us restaurants 21 themes for 2021

US Restaurants21 Themes for 2021

Research Analysts

Lauren Silberman, CFA, CPA

+1 212 325 [email protected]

Douglas Eisman

+1 212 325 [email protected]

19 January 2021

Equity Research US

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

mailto:[email protected]

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Table of ContentsExecutive Summary

21 Themes for 20211. Restaurant Recovery Outlook2. Evolution of the Digital Ecosystem3. Loyalty/Rewards4. Restaurants of the Future5. Delivery6. Off-Premise in Casual Dining7. Ghost Kitchens8. Virtual Brands9. Drive-Thru & Drive-Up Curbside10. Franchisee Economics11. Breakfast Battle12. Chicken Wars13. Value & Innovation On the Menu14. Sustainability15. Plant-Based16. Labor17. Margin Outlook18. Portfolio Optimization19. Unit Growth20. M&A21. Brand Engagement

Company Summaries

3

Executive Summary

4

Coverage & Ratings11 Outperform, 1 Underperform, 5 Neutral

Source: Company data, FactSet, Credit Suisse estimates

Ticker Company CS RatingMarket Cap

($MM)

Current Price

1/15/21

CS Target

Price

Upside/

Downside

NTM

EV/EBITDANTM P/E CS Thesis

CMG Chipotle Outperform $39,218 $1,406 $1,700 20.9% 38.4x 64.8xHigh conviction in 10%+ top-line growth generating margin leverage with attractive flow-through. Strong SSS should support premium multiple, with opportunity for upside on better-

than-expected SSS, margin & unit growth.

PZZA Papa John's Outperform $3,102 $95 $110 16.5% 20.1x 42.1x

PZZA is shifting its narrative from turnaround to growth, noting pandemic-related tailwinds have accelerated the turnaround plan by a period of years and meaningfully improved the

financial positions of PZZA franchisees. We v iew PZZA as an underappreciated growth multi-year growth story with improved unit economics supporting a compelling development

opportunity. The increased growth outlook supports a valuation premium to history & restaurant peers.

DPZ Domino's Pizza Outperform $15,189 $375 $445 19.4% 21.8x 28.9x

DPZ is one of the best growth stories in restaurants, with high conviction in at least HSD top-line growth supporting global market share gains and among the best returns in the industry.

Third-party delivery concerns appear overblown, noting delivery is a core competency for DPZ, and we're not convinced 3Ps will be able to approach DPZ's execution, value or economics

anytime soon. US SSS outperformance & better-than-expected unit growth support upside to our base case.

DRI Darden Restaurants Outperform $16,595 $121 $141 17.5% 13.4x 23.2xBest-in-class casual dining operator, with industry-leading retention, well-capitalized balance sheet positioning it to invest & leveraging of scale to generate efficiencies support above-

average sales & margin performance. Expect outsized earnings growth in FY22 & return to HSD/LDD earnings algorithm in FY23.

TXRH Texas Roadhouse Outperform $5,682 $81 $90 11.6% 15.4x 30.6xStrong operational execution, compelling value and contribution from off-premise supports recovery trajectory, with favorable steak category dynamics & strong underlying business

supporting unit growth outlook. Market share gains support return to double-digit earnings algorithm in FY22 & premium valuation.

SBUX Starbucks Outperform $120,680 $102 $114 13.2% 22.1x 34.1x

SBUX is one of the highest quality growth companies in restaurants, with 8-10% revenue growth, margin expansion and benefit from repurchases supporting our ~16% EPS growth 3-

yr CAGR. US SSS leverage and strategic optionality (e.g., international licensing) support upside to our base case. A more focused growth strategy & enhanced capital structure support

premium valuation to history.

MCD McDonald's Outperform $157,665 $210 $230 12.0% 18.3x 25.1xWe're bullish on MCD's outlook, with traction against sales initiatives supporting upside to SSS and EPS near & long-term. Healthy global SSS, defensive characteristics, ongoing

transition to ~95% franchise-mix & increased digital focus should prov ide support to valuation.

