RESTAURANT INDUSTRY COMMENTARY Inside This Issue QSR: The QSR segment extended its streak of positive year- over-year (“YOY”) SSS growth to eight consecutive quarters with Same-Store Sales Discussion 1 a 0.8% increase. Mexican concepts led the segment for the 12th Same-Store Sales Data 2 straight quarter with 2.0% growth, largely due to another strong Franchisor vs. Franchisee: How Much 4 quarter from Taco Bell (+4.0%). Chicken concepts lagged the segment with a 0.1% decline, driven by a 2.6% decrease for Development is Enough? Pollo Tropical, partially offset by 2.0% growth for KFC, its 12th Impact of Institutional Investors 5 consecutive quarter of growth. Domino’s (+3.9%) delivered on Franchised Restaurants another strong quarter in Q1, but its growth is showing signs of slowing. The sandwich (+1.6%) and coffee/snack (+0.8%) Published: August 2019 segments posted modest growth led by industry leaders McDonald’s (+4.5%) and Starbucks (+4.0%), respectively. Same-Store Sales Discussion Fast Casual: Results for fast casual concepts were polarized in Restaurant industry same-store sales (“SSS”) increased for the Q1, with strong performance for Chipotle (+9.9%), Shake Shack sixth straight quarter in Q1 2019 following six consecutive (+3.6%) and Noodles & Company (+3.0%), and substantial quarters of SSS declines. Of the 59 companies we follow, 37, or losses for Fuddruckers (-5.3%), Potbelly (-4.7%) and Pie Five (- 71%, generated SSS growth. 4.4%). On average, sales were slightly positive (+0.6%) for the segment. As shown in the figure below, long-term performance, measured over 3-, 5- and 10-year periods, has been most Family Dining: Family dining extended its positive streak of YOY consistent in QSR. Fast casual provided the most growth over growth posting a modest increase of 0.2% with strong results the past 10 years; however, the segment was negative over the for Chuck E Cheese (+7.7%) offset by another weak quarter for past three years, as was the family dining segment. Fine dining Steak n Shake (-7.9%), which turned in the worst results in the led the industry with 1.7% growth in Q1 2019, extending its segment for the 4th consecutive quarter and extended its losing positive streak to three consecutive quarters. streak to 10 quarters. Cumulative Q1 2019 SSS by Segment Casual Dining: The casual dining segment posted positive quarterly results for the sixth