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Franchise Finance & Growth ConferenceApril 24-25, 2013 • Four Seasons, Las Vegas

I hope you can attend our upcoming Franchise Finance & Growth Conference, April 24-25, 2013 at the Four Seasons Hotel at Mandalay Bay in Las Vegas. Register now to avoid disappointment, as the seating capacity for this conference at the Four Seasons is extremely limited.Our spring conference is geared for franchisors, multi-unit franchisees and independents looking to franchise their own brands, franchise finance experts, lenders and investors. As an attendee, you’ll get an inside look at the current lending and investment environment for franchised businesses. You’ll also meet with lenders and investors interested in financing franchises. Attendees will learn to craft a winning development plan, access capital for their franchisees and expand their rate of growth.Keynote speakers at this year’s conference includes Charlie Morrison, CEO of Wingstop; Jim Greco, CEO of Sbarro; Gordon Logan, Founder and CEO of Sport Clips; and Jeff Sinelli, CEO of Which Wich. We have some exciting new sessions at this year’s event:Dealmakers of the Year. Franchise Times magazine is celebrating franchise dealmaking by honoring the best financial transactions in franchising in 2012. Winning Dealmakers take center stage during the awards ceremony while attendees will get an inside look at how they were put together during the conference sessions.Star Power. More franchise systems are turning to professional athletes for capital and promotion. We have an interesting session for franchise companies looking to attract professional athletes to their systems and better understand the partnerships athletes have created to fund growth. Panel members include franchisees and former professional athletes Don Davey (Green Bay Packers), George Tinsley, Sr. (Kentucky Colonels), Michael Stone (New York Giants) and John Draper II, a investment professional and franchisee who has experience arranging athlete investments. Register now for the conference at www.restfinance.com or call us at 800-528-3296. One other note: We’re excited to have as our luncheon guest speaker, the comedian Louie Anderson. The conference is educational and fun. I hope to see you in April. John Hamburger

Volume 24, Number 1 • Restaurant Finance Monitor, 2808 Anthony Lane South, Minneapolis, MN 55418 • ISSN #1061-382X

January 22, 2013

OUTLOOK

© 2013 Restaurant Finance Monitor

Continued on Page 4

RestauRantFinance MonitorR

Following The Ones Who Follow Restaurants

A year ago, Piper Jaffray analyst Nicole Miller Regan made a bold stock pick when she chose Oklahoma City-based drive-in chain Sonic for the best restaurant stock performer in 2012. Investors apparently agreed with her: The company’s stock rose 55%, making it one of the top-performing restaurant stocks on Wall Street.

Miller Regan’s reward for the market-beating call? A $100 Sonic gift card from the ICR—she made her stock pick at last year’s ICR XChange investors conference in Miami. “I plan on spending it all on one trip,” she said.

We offer no such awards to restaurant securities analysts who make good stock picks, other than pride in knowing that, for one year at least, they made the right call.

Picking a stock is never easy, especially a restaurant company, and this year’s Monitor analyst poll is no different. Considerable uncertainty remains in the restaurant industry, and analysts seem split over whether this will be a good year or a bad year for restaurant sales. Previously strong performing companies McDonald’s and Chipotle are coming off difficult years and seemingly have tough ones ahead.

Analysts’ choices, perhaps not surprisingly, are spread far and wide. Their picks span industry segments, and only one company was picked by multiple analysts. And despite all their caution when it comes to the industry in 2013, the analysts didn’t shy away from bold picks, either, as you’re about to see.

Burger KingPerhaps no company has been as impatient at taking steps to reinvigorate its brand as has Burger King in the past two years. The company has overhauled its menu, convinced franchisees to remodel 800 units, completed a massive refranchising in the U.S. and went public again.

Miller Regan thinks all this will take a foothold with a strong stock in 2013. “They’ve improved comps,” she said. “They’ve accelerated unit growth, they’ve accelerated EBITDA growth.”

Still, she calls it a “contrarian call,” and perhaps it is, given that nobody but her picked the chain to outperform the others.

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FINANCE SOURCES

CorrectionIn last month’s issue, we incorrectly published U.S. Bank Vice President Kevin Wright’s phone number. The correct number is 612-973-1590. You can also reach him by e-mail at kevin.wright1@usbank.com.

Brentwood Associates, a consumer-focused private equity investment firm, recently completed the sale of Pacific Island Restaurants (PIR) to Nimes Capital. PIR is the sole franchisee of Pizza Hut and Taco Bell throughout Hawaii, Guam and Saipan. Terms were not disclosed. Bank of America Merrill Lynch was the sole lead arranger on the debt in the transaction.

“We just reached our eighth anniversary with them,” said Rahul Aggarwal, managing director of Brentwood. “That’s a relatively long hold period (for private equity), but we tend to skew a little longer.” He added they had never really tried to sell the business before 2012, but the team at Brentwood decided this would be the year to pursue the exit. During Brentwood’s investment, the company opened six new restaurants and acquired another six.

“For us it was a great return on investment,” said Aggarwal. “It helps us to get one of our older investments harvested and return that capital to our shareholders.” Brentwood has other investments in the industry: KMAC, which is a Taco Bell franchisee with 237 restaurants; and fast casual concepts Zoe’s Kitchen and Veggie Grill.

“Absolutely we will be looking for other hospitality investments,” said Aggarwal. “We’ve had a good run with them; all of our restaurant investments have been good ones.” He added they will look for companies that “have a great deal of customer enthusiasm and loyalty, which channels into higher returns over time.” For more information on Brentwood Associates, contact Rahul Aggarwal at (310) 477-6611 or by e-mail at raggarwal@brentwood.com.

Brentwood Exits PIR: On Hunt for New InvestmentFifth Third Bank is continuing to make their presence known within restaurant finance. The bank offers financing for working capital, capital expenditures, acquisition financing and lines of credit.

“Every situation is unique, but we want to work with concepts with a proven track record who are recession resistant, as well as franchisees who have a great working relationship with their franchisor,” said Aaron Markos, vice president and relationship manager with the Structured Finance Group. He also heads up the franchise lending group there.

Fifth Third targets multi-unit operators with financing needs from $5 million to over $100 million. The bank also has been part of larger financing syndications in the restaurant industry as of late, and will continue to seek out those opportunities.

As far as working with franchisees, Markos says, “I always like to say that when we are lending money, we don’t lend to the P&L, we lend to people. We are relationship lenders. We want to be there as they grow.” The strength of the restaurant company management team is a key factor for Fifth Third, as well as a well-honed infrastructure that can monitor the performance of the stores.

Markos and team started the franchise group in July 2010 and have grown it to $125 million in originations since then.