QSRRestaurant Brands

InternationalOutperform $29,446 $63 $69 13.0% 17.8x 22.8x

We believe RBI’s focus on digital & drive-thru are the right areas of investment to drive SSS & enable broader strategies, RBI has demonstrated its ability to execute on unit growth, the

stock is trading at an absolute & relative discount in a sector trading at elevated levels, and RBI offers among the highest div idend yields in the space (3-3.5%), supporting our Outperform

rating

WEN Wendy's Neutral $4,661 $22 $25 16.9% 19.3x 30.0xWhile we like the WEN story and have been impressed with performance, we are cautious on incremental investments required for breakfast and international expansion, as well as the

impact of heightened competition in 2021. We're cautious on a meaningful acceleration in unit growth given recent challenges & lack of international infrastructure.

CAKE The Cheesecake Factory Neutral $1,803 $41 $44 6.7% 10.5x 27.1x

CAKE’s mall-based exposure remains an overhang on the stock and investor sentiment, especially amidst recent challenges accelerating changes in customer behavior and portfolio

optimization across retailers. We're cautious on the unit growth outlook given scarce site selection for Cheesecake Factory restaurants & execution risk for growth of recently acquired

concepts. At current valuation, we rate shares Neutral.

BLMN Bloomin' Brands Neutral $1,836 $21 $21 1.7% 8.1x 19.3xWe like BLMN's focus on off-premise & digital, supporting more resilient sales trends, though slower recovery of its upscale brands, international exposure and high leverage is likely to

weigh on valuation & sentiment.

YUM Yum! Brands Neutral $32,481 $107 $103 -1.6% 19.5x 26.5xSolid asset-light business with a strong unit growth outlook and diversified portfolio across brands and geographies. But greater v isibility into the return to the long-term 4% unit growth

algorithm is likely necessary to improve sentiment.

SHAK Shake Shack Neutral $3,890 $111 $102 -8.3% 57.6x

While we have confidence in the LT unit growth potential, SHAK faces outsized near-term risk from the impact of COVID-19 with its exposure to high-traffic, tourist areas, which will

weigh on margins. SHAK is diversifying its asset base with a range of new formats and additions to the existing system, positioning the company to increase its addressable market & long-

term unit potential. But at current valuation, we remain Neutral

JACK Jack in the Box Underperform $2,224 $100 $74 -24.1% 14.5x 17.5xWhile we've been impressed by JACK's performance over the last several quarters, greater conviction in the consistency of SSS and the unit growth strategy is necessary to close the

value gap to peers, increased investments are likely necessary to enhance the company's digital strategy and any signs of SSS deceleration will likely pressure shares.

US Restaurants Coverage

Ticker Company CS RatingMarket Cap

($MM)Current Price

CS Target

Price

Upside/

Downside

NTM

EV/EBITDANTM P/E CS Thesis

SYY Sysco Outperform $39,918 $76 $85 14.8% 16.3x 33.5xRecent challenges present a unique opportunity for the market share leader as customers seek suppliers they can trust will have the appropriate scale, capital and agility to meet needs in a

dynamic environment. SYY offers the best margin profile relative to peers and we expect SYY to continue to leverage its scale to achieve 5%+ EBIT margins over time.

PFGC Performance Food Group Outperform $6,711 $51 $56 9.4% 15.8x 35.7xPFGC is a compelling growth story well positioned to capture market share in a fragmented industry, with the company's lower independent restaurant mix and regional presence

supporting our confidence in the significant runway for growth on both the top & bottom lines, with sizable market share and margin opportunities supporting mid-teens EPS growth.

USFD US Foods Outperform $7,975 $36 $40 12.2% 13.4x 29.6xSales improvements among existing customers and the acquisition of new customers should support a full sales recapture over time, while an ongoing focus to increase private label mix &

effectively manage costs should contribute to operating margin expansion, supporting mid-teens EPS growth and helping to close the valuation gap to SYY.