consecutive quarter with SSS Limited Service growth of 1.2%. Texas Roadhouse (+5.2%) led the segment 0.8% marking its 37th consecutive positive quarter. Other strong 1.6% QSR 10.7% performers included BJ’s (+2.0%), which also produced strong 23.3% results in every quarter of 2018, and Olive Garden (+4.3%), which 0.6% (2.5%) has consistently outperformed the segment, Texas Roadhouse Fast Casual 2.1% excluded, over the past few years. On the other hand, Red Robin 34.2% (-3.3%) lagged the segment, marking its 5th straight quarter of Full Service 0.2% (2.3%) negative SSS. Family Dining 4.1% 9.1% Fine Dining: All fine dining concepts that report SSS served up 1.2% 0.6% positive results in Q1, as the segment led the restaurant industry Casual Dining Full Service 4.5% with a 1.7% SSS increase. Capital Grille (+4.3%) and Ruth’s Chris 12.3% (+1.8%) led the pack, while Fleming’s (+0.6%) and Del Frisco’s 1.7% 0.5% Grille (+0.2%) delivered lower growth. Fine dining steak chains Fine Dining 7.1% continued to be outperformed by casual steak chains in Q1 28.7% 2019. (10.0%) – 10.0% 20.0% 30.0% 40.0% 1-Year 3-Year 5-Year 10-Year Contributing Editor Aaron Edwards is a Vice President at Trinity Capital. Source: Company filings; Technomic, Inc. Page | 1 RESTAURANT INDUSTRY COMMENTARY Same-Store Sales Data FY 2016 FY 2017 FY 2018 FY 2019 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 QSR Chicken Bojangles(1) 0.2% 0.8% 2.4% (1.7%) (1.4%) (2.2%) (3.1%) (0.6%) (0.2%) 0.4% N/A N/A KFC Same-Store Sales Data2.0% 6.0% 4.0% 2.0% 2.0% 1.0% 1.0% 0.0% 1.0% 1.0% 1.0% 2.0% Pollo Tropical (1.4%) (1.0%) (4.0%) (6.7%)FY 2016(7.7%) (10.9%) (0.1%) 2.8% 3.4%FY 20176.5% (1.9%) (2.6%) FY 2018 Popeye's 0.0% 1.5% Q13.0% (0.4%)Q2 (3.3%)Q3 (2.6%)Q4 (2.5%) Q12.3% Q21.8% (0.2%)Q3 (0.1%)Q4 0.4% Q1 Q2 Q3 Q4 Mean 0.2% 1.8% 1.4% (1.7%) (2.6%) (3.7%) (1.2%) 1.1% 1.5% 1.9% (0.3%) (0.1%) QSR Coffee/Snack Chicken Baskin RobbinsBojangles 0.6% (0.9%) 0.9%2.0% (2.4%)0.2% (0.9%)0.8% 0.4% 2.4%5.1% (1.7%)(1.0%) (1.4%)(4.0%) 1.8%(2.2%) (3.7%)(3.1%)(2.8%) (0.6%) (0.2%) 0.4% N/A Dunkin Donuts KFC 0.5% 2.0% 1.9%1.0% 0.0%2.0% 0.8%6.0% 0.6% 4.0%0.8% 2.0%(0.5%) 1.4%2.0% 1.3%1.0% 0.0%1.0% 2.4% 0.0% 1.0% 1.0% 1.0% (2) Jamba Juice Pollo Tropical 4.2% (1.1%) (2.2%)0.0% (5.8%)(1.4%) 0.0%(1.0%) N/A(4.0%)2.9% (6.7%)2.3% (7.7%)2.4% (10.9%)N/A N/A(0.1%) N/A 2.8% 3.4% 6.5% (1.9%) Starbucks Same-Store Sales Data4.0% 4.0% 3.0% 3.0% 5.0% 