Ryan Burgess is senior vice president, commercial treasury management team, and his team focuses on helping clients manage the working capital, from deposits to credit card processing, and more.

“When you step back and look at it, getting currency to the bank is still the same as 100 years ago,” he said. “You put the money in a bag and walk it down to the bank. There has to be a better way.” He offers that Fifth Third has it. The bank has done extensive work, says Burgess, on taking a look at how multi-unit operators manage their working capital.

They have a currency processing solution suite, which “is smart, safe technology,” he said. The store manager simply makes a deposit in the safe, and it is electronically deposited in the restaurant business’ account. No employees leave the premises with cash in hand.

Burgess added that his team takes a “holistic approach, working on both receivables and payables. What’s the most efficient to pay their vendors, for example?” It’s all about liquidity management, he said. For more information on Fifth Third Bank, contact Aaron Markos at 1-800-972-3030 or at aaron.markos@53.com; or contact Ryan Burgess at 614-744-7583 or by e-mail at ryan.burgess@53.com.

Fifth Third Bank Makes Mark in Restaurants

Capital Growth Advisors, LLC (CapGrow) announced the completion of a $6.95 million refinance of Sugar Creek Pizza, LLC and New River Pizza, LLC—two Pizza Hut franchises under common ownership with 32 restaurants located in Ohio, West Virginia and Maryland. CapGrow provided financial consulting services to the restaurant group in the transaction. Cadence Bank provided financing for the deal. The funds will be used to refinance existing debt and support an on-going remodeling initiative for the current locations.

Capital Growth Advisors, headquartered in Ann Arbor, Mich., provides fee-based financial consulting services to the multi-unit restaurant industry. For more information, contact Phil McDonough, managing director, at (203) 622-0753 or by e-mail at philm@capgrow.net.

Cadence Bank, based in Birmingham, Ala., is a $5.5 billion bank that operates more than 100 locations in Alabama, Florida, Georgia, Mississippi, Tennessee and Texas. Cadence serves commercial and consumer clients with a full range of banking services, and in the last 18 months launched a restaurant group focused on financing multi-unit restaurant companies. For more information on Cadence Bank, contact Dan Holland, executive vice president, at (770) 551-8180 or by e-mail at daniel.holland@cadencebank.com.

Capital Growth Advisors Closes Pizza Hut Franchisee Refinancing

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Capital Insight Advises on Tax Efficient FinancingCapital Insight, LLC recently announced that it was the exclusive financial advisor in a $105 million recapitalization of Sailormen, Inc., which operates 141 franchised Popeyes restaurants in seven states. Sailormen is Popeyes largest domestic franchisee.The recapitalization was completed with a $70 million syndication loan from six national lenders and the use of a tax-efficient sale-leaseback and mortgage strategy using certain fee-owned properties. The syndication loan was led by Wells Fargo Restaurant Finance with GE Capital, Franchise Finance as co-leader. The hybrid sale-leaseback/mortgage financing was provided by STORE Capital Corporation.“It was a deal many months in the making,” said Greg Landry, managing partner of Capital Insight. “It was also a deal that demanded creativity in a number of different areas. The first integral step was to determine the amount of debt the lending group was comfortable holding while also negotiating with this same group to forego some of the available collateral, so we could seek additional capital from a sale-leaseback provider.” Secondly, he said, Capital Insight minimized the capital gains tax associated with a sale-leaseback in order to allow Sailormen to receive almost 100 percent of the fair market value of the real property sold. They worked with STORE “to utilize a hybrid-type of financing in which we sold parcels of land to STORE and secured coterminous mortgage financing from them on the associated buildings and improvements,” added Landry. “Using this methodology, we only had minimal taxes associated with the sale of land and, of course, no taxes associated with the financing of buildings and improvements.”For Sailormen, the result was to obtain a long-term, stable capital structure and one that would also allow them to continue to upgrade and improve restaurants. Capital Insight is a diversified financial services firm providing financial and operational advisory services to the restaurant, convenience and gas, and multi-unit retail industries.

For more information on Capital Insight, contact Brett Bishov, managing director, at 480-556-1864 or bishov @cidfs.com.

Trinity Capital, an investment banking firm that focuses on financial advisory for the multi-unit restaurant community, closed the following deals in the fourth quarter:• Advised DWO LLC on its asset sale of 18 Denny’s restaurants located in the greater Seattle area to Alancaster Corporation. DWO is an affiliate of Friendly Franchisees Corporation, which also provides administrative services to 66 franchised Carl’s Jr. and Carl’s Jr./Green Burrito restaurants in Southern California. The combined affiliates now make up the largest franchisee set in the Carl’s Jr. system. The amount of the sale was not disclosed. GE Capital, Franchise Finance provided the financing to the buyer. “I think this is a testament to Denny’s as a performing brand in the current environment in that a lot of interest in the deal was generated,” said David Stiles, senior vice president with Trinity Capital. “And the assets were put into the hands of one of the better operators who Denny’s was pleased to see in the transaction. It’s an invigorated operator who will come in and remodel the stores and look to grow the territory.”• Advised Treadwell Enterprises, Inc., and its related restaurant operating companies on the refinancing of Treadwell’s KFC and Taco Bell businesses. Treadwell, a 94-unit operator based out of Springfield, Miss., engaged Trinity to identify inefficiencies in Treadwell’s existing financing structure and locate new financial partners to help the company better position itself for the future.Fifth Third Bank, led by its Franchise Finance Group, provided the approximately $30 million in financing for Treadwell’s recapitalization. The financing retired previous existing debt, and provides Treadwell with more favorable terms, pricing and flexibility, and provides for additional growth capacity going forward. • Advised Southern Bells, Inc., one of the largest Taco Bell franchisees in the system on its sale of 76 Taco Bell, KFC and Pizza Hut restaurants to Bell American Group. Bell is a subsidiary of Flynn Restaurant Group, LLC, which also owns Apple American Group. Wells Fargo Restaurant Finance and Bank of America Merrill Lynch provided financing for the transaction. The amount was not disclosed.According to Kevin Burke, managing director with Trinity Capital, the transaction was to facilitate the retirement of Craig Fenneman, co-founder of Southern Bells, while the other co-founder, Charlie Brown, remains as a partner and will continue to run the company. Trinity’s process “helped guide a transaction that helped keep his management team intact. It’s good for the brand, good for the new investors and good for the customer.”From Brown on down, there were no organizational changes due to the purchase. “There’s always some concern about a new management and a new culture,” said Burke, “but when you do a transaction like this, you obviate those concerns because it’s very stable.” There was some complexity to the deal, he added, as there was a lot of real estate. “We did some novel structuring at the holding company level that was a bit of a breakthrough.”