Food Distribution

5

Restaurants Coverage Summary

Source: Company data, FactSet, Credit Suisse estimates

Current Mkt Ent. EV/EBITDA P/E Net Short

CS CS Price Cap Value 3-yr 3-yr Div. Debt/ Int. as %

Ticker Company Rating PT 1/15/21 ($BN) ($BN) Avg Avg Yield EBITDA of Float

Quick Service Restaurants

DPZ Domino's Pizza O $445 $375 $15.2 $18.5 21.8x 20.7x 28.9x 28.3x 0.8% 4.3x 3%

JACK Jack in the Box U $74 $100 $2.2 $3.5 14.5x 12.6x 17.5x 17.8x 0.4% 4.0x 10%

LOCO El Pollo Loco - - $20 $0.7 $0.8 15.9x 11.3x 24.3x 18.2x 0.0% 1.3x 12%

MCD McDonald's O $230 $210 $157.7 $190.9 18.3x 16.9x 25.1x 23.7x 2.4% 3.0x 1%

PZZA Papa John's International O $110 $95 $3.1 $3.7 20.1x 16.8x 42.1x 34.6x 1.0% 2.8x 13%

QSR Restaurant Brands International O $69 $63 $29.5 $40.4 17.8x 17.0x 22.8x 21.8x 3.3% 4.8x 2%

SBUX Starbucks Corporation O $114 $102 $120.7 $132.5 22.1x 16.9x 34.1x 26.8x 1.8% 1.8x 1%

WEN The Wendy's N $25 $22 $4.7 $7.0 19.3x 16.8x 30.0x 29.4x 1.4% 4.6x 4%

YUM Yum! Brands N $103 $107 $32.5 $42.6 19.5x 18.6x 26.5x 24.9x 1.7% 4.6x 2%

Average 18.8x 16.4x 27.9x 25.0x 3.5x

Fast Casual Restaurants

CMG Chipotle Mexican Grill O $1,700 $1,406 $39.2 $39.2 38.4x 27.0x 64.8x 50.4x 0.0% -0.8x 3%

NDLS Noodles & Company - - $9 $0.4 $0.4 15.7x 14.2x 33.5x 68.7x 0.0% 1.0x 5%

PBPB Potbelly Corporation - - $5 $0.1 $0.11 30.8x 18.8x 0.0% -1.1x 5%

SHAK Shake Shack N $102 $111 $3.9 $4.0 57.6x 29.7x 0.0% -2.4x 15%

WING Wingstop - - $145 $4.3 $4.8 53.0x 43.2x 102.1x 86.4x 0.4% 4.9x 8%

Average 41.2x 29.0x 66.8x 56.1x 0.3x

Casual Dining Restaurants

BJRI BJ's Restaurants - - $47 $1.0 $1.1 17.3x 11.0x 0.0% 0.5x 9%

BLMN Bloomin' Brands N $21 $21 $1.8 $2.9 8.1x 7.4x 19.3x 11.3x 3.8% 2.8x 16%

CAKE Cheesecake Factory N $44 $41 $1.8 $2.3 10.5x 9.3x 27.1x 0.5x 0.0% 2.2x 27%

CBRL Cracker Barrel Old Country Store - - $141 $3.3 $3.9 13.9x 11.0x 22.2x 17.9x 0.0% 1.6x 6%

CHUY Chuy's Holdings - - $33 $0.6 $0.6 12.8x 9.7x 30.9x 17.8x 0.0% -1.4x 7%

DIN Dine Brands Global - - $70 $1.1 $2.5 12.1x 11.4x 13.4x 12.1x 0.0% 5.7x 6%

DRI Darden Restaurants O $141 $121 $16.6 $16.1 13.4x 11.5x 23.2x 19.3x 1.1% 0.1x 3%

EAT Brinker International - - $59 $2.8 $3.8 9.7x 8.0x 17.3x 12.0x 0.0% 2.8x 11%

PLAY Dave & Buster's Entertainment - - $34 $1.6 $2.2 33.7x 13.7x 7.7x 0.0% 5.9x 24%

RRGB Red Robin Gourmet Burgers - - $25