2.0% 2.0% 2.0% 1.0% 4.0% 4.0% 4.0% Popeye's 1.1% 0.0% 1.5% 3.0% (0.4%) (3.3%) (2.6%) (2.5%) 2.3% 1.8% (0.2%) (0.1%) Tim Horton's 5.9% 4.5% 3.6% (0.1%) FY(0.8%) 2016 0.3% 0.1% 0.1% 0.0% FY 20170.6% 1.9% (0.6%) FY 2018 Mean 1.0% 0.2% 1.8% 1.4% (1.7%) (2.6%) (3.7%) (1.2%) 1.1% 1.5% 1.9% (0.3%) Mean 3.0% 1.7% 1.4%Q1 (1.1%)Q2 0.8% Q3 0.8% Q42.2% 0.6%Q1 0.2%Q2 1.9%Q3 0.6% Q4 0.8% Q1 Q2 Q3 Q4 M exican Coffee/SnackQSR Del Taco BaskinChicken Robbins 3.3% 6.7% 5.5%5.0% 4.2%0.6% 7.1% (0.9%) 4.1% 0.9%2.4% (2.4%)3.7% (0.9%)3.3% 1.4%0.4% 1.9% 5.1%(0.1%) (1.0%) (4.0%) 1.8% (3.7%) Taco Bell DunkinBojangles Donuts (1.0%) 3.0% 3.0%2.0%2.0% 8.0%0.5%0.2% 4.0% 2.0%0.8% 3.0% 1.9%2.4%2.0% 0.0%(1.7%)1.0% 1.9%0.8%(1.4%) 5.0%0.6%(2.2%) 6.0% 0.8%(3.1%) 4.0% (0.5%)(0.6%) 1.4%(0.2%) 1.3%0.4% 0.0%N/A Mean JambaKFC Juice 1.2% 4.9% (2.1%)4.3%1.0% 6.1%4.2%2.0% 5.6% (1.1%)6.0% 3.6% (2.2%)4.0%2.2% (5.8%)2.4%2.0% 2.6%0.0%2.0% 2.8%N/A1.0% 2.8% 2.9%1.0% 2.0% 2.3%0.0% 2.4%1.0% N/A1.0% N/A1.0% Pizza StarbucksPollo Tropical 7.0%0.0% 4.0%(1.4%) 4.0%(1.0%) 3.0%(4.0%) 3.0%(6.7%) 5.0%(7.7%) (10.9%)2.0% 2.0%(0.1%) 2.0%2.8% 1.0%3.4% 4.0%6.5% 4.0%(1.9%) Domino's TimPopeye's Horton's 9.7% 13.0% 12.2%5.8%1.1% 10.2% 5.9%0.0% 9.5% 4.5%1.5% 8.4% 3.6%3.0%4.2% (0.1%)(0.4%)8.3% (0.8%)6.9%(3.3%) 6.3%0.3%(2.6%) 5.6% 0.1%(2.5%) 3.9% 0.1%2.3% 0.0%1.8% 0.6%(0.2%) 1.9%(0.1%) Papa John's MeanMean 4.8% 5.5% 3.8%3.5%1.0% 2.0%3.0%0.2% 1.4% 1.7%1.8% 1.0% 1.4%1.4%(3.9%) (1.1%)(5.3%)(1.7%) (6.1%)0.8%(2.6%) (9.8%)0.8%(3.7%) (8.1%) 2.2%(1.2%)(6.9%) 0.6%1.1% 0.2%1.5% 1.9%1.9% 0.6%(0.3%) Papa Murphy's (4.0%) (5.8%) (7.8%) (5.0%) (4.3%) (4.1%) (2.6%) (3.9%) (2.4%) (2.1%) (1.3%) N/A Mexican Pizza Hut Coffee/Snack 1.0% (2.0%) (4.0%) (7.0%) (3.0%) 0.0% 2.0% 4.0% 0.0% 1.0% 1.0% 0.0% Pizza Inn DelBaskin Taco Robbins 0.3% 0.2% (1.2%)3.2%5.0% 0.1%3.3%0.6% (9.5%) 6.7%(0.9%) 1.4% 5.5%0.9%2.7% 4.2%(2.4%)2.3% 2.5%7.1%(0.9%) 2.3%4.1%0.4% 2.7% 2.4%5.1% 3.3% 3.7%(1.0%) 3.3%(4.0%) 1.4%1.8% 1.9%(3.7%) Mean TacoDunkin Bell Donuts 2.4% 2.2% 1.0%0.6%2.0% 0.1%(1.0%)0.5% (1.2%) 3.0%2.0% 1.3% 3.0%1.9%0.5% 8.0%1.1%0.0% 0.2%4.0%0.8% (0.5%)3.0%0.6% (0.0%) 2.0%0.8% 0.1% 1.0%(0.5%) 1.9%1.4% 5.0%1.3% 6.0%0.0% MeanJamba Juice 2.1%(2.1%) 1.2%4.2% 4.9%(1.1%) 4.3%(2.2%) 6.1%(5.8%) 5.6%0.0% 3.6%N/A 2.2%2.9% 2.4%2.3% 2.6%2.4% 2.8%N/A 2.8%N/A Sandwich Starbucks 7.0% 4.0% 4.0% 3.0% 3.0% 5.0% 2.0% 2.0% 2.0% 1.0% 4.0% 4.0% Burger King Pizza (0.8%) (0.5%) 1.8% (2.2%) 3.0% 