• Represented Tacala, the nation’s largest Taco Bell operator which owns 224 Taco Bells, and Boom Foods, which owns 66 Sonics in the Southeastern United States. Tacala sold 162 units in a recapitalization transaction, while Boom sold the 66 Sonics, which provided a divisional spinoff and liquidity for shareholders. The deal was composed of a series of transactions which conveyed stock to affiliates of Altamont Capital Partners, the private equity investor that owns Tacala and Boom. Tacala’s real estate assets were transferred to a separate company unaffiliated with Altamont. For more information on Trinity Capital, contact David Stiles, senior vice president at (310) 268-8330, or by e-mail at dstiles@trinitycapitalllc.com; or Kevin Burke, managing director, at (310) 268-8330, or by email at kburke@trinitycapitalllc.com.

Trinity Capital Advises on Four Deals at Close of Fourth Quarter

More finance sources, page 8

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OUTLOOKAnalyst Stock Pick

Andy Barish Jefferies & Company

Bravo Brio Restaurant Group

Jeffrey Bernstein Barclay’s Capital

Brinker International

Matthew DiFrisco Lazard Capital

Panera Bread

Bryan Elliott Raymond James

Red Robin

Michael Kelter Goldman Sachs

Domino’s

Paul Westra Cowen & Company

Del Frisco’s

Nicole Miller Regan Piper Jaffray

Burger King

Sara Senatore Bernstein Research

Chipotle

Howard Penney Hedgeye Risk Management

Yum Brands

Mark Smith Feltl & Company

Kona Grill

Conrad Lyon B. Riley

Famous Dave’s

Robert Derrington Northcoast Research

Brinker International

Del Frisco’s Restaurant GroupThe Holy Grail of the casual dining sector is Houston’s. Over the years chains have tried, and usually failed, to come up with a similar, polished-casual concept.

Cowen & Company analyst Paul Westra thinks Del Frisco’s has found it.

That grail is Del Frisco’s Grille, the company’s buttoned-down version of its flagship concept. Del Frisco’s has opened five of its Grille units, and they boast unit volumes ranging from $4.5 million to $6 million. Westra loves the concept, and believes it’s the sector’s long-sought answer to Houston’s. “Somebody’s finally figured it out,” he said.

Westra said that Del Frisco’s has a “deep bench” of talent that could nurture and grow the concept. And customers are flocking to higher-end casual concepts that are a step above their mass-market, bar and grill cousins. “Polished casual is the place to be,” he said.

Bravo Brio Restaurant GroupInvestors are obsessed with same-store sales. Many a stock has been unduly punished, or overly rewarded, for a quarter’s worth of comparable sales improvement. Jefferies analyst Andy Barish thinks Bravo Brio belongs in the former category.

The company’s stock fell 21% last year, largely because of weak same-store sales performance. As a result, “it’s gotten thrown into the trash heap with the mature casual dining names,” he said.

He believes investors should focus instead on its strong unit growth, something those more mature casual diners can’t brag about. Barish believes that, should Bravo Brio’s sales return to positive territory, investors will take a fresh look at the company’s unit growth. “There’s a chance to see its valuation rebuild from depressed levels,” he said.

Chipotle Mexican GrillEvery year, the Denver-based burrito chain is among the more popular analyst stock picks and for good reason: It was a good bet to perform well on Wall Street every year. We expected that to change this time around, after a couple of analysts got burned picking the chain in 2012—only to watch it fall 12 percent.

Nope. Bernstein Research analyst Sara Senatore, one of those two aforementioned Chipotle pickers a year ago, has stuck with the concept this time around. In short: Senatore believes word of Chipotle’s demise is premature. “We see no evidence for the structural bear argument that Chipotle has hit a growth wall,” she wrote. New unit volumes are as high or higher than they’ve ever been, newer trade areas are as productive as older markets and will contribute to comp growth in the future.

Senatore also takes issue with the suggestion that Chipotle’s slowdown represents a loss of market share to Taco Bell, which introduced its new, premium “Cantina Bell” menu

last year. Senatore noted that Chipotle’s traffic trends actually accelerated the quarter that Taco Bell introduced the menu.

Yum BrandsSpeaking of Taco Bell, Yum Brands is another risky pick. To be sure, the company has a lot going for it, but there’s that China problem to think about. Yum’s reliance on China has come into question as its KFC brand there struggles amid consumer weakness and supply concerns.

Hedgeye Risk Management analyst Howard Penney is having none of it. “The China concerns are overblown,” he said. “The U.S. will rock and roll this year and the rest of the world is very good.” Penney, incidentally, is on board with the idea that Taco Bell is taking business from Chipotle. “Taco Bell is going to have a huge year this year,” he said.

It helps that Yum’s share price is somewhat depressed in recent weeks. At the end of November, the company’s share price was $74.47. It plunged the next day on reports that the company’s sales in China were falling 4 percent in the fourth quarter. The company’s stock is now trading in the mid-60s per share.

Brinker InternationalIf there is a big winner among this year’s stock picks, it’s Brinker International, parent company of Chili’s and the choice of two analysts, making it the only restaurant concept to get more than one vote from the analysts we queried.

Outlook continued from page one

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Bob Derrington, analyst at Northcoast Research, said the company’s investment on kitchen technology has enabled its brands, notably Chili’s, to broaden and redefine its menu even while improving margins.

“They’re about halfway through a five-year plan to improve their operating margins by 400 basis points and to double their earnings per share,” Derrington said. “The track record they have had, and the plan they’ve put in place in performing against those expectations, are considerably better than what we and the street have expected.”

Jeffrey Bernstein, analyst at Barclay’s—who also picked Brinker last year—said Chili’s has regained momentum, and the chain’s comp sales performance outpaces the industry. He also said the company has the drivers to sustain that performance, and margins should continue to expand. “And looking beyond the core fundamentals, all excess cash is being returned to shareholders in the form of share repurchases,” he said.

Panera BreadAmong the two big fast-casual chains that are publicly traded, Panera Bread doesn’t quite get the attention Chipotle does, but that changed somewhat last year, when the St. Louis company’s stock rose more than 12 percent as its sales kept a steady improvement.

Lazard Capital analyst Matthew DiFrisco believes that improvement will continue in 2013. “In this world where there is a scarcity of growth, they have square footage growth and they’re finally doing a better comp than Chipotle,” he said. “Granted, a lot of it is by price, but they have a nice mix of average price and traffic.” He noted Panera has a better chance to get traffic improvement through use of the company’s loyalty program and with menu expansion.

