensson@restaurant.org @WeRRestaurants /RestaurantDotOrg Restaurant.org/Research /NationalRestaurantAssociation