4.0% 5.1% 4.2% 1.8% (0.7%) 0.8% 0.4% Tim Horton's 5.8% 5.9% 4.5% 3.6% (0.1%) (0.8%) 0.3% 0.1% 0.1% 0.0% 0.6% 1.9% Jack in the Box Domino's 1.1% 2.0% 3.1%6.4% (0.8%)9.7% (0.2%)13.0%(1.0%) 12.2%(0.2%) 10.2%(0.1%) 0.5%9.5% 0.5%8.4% (0.1%)4.2% 0.2% 8.3% 6.9% 6.3% 5.6% Mean 3.5% 3.0% 1.7% 1.4% (1.1%) 0.8% 0.8% 2.2% 0.6% 0.2% 1.9% 0.6% McDonald's Papa John's 1.8% 1.3% (1.3%)0.1% 1.7%4.8% 3.9%5.5% 4.1% 3.8%4.5% 2.0%2.9% 2.6%1.4% 2.4%1.0% 2.3%(3.9%) 4.5%(5.3%) (6.1%) (9.8%) (8.1%) (3) Sonic Drive-In 2.0% (2.0%) (2.0%) (7.4%) (1.2%) (3.3%) (1.7%) (2.9%) (0.2%) 2.6% N/A N/A PapaMexican Murphy's (3.0%) (4.0%) (5.8%) (7.8%) (5.0%) (4.3%) (4.1%) (2.6%) (3.9%) (2.4%) (2.1%) (1.3%) Wendy's Same-Store Sales0.4% Data 1.4% 0.8% 1.6% 3.2% 2.0% 1.3% 1.6% 1.9% (0.2%) 0.2% 1.3% PizzaDel HutTaco 5.0%3.2% 1.0%3.3% (2.0%)6.7% (4.0%)5.5% (7.0%)4.2% (3.0%)7.1% 0.0%4.1% 2.0%2.4% 4.0%3.7% 0.0%3.3% 1.0%1.4% 1.0%1.9% Mean 0.9% 0.4% 0.5% (1.4%) FY1.7% 2016 1.2% 1.8% 1.1% 1.3% FY0.9% 2017 0.8% 1.6% FY 2018 PizzaTaco Inn Bell (2.2%)1.0% 0.3%(1.0%) 0.2%3.0% (1.2%)3.0% 0.1%8.0% (9.5%)4.0% 1.4%3.0% 2.7%2.0% 2.3%1.0% 2.5%1.9% 2.3%5.0% 2.7%6.0% Mean Total QSR 1.6% 1.8% 1.3%Q1 (0.3%)Q2 0.4% Q30.4% Q41.0% 1.1%Q1 0.9%Q2 1.2% Q3 0.7% Q40.8% Q1 Q2 Q3 Q4 MeanMean 1.3%2.1% 2.4%1.2% 2.2%4.9% 0.6%4.3% 0.1%6.1% (1.2%)5.6% 1.3%3.6% 0.5%2.2% 1.1%2.4% 0.2%2.6% (0.5%)2.8% (0.0%)2.8% QSR (1) Fast Casual SandwichPizzaChicken Chipotle SameBurger-StoreDomino'sBojangles King Sales Data(23.6%) (21.9%) (4.8%)4.4%6.4%2.0% 17.8% (0.8%) 9.7%0.2% 8.1% (0.5%) 13.0% 0.8% 1.0% 1.8%12.2% 0.9%2.4% (2.2%) 10.2%2.2% (1.7%) 3.3%3.0% (1.4%)9.5% 4.4% 4.0% (2.2%)8.4% 6.1% 5.1% (3.1%)4.2% 9.9% 4.2% (0.6%)8.3% 1.8% (0.2%)6.9% (0.7%) 6.3%0.4% 0.8% 5.6% N/A El Pollo Loco JackPapaKFC in the John's Box 2.4% 1.6% (1.3%)0.0%0.1%1.0% (0.3%) FY1.1%4.8% 20162.0% 2.9% 2.0%5.5%6.0% 1.7% 3.1%3.8%1.4%4.0% (0.8%) (1.1%)2.0%2.0% (0.2%) (0.9%)FY1.4% 20172.0% 2.6% (1.0%) 1.0%1.0% 4.4% (0.2%) (3.9%)1.0% 2.4% (0.1%) (5.3%)0.0% FY0.5%(6.1%) 20181.0% 0.5%(9.8%)1.0% (0.1%) (8.1%)1.0% Fuddruckers McDonald'sPapaPollo Murphy's Tropical (1.0%) (0.8%) Q1(1.6%) 5.4%(3.0%)0.0% Q2(1.1%) 1.8%(4.0%)(1.4%) (0.9%) Q3 1.3%(5.8%)(1.0%)(3.6%) Q4 (1.3%) (7.8%)(4.0%)0.6% Q1 1.7%(5.0%)0.6%(6.7%) Q2 (5.8%) 3.9%(4.3%)(7.7%) Q3(3.9%) 4.1%(4.1%)(10.9%)(11.2%) Q4 4.5%(2.6%)(0.1%)(5.3%) Q1 2.9%(3.9%)2.8% Q2 2.6% (2.4%)3.4% Q3 2.4% (2.1%)6.5% Q4 2.3%(1.3%)(1.9%) Noodles & Company (1.0%)