“They have a pipeline of comp catalysts,” he said, referring to national cable ads and the loyalty card program. The company is even having success moving into urban markets, which it hasn’t been able to do before.

Red RobinFew companies face as much of a threat to their business at the moment as Red Robin, which has built its business based on burgers but has to deal with a host of fast-casual burger concepts. But Raymond James analyst Bryan Elliott thinks the company has effectively handled the competition.

“I like the management team led by (CEO) Steve Carley,” he said. “He’s a very impressive guy.” He likes what the company has done to cut costs, and he also said the company will be coming out with new products and marketing initiatives this year. Meanwhile, Elliott said, the company is testing a remodeling package that “could differentiate the brand.”

But, on a more practical level, Elliott said the stock’s valuation remains cheap, at least on an EV/EBITDA basis. “There are a lot of catalysts for the stock,” Elliott said.

Famous Dave’sSay what you will about this choice from Conrad Lyon, analyst at B. Riley in Los Angeles, but it’s a bold one. It’s been years since the Minneapolis-based barbecue chain has had what could be considered a good year on Wall Street.

Why does Lyon believe it could change this year? Patrick Walsh.

Those of you who’ve followed chains like Denny’s and Red Robin might recognize the name of Walsh as an activist investor who has targeted both chains in the past. Recently, his Atlas Fund has turned its eyes on Famous Dave’s, nominating him for a board seat. “That could be a big catalyst for the stock,” Lyon said.

Walsh has a strong track record with his activism. Both Red Robin and Denny’s stock, and their respective businesses, have been much stronger since he took on those chains. And activists in general have a positive impact on a company’s stock.

Kona GrillFew companies have been as shy about opening units as has Scottsdale, Arizona-based Kona Grill. That makes the upscale casual chain’s recent announcement of plans to open its 24th unit in Boise to be a big deal, one that Feltl & Company analyst Mark Smith said could be a stock catalyst this year.

“The company is starting to grow again,” Smith said. In addition, he said, the company’s diverse menu, which is heavy on seafood, are good for margins and should help shield Kona from food cost problems that should plague a lot of chains this year.

Meanwhile, the company’s valuation is lower than its polished casual peers. “The stock looks cheap,” Smith said. “They’ve got a good management team. (CEO) Berke Bakay has his eye on ROI, and that’s the right approach.”

Domino’sFew publicly traded companies are on the run that Domino’s is currently on. Its stock rose 28% last year and has been steadily climbing since shares plunged below $4 in late 2008. They’re now trading at over $45. Michael Kelter, analyst at Goldman Sachs, believes that run will continue.

Kelter believes the chain has 10% upside over the next 12 months thanks to its strong international growth. Domino’s is the Yum Brands of the pizza world—it now has more stores outside the U.S. than it does domestically, and that international growth is surging. Domino’s could add 500 international units this year, Kelter noted.

In addition, Kelter expects Domino’s to beat its fourth quarter earnings projections when it releases its financials in February. The company recently added pan pizza, but its projections of a sales lift from the addition are low, he said.

—Jonathan Maze

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2012 MARKET REVIEW2012 S& P 500 MARKET BEATERS

Company/Stock Symbol

Closing Price on 12/31/12

Change from 2011 Market Commentary

AFC Enterprises (AFCE)

$26.13 +77.8% Its focus on ops and Louisiana Kitchen remodels made Popeyes a same-store sales growth machine this year.

Chuy’s Holdings (CHUY)

$22.34 +71.8% Hot 2012 IPO sees cash-on-cash returns of 30 to 40% and hope for more multiple expansion.

Nathan’s Famous (NATH)

$33.70 +60.3% Nathan’s sells more than $40 million of branded hot dogs to the foodservice industry a year. That’s a lot.

DineEquity (DIN)

$67.00 +58.7% Goldman analyst Michael Kelter says the company may not generate more than 1% unit growth in the future. That’s not a lot.

Sonic Corp. (SONC)

$10.41 +54.7% After a great big stumble, they go back to tried and true “Two Guys” advertising on cable to drive sales.

Luby’s (LUB)

$6.69 +48.3% Operator of Luby’s Cafeteria and Fuddrucker’s buys 23-unit Cheeseburger in Paradise restaurants.

Ruth’s Hospitality (RUTH)

$7.27 +46.3% Rising beef costs and fiscal cliff tax hikes to put damper on 2013 share appreciation, according to analyst.

Papa John’s International (PZZA)

$54.93 +45.8% Papa John Schnatter throws the long bomb and snags Denver Broncos QB Peyton Manning as a franchisee.

Krispy Kreme (KKD)

$9.38 +43.4% Shares surge after the company’s third quarter earnings release while KKD’s international prospects are promising.

Bloomin Brands (BLMN)

$15.64 42.2% Left for dead in 2007 after leveraged buyout, August IPO breathes new life into Outback and Bonefish Grill.

Kona Grill (KONA)

$8.70 +42.2% Casual dining operator is back on track with new CEO, while Feltl analyst Mark Smith rates stock a “Strong Buy.”

Jack in the Box (JACK)

$28.60 +36.8% Jack steadily becoming a national brand while analysts happy they get under-the-radar Qdoba growth for free.

Dunkin’ Donuts (DNKN)

$33.18 +32.8% Company’s plan to double units and go into California by 2015 has some analysts hoping the share price doubles.

Denny’s (DENN)

$4.88 +29.8% Denny’s keeps rolling along, one Grand Slam breakfast after another.

Dominos Pizza (DPZ)

$43.55 +28.3% The opportunity is international, while domestic pizza market has too much competition.

The Fairest Of Them All

Many professional investors compare their annual investment results to the S&P 500 index. The index, which consists of 500 publicly traded, large-cap companies across all industry sectors, provides as good a benchmark as any for investors to gauge their performance.

In 2012, the S&P 500 returned a respectable 13.4%, on the heels of a flat performance in 2011. According to the Monitor’s analysis of public restaurant companies, almost half of the 60 public restaurant companies beat the index in 2012. A third of the companies, however, such as McDonald’s and Chipotle finished the year with share prices less than a year ago.

The chart on the immediate right lists a number of public restaurant companies that handily beat the S&P 500 index in 2012. It’s interesting to note a few of the companies in positive territory in 2012 were the same ones left for dead in 2008 and 2009. For instance, Krispy Kreme Doughnuts finished up 43.4% for the year, and has increased almost 550% since the end of 2008, when it traded for less than $2.00 per share and its future propsects were in question.

In fact, many companies with positive performance in 2012 struggled during the recession, but have come on strong since then. Dominos Pizza, which returned 28.3% this year, has increased its share price over 900% since the beginning of 2009. This a testament to the change in the Domino’s Pizza recipe in 2008 and the growth opportunities the company is finding internationally.

Two companies, Chuy’s (+71.8%) and Bloomin Brands (Outback Steakhouse, Carrabba’s and Bonefish Grill) + 42.2%, were outstanding performers in the public markets since debuting earlier this year. Del Frisco’s, another restaurant company that went public in 2012, was up 19.9%. The only other initial public offeror, Ignite Restaurants (Joe’s Crab Shack and Brick House Tavern), was up for most of the year, but then suffered from a lease accounting problem, and finished down 7.1% for the year.

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A YEAR OF SPINOFFS AND SPECIAL DIVIDENDS

Company/Stock Symbol

Closing Price on 12/31/12

Change from 2011 Market Commentary

Carrols Rest Group (TAST)

$5.98 -48.3% Despite share decline, spinoffs of Pollo Tropical and Taco Cabana and aquisition of 278 BK stores made big money for shareholders.

Pizza Inn (PZZI)

$3.43 -37.6% Nation’s Restaurant News Hot Concept award is the kiss of death for most young restaurant concepts.

BJ’s Restaurants (BJRI)

$32.90 -27.4% 11th consecutive quarter of same-store sales gains not enough to stem share price decline.

Einstein NoahBagels (BAGL)

$12.21 -22.8% After a strategic review of its business, the company pays a special $4.00 per share dividend.

Crumb’s Bake Shop (CRMB)

$3.09 -22.8% Despite October equity raise, the stock acts like a cupcake this year because of poor operating results.

Bravo Brio (BBRG)

$13.43 -21.7% A $20 million share repurchase program not enough to offset share declines brought on by soft sales.

Diversified Restaurants (DFRH)

$4.00 -18.4% Despite acquiring an eight-unit franchisee of Buffalo Wild Wings, investors fail to notice.

Morgan’s Foods (MRFD.OB)

$1.75 -15.0% Closed restaurants offset operating progress made in the KFC business in 2012.

Wendy’s (WEN)

$4.70 -12.3% Reimaging is the company’s focus in its first full year after selling Arby’s to Roark Capital.

McDonald’s (MCD)

$88.21 -12.1% An off year for the QSR juggernaut gives competitors Burger King and Wendy’s reason for optimism.

Chipotle (CMG)

$297.46 -11.9% Short-seller David Einhorn knocks stock down to around $200, but cultists drive it back up—for now.

Granite City (GCFB)

$2.12 -11.4% The company expects $115-$125 million in revenue with EBITDA between $7-$8 million for the year.

Famous Dave’s (DAVE)

$9.19 -10.8% Investor Patrick Walsh acquired a 9.4% interest in the company and new CEO John Gilbert is looking for new ideas.

Ignite Restaurant Group (IRG)

$13.00 -7.1% Faulty lease accounting knocks stock back to earth after successful May IPO.

Frisch’s Restaurants (FRS)

$18.50 -4.6% The company declares a one-time cash dividend of $9.50 per share in September after Golden Corral sale.

Carrols: The Deal of the Year!

The restaurant stock that registered the biggest decline of the year, but actually turned into a big winner for shareholders is Carrols Restaurant Group. The stock finished down 48.3% for the year. In April however, Carrols shareholders received one share of Fiesta Restaurant Group (Pollo Tropical and Taco Cabana) common stock for each share of Carrols they owned. The spinoff knocked Carrol’s share price down, but the deal was a homerun.

If you add the closing value of Carrols common stock at year end ($6.01) with the closing value of Fiesta at year end ($15.32), it provided shareholders with a year-over-year return of 184%, the best in the industry in 2012.

There were other spinoffs and special dividends that impacted share values. In 2012, Einstein Noah Bagel shareholders received a special $4.00-per-share dividend after the company completed a strategic review. Frisch’s shareholders received a $9.50-per-share dividend in September after the company sold its 29 franchised Golden Corral restaurants back to Golden Corral for $50 million.

McDonald’s and Chipotle, two of the largest capitalization restaurant stocks, had disappointing share price performances in 2012. Both companies’ shares declined around 12% for the year, and it was expectations that did them in. Investors expected McDonald’s to have a better year than they did, while the cultists who drove Chipotle’s share price to $442 during the year were disappointed when same store sales, although positive, came in below their lofty expectations.

McDonald’s same-store sales slipped 1.8% in October 2012, its first sales drop in nine years. Look for McDonald’s to emphasize value in its 2013 marketing initiatives to keep sales positive.

In 2013, the bogeyman in the Chipotle story will be food costs. The company said that its food costs were up 1.3% in the fourth quarter of 2012 and operating margin declined 1.5%. That sent analysts scrambling, although the company said it was “optimistic that food inflation will level off in 2013.”

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CHAIN INSIDER

Goldco, LLC, a Burger King Franchisee, based in Dothan, Alabama and ranked #116 on the Monitor 200, has been acquired by PNC Riverarch Capital. PNC is a private equity fund that seeks to invest $10 million to $50 million for recaps, leveraged and management buyouts, corporate divestitures, and growth financings. The secured financing, in the amount of $27 million, was provided by NXT Capital.

Beth Solomon, the former International Franchise Association executive who led the association’s small business lending initiatives, has become CEO of the National Association of Development Companies, a Washington D.C. trade association representing SBA lenders in the commercial real estate and asset finance space.

Robert Derrington has joined Northcoast Research as managing director and equity research analyst. Prior to joining Northcoast, Bob served as managing director and senior restaurant analyst at Morgan Keegan.

Bob Evans is getting close to a deal to sell its struggling Mimi’s Café chain. Now we know the buyer. Whispering at the ICR XChange conference this month was that Groupe Le Duff, the same French company that bought Bruegger’s, is looking into buying Mimi’s, a French-inspired casual dining chain. Bob Evans execs said little about the deal, however.

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First Franchise Capital Corporation recently provided over $10.7 million to Meritage Hospitality Group, a 111-unit Wendy’s franchisee based in Grand Rapids, Mich. The facility was used to acquire two Wendy’s franchised portfolios consisting of nine Wendy’s restaurants in Atlanta, Ga. and 10 Wendy’s restaurants in Richmond, Va. In addition, FFCC is providing financing for two new Wendy’s restaurants in Richmond, Vir. and Jacksonville, Fla.

Prior to year end 2012, First Franchise Capital completed a $11.9 million refinance for Bodan Incorporated, an 18-unit Wendy’s franchisee based in Denver, Colo. The refinance included real estate and equipment in Colorado, Nebraska and Wyoming.

In other news, Peter Austin recently joined First Franchise Capital as a marketing vice president. Austin will serve clients in Midwest and Mid-Atlantic states, and will be based in Pittsburgh, Penn. He has more than 18 years in the financial services industry. You can reach him at (412) 398-7933 or by e-mail peter.austin@firstfcc.com.

First Franchise Capital offers financing solutions to the restaurant industry to include senior debt for acquisitions, refinancing, remodels/re-images, new builds including real estate, refinancing and buy in/out partners. Their loans range from $100,000 to in excess of $15 million. For more information call Karen Johnson, director of sales at 402-562-5111 or by e-mail at Karen.Johnson@FirstFCC.com.

Morehead Capital is taking a bite out of the salad chain Chop’t. The North Carolina-based fund recently completed a recapitalization and equity investment in the 20-unit New York-based chain. Terms of the deal were not disclosed but “it was a pretty significant transaction,” Chop’t CEO, Nick Marsh, told the Monitor. He said that Chop’t and Morehead had been in discussions for 18 months. He said the investment will enable Chop’t to establish a foundation from which it can grow more aggressively.

How much is Sardar Biglari’s name worth? $18.5 million, at least right now. The San Antonio investor recently licensed his name to the company that bears his name, and where he is its chairman, CEO and “jockey,” Biglari Holdings. Under the deal, Biglari Holdings would pay Biglari a fee of 2.5% of revenues for the use of his name, but only if Biglari somehow gets removed from the company for anything but a good reason. It’s a 20-year agreement, so don’t expect Mr. Big to go anywhere anytime soon.

Speaking of Biglari, we sat in on Cracker Barrel’s various presentations at ICR, hoping to hear some comment about the investor who owns 19.99% of the Tennessee chain. We left disappointed. Execs referred to Mr. Big only as “our largest investor.”

KarpReilly is making a bet that the cupcake fad won’t go away. The group has made an investment in Beverly Hills-based Sprinkles Cupcakes. The 11-unit chain, founded in 2005, said it plans to use the investment to fund its growth. Sprinkles plans to add “a number of additional locations” this year in new and existing markets. It’s also adding ice cream and is expanding into international markets.

Will Noodles & Co. go public? Denver-based Noodles has been flirting with the prospect of an IPO for years—it considered one two years ago before ultimately selling to Catterton Partners. Now the company is reportedly considering an offering this spring. We have not confirmed that, but there is this: Catterton took Restoration Hardware and Bloomin’ Brands public last year. It also submitted a private filing for its casual dining chain, Cheddar’s.

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Here’s a stroke of luck for you. During his monologue a couple years ago, Jay Leno poked fun at “a restaurant right here in Orange County now selling hamburgers wrapped in waffles” on its second day of business.

“Leno was wondering if we were trying to create the world’s fattest person,” recalled CEO Dean Simon, co-founder of Bruxie Gourmet Waffle Sandwiches, based in Anaheim, Calif. “We had two news trucks filming the next day.”

It’s not the only time fortune smiled upon Simon and business partner and COO Kelly Mullarney, who joined forces in 2009. Restaurant veterans Gordon Miles and Bill Allen, who live in Orange County, separately began dropping by Bruxie’s in Old Towne Orange. Local newspapers and food blogs had been hyping the unusual menu since its November 2010 opening, causing day-long waits of a half-hour or longer.

“It’s among the few truly unique concepts I’ve seen,” Miles, former Bubba Gump Shrimp Co. chairman, said. Within the year, Miles became an investor and adviser to Simon and Mullarney. So did former Outback Steakhouse CEO Bill Allen who, in turn, brought in P.F. Chang’s co-creator Paul Fleming and Hal Rosser of Rosser Capital.

The investor group helped raise a second, $1.5 million round of funding. The sum, along with a revolving line of credit and cash flows, has today swelled Bruxie to four units in Orange County. The fifth and sixth outposts will open early this year in Huntington Beach and Irvine. And, a San Diego Bruxie isn’t far off, Simon acknowledged. The small company also hired a consulting CFO this year. “My initial work is centered on system integrations and automation,” said James McGehee of Results Thru Strategy.

Miles said he invested because Bruxie’s founders are experienced chefs with backgrounds in restaurants, catering, wholesaling and manufacturing. Simon and a former partner, in fact, formed a company in 2006 that sold a proprietary waffle mix to foodservice operators. The company, which the new investors are also part of, supplies the mix to Bruxie.

Simon launched Bruxie because he couldn’t convince operators to use his European-style mix for dayparts other than breakfast. To raise awareness, he and Mullarney once struck a deal with University of Southern California officials to operate two campus waffle carts. But the school’s sports scandal put the kibosh on their plans, Simon explained.

Today, Simon is thrilled with his all-star cast of counselors. “I couldn’t be happier to have them sitting around the table,” he said. Miles offered that advisory meetings have been fun.

Simon, who remains majority shareholder, declined to reveal the ownership percentage he gave up in return for the $1.5 million investment. He said Fleming, in particular, helped him think through the equity piece. “He’s a very good critical thinker,” Simon added. Fleming is no longer on the advisory board, according to Simon, because he’s busy managing growth at four-unit Paul Martin’s American Bistro.

Miles, who began his foodservice career in 1969 as a single-unit Village Inn franchisee, claimed to bring a small operator mindset to Bruxie. “My base of knowledge is different than [Allen’s, Fleming’s and Rosser’s]. It’s a little bit broader based [because] I’ve been more involved in the financing of small efforts,” he explained. Rosser, a private equity executive in Connecticut, has owned Corner Bakery and the Brio/Bravo chains.

Bruxie’s first round of financing was indeed a small effort. Dean, Mullarney and family and friends funded the first unit —a 420-square-foot former Dairy Treet that cost $400,000 to convert. Several of the original investors came in on the next round. Simon estimated the $1.5 million was split about evenly between the first and second group of investors.

The co-founders already had signed a lease for a second unit in rejuvenated Downtown Brea by the time Miles, Allen, Fleming and Rosser were on board. Developer Dwight Manley had persuaded Simon to open Bruxie in a 2,700-square-foot space in which several businesses had already failed. Simon conceded his real estate broker “thought I was crazy.”

Apparently, none of the new investors thought the site was a homerun. “When the lines formed all day [in Brea], I looked like I was very smart,” Simon chuckled.

Two more units in retail centers – in Rancho Santa Margarita and Chino Hills – have opened since with blessings from the advisory board. The units cost about $700,000 to open and ring up “in excess” of $2 million,” claimed Simon, who would not share exact sales figures. The lowest grossing Bruxie, however, is in Rancho Santa Margarita, a middle-class community of 48,587 rocked by the state’s foreclosure crisis. Simon attributed the lower volume to the long waits customers experienced when the restaurant opened.

Even $2 million a year pencils out to $740 per square-foot in Bruxie’s 2,700 square-foot prototype. It’s likely enough to maintain healthy margins on the upscale items that help keep long lines for months after a unit opens.

In addition to the aforementioned burgers, Mullarney has stuffed the light, crunchy waffles with short ribs, lobster, smoked salmon, prosciutto and Boar’s Head brand meats. “Pretty much anything they throw into that bent, golden slab of crosshatched goodness is most always going to taste fantastic,” enthused OCWeekly last August.

The company also has built a respectable reputation via social media. Bruxie’s Facebook page boasts 10,700 “likes” and #bruxie on Instagram features more than 8,000 photos. The best example of the concept’s growing popularity on social, however, is its second-place ranking in 2011 on Yelp’s Top 10 most highly rated restaurants in the U.S. And that’s no joke.

—David Farkas

Emerging Concept Bruxie Attracts Name-Brand Investors

Page 10

Crumbs Bake Shop

Date Completed: October 11, 2012Price per Share: $2.21 Shares Sold: 4,456,968Net Proceeds: $9,315,000Use of Proceeds: To fund new store growth, and to bolster general working capital in order to strengthen its financial condition.Financial Advisor: Janney Scott Montgomery LLC and Susman Partners LLC d/b/a Threadstone Advisors.

INCOME STATEMENTNine months ended September 30, 2012

Revenues:.....................$32,253,222Net Income:........................($2,562,318)Net Loss Per Share......................($.47)

BALANCE SHEETAs of September 30, 2012

Cash:..................................$156,176Deferred Rent:........................$3,657,231Shareholders’ Equity:..........$13,998,384

SUMMARY:As of December 31, 2012, there were 59 Crumbs Bake Shop stores operating in nine states and Washington, D.C., including 21 stores in Manhattan. Of the total stores, 15 were opened in 2011 and 11 in 2012. A small percentage of baked goods sales are from wholesale distribution.

The registration agreement under the terms of the private placement requires the company to file a registration statement with the Securities and Exchange Commission to register the resale of the shares. It did so and the registration became effective on January 10, 2013.

Private placement of common stock

Eateries, Inc. and Fiesta Holdings, Inc.

Date Filed: December 28, 2012Filing: Eateries, Inc. and Fiesta Holdings, Inc. filed simultaneous Chapter 11 proceedings and asked for and received joint administration of their respective cases.Debtor in Possession Financing: The company has $1,000,000 in debtor-in-possession financing from Summit Bank, based in Tulsa, Oklahoma. The financing is guaranteed by Hestia Holdings, LLC, the parent company of Eateries and Fiesta.Creditors: Senior secured creditors include Praesidian Capital Investors, LP and Intenso, LLC. Both are owed approximately $9,650,000 in prepetition debt according to the filings. Praesidian is also owed $2.3 million in a revolving loan.

SUMMARY:

Although the companies, based in Edmond, Oklahoma did not disclose their restaurant holdings in the bankruptcy filings, the company’s restaurants operate under the name Garfield’s Restaurant & Pub, Pepperoni Grill and Garcia’s Mexican Restaurants. According to their respective restaurant websites, there are 13 Garfield’s Restaurants in 13 different states and 12 Garcia’s Mexican Restaurants in Arizona, California, Idaho and Utah. Eateries was formerly a public company and was taken private in 2004 by it’s former CEO, Vince Orza. The company was later sold in 2007 to an investment group which included the former president, James Burke and CFO, Bradley Grow. Praesidium provided the subordinated debt and preferred equity in the amount of $6.5 million.

Praesidian Capital provides senior and subordinated debt along with other junior capital to private, lower middle-market companies. In 2011, Praesidian acquired 20 Charlie Brown Restaurants. This past year it acquired 19 Texas Steakhouse & Saloon restaurants from Boddie-Noell Enterprises.

Chapter 11 Bankruptcy

Ruby Tuesday

Plan to close 24 stores

Date Filed: December 14, 2012Announcement: The company announced it will sell two Truffles Grill restaurants and close 13 Marlin & Ray restaurants, two Lime Fresh restaurants, one Wok Hay restaurant, and six to eight company-owned Ruby Tuesday restaurants.

INCOME STATEMENTTwenty-six weeks ended December 4, 2012

Revenues:.....................$637,154,000Net Loss:..............................($12,469,000)Net Income Per Share......................$.27

BALANCE SHEETAs of December 4, 2012

Cash:..................................$25,594,000Long-term Debt:.................$298,709,000Shareholders’ Equity:..........$545,921,000

SUMMARY:Ruby Tuesday owns and operates Ruby Tuesday, Lime Fresh Mexican Grill, Marlin & Ray’s, and Wok Hay casual dining restaurants. The company also operates Truffles restaurants pursuant to a license agreement. As of December 4, 2012, the company owned and operated 709 and franchised 77 Ruby Tuesday restaurants.

Former CEO, Samuel E. “Lord” Beall, III, who stepped down on November 30, 2012, told shareholders in a conference call in July 2011 that Marlin & Ray’s, a conversion concept that featured seafood, was performing well from both the revenue and customer feedback standpoint. New CEO J.J. Buettgen had a different plan for the concept, once he took over in late 2012.

The company’s free cash flow has been decimated in recent years under Beall, and Buettgen decided to focus on the core brand. By the way, Beall received $2.2 million in severance on December 18, 2012 and will receive a lump sum payment of $8.1 million in 2013 under an executive pension plan.

RT • NYSE CRMB • NASDAQ

MARKET SURVEILLANCE

Page 11

ChipotleCMG-NYSE

(Underperform)Recent Price: $295.00

Chipotle Mexican Grill, based in Denver, is the operator of a fast-growing chain of Mexican restaurants, nearly all of which are in the U.S. The company operates 1,350 locations as of October.

Chipotle executives went to the ICR XChange conference in Miami right after pre-announcing a 4th quarter miss on earnings margins. The company said that unexpectedly high food costs—130bp above expectations—led margins to decline to 24.6%. Andy Barish, analyst at Jefferies, sees continued margin erosion in 2013. He noted that same-store sales drivers are modest. No menu price is likely until the second half of the year and “sales are deleveraging.” Barish’s price target is $215. He notes that the company faces difficult comparisons in the first half of the year, including weather and Leap Year. He said that the company has few traditional sales drivers that could help buoy margins this year. “We think CMG will have trouble driving comp to help alleviate the margin pressures,” he said. While unit growth is still strong, it’s not enough to carry the stock, which “remains overvalued.”

The Wendy’s CompanyWEN-Nasdaq

(Sell)Recent Price: $5.10

Dublin, Ohio-based The Wendy’s Company operates and franchises the Wendy’s quick-service burger chain. The chain has 6,594 restaurants in the United States and in 27 countries.

Goldman Sachs analyst Michael Kelter retained his Sell rating on Wendy’s shares after the company preannounced 4th quarter earnings, including a slight decline in same-store sales that was below an expected 1% to 2% increase. While Wendy’s said that same-store sales rebounded in January, Kelter doesn’t think that’s sustainable “as it appears to have been driven by the cadence of its ad spend rather than a fundamental turn.” Kelter believes that the recent increase in competitive activity that drove down sales “may be here to stay.” Kelter also said that Wendy’s pace of remodels “continues to lack a sense of urgency.” Kelter believes that 80% of the Wendy’s system will be untouched entering 2016. “We would rather see a step-up in the pace of remodels to reinvigorate the brand rather than the recently announced increase in dividend and share repurchases.” Wendy’s may have a tough time driving meaningful margin leverage with low sales and unit growth.

Dunkin’ Brands GroupDNKN-Nasdaq(Market Perform)

Recent Price: $35.75

Dunkin’ Brands franchises the Dunkin’ Donuts and Baskin’ Robins brands. Dunkin Donuts is a 9,760-unit concept that sells coffee, donuts and breakfast sandwiches. Baskin’ Robbins is a 6,711-unit ice cream concept.

Bryan Elliott, analyst at Raymond James, doesn’t think that the stock price growth that propelled Dunkin’ Brands past his $34 price target can be sustained for long and therefore downgraded the stock to market perform. “While it appears the core Dunkin’ Donuts U.S. segment had a solid 4Q12, comp momentum will likely slow beginning in 1Q13.” He said the company laps difficult comparisons due to weather and strong promotions, and he also believes that “broader industry demand will slow further as higher payroll taxes squeeze consumer discretionary spending power,” particularly among lower to middle-income consumers that make up a meaningful portion of QSR spending. Elliott said that Dunkin’ currently trades at a premium valuation of 15x EV/EBITDA. “We see little room for further multiple expansion and believe DNKN’s premium valuation could be at risk if sales momentum slows.”

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ANSWER MAN

Answer Man’s speech to retired members of the New York chapter of the Amalgamated Association of Sit-Down Restaurant Operators was delivered on January 15, 2013, in Poughkeepsie, New York.

The economist Arthur Laffer says if you want less of something, place a tax on it. When governments levy taxes on cigarettes, they want citizens to smoke less. When they place a high tax on income producers, or raise taxes on capital investment, might the outcome be less income and fewer investments?

Warren Buffett, statistically the second wealthiest citizen in America, and lately its most pompous ass, says emphatically that investors don’t care about tax rates when they uncover a good deal. Perhaps not. But, honest, law-abiding citizens do respond to the tax code, especially when it comes to the timing of income and realization of capital gains. Does Buffett believe the nation’s lawyers and accountants worked on Christmas Day and wee into the night on New Year’s Eve closing deals because the tax law changes are inconsequential?

I bring up taxes today because your President and Congress were successful in raising them recently. I wish my crystal ball could tell you exactly what the impact of the fiscal cliff tax hikes will be on the restaurant industry. Needless to say, I think casual dining will take the biggest hit.

Let’s stipulate that raising taxes on single filers earning more that $400,000 or couples over $450,000 won’t move the same-store sales needle. It’s not that the well-off don’t eat at casual dining restaurants. They do, but there aren’t that many of them to make a difference. The increase in the payroll tax is a problem for casual dining, because it impacts more consumers.

Take, for instance, a restaurant customer making $1,000 per week in salary: The additional 2% payroll tax amounts to $20.00 a week. It doesn’t sound like much. However, it translates into a much more consequential $1,040 in reduced take-home pay per year. I ask this question of my fellow AASDRO colleagues: Where does a family make this up?

Will the $1,040 come from the house payment money? No way. That has to be paid. Will it come from the car payment money? No, again. A car is a necessity to get to work or kids to school. The grocery store money? Nope. Need to eat and feed the kids. The money has to come from somewhere. I maintain it comes from the “casual dining” envelope.

Goldman Sachs analysts Michael Kelter says the added payroll taxes will amount to $126 billion of reduced discretionary spending. Declining personal consumption isn’t good for restaurants period, but casual dining can’t take any more hits.

The hike in marginal income tax rates for the wealthy won’t impact consumption immediately like the payroll tax. But, in my opinion, will negatively impact future employment. Rates rise from 35% to 39.6% and will hit the successful small business owners who are taxed at the individual level.

Economist David Rosenberg estimates that 90% of the entire tax take from the fiscal cliff legislation occurs at the $1 million dollar level and up and the average increase in taxes is $170,000. At the million-dollar level, the new income tax bite is approximately $37,000 per taxpayer. That doesn’t sound like much, for someone making so much, but it could easily be someone’s salary. Rosenberg believes the income and payroll tax increases will shave 1.5% from GDP in 2013.

Casual dining will bear the brunt of the economic hit. Its model works only if check averages go higher, because traffic isn’t going higher. How can the check go higher if disposable income declines? Price increases, and portion reductions, are keeping casual dining alive.

I know I sound negative, but listen: Casual dining has too much seating capacity. It has aging facilities with expensive maintenance costs each month. It has no pricing flexibility. It features table servers who end their shift each day with 10-15% of the restaurant’s entire take in tips. Chipotle, Panera and McDonald’s keep all of their revenue, while the casual diners transfer their profits each day to the servers, even in tip credit states. Tipping is a tariff that makes casual dining uncompetitive to QSR and fast casual. And, if it wasn’t for the booze, you could lock the stores up.

It isn’t pleasant for me to complain about casual dining, especially to the old guard who invented this segment. I know what you’re thinking: The solution to casual dining is better food, service and listening to the customer, just like the restaurant magazines preach each month. Not this time.

Casual dining is a dinosaur to young people. They’re not interested in better food and service. They want to order food online, pick it up quick, eat it faster than they picked it up and socialize with their friends while on their cell phones.

Fast casual costs them less, is more efficient, and doggone it, the young whippersnappers like it and go back. I don’t get to use words like “whippersnappers” or “doggone it” very often, but I thought you might understand.

Answer Man paid his own travel expenses, via Amtrak, and despite his bearish outlook on casual dining, enjoyed a fine meal afterwards at the Poughkeepsie Red Lobster.

Complaining About Casual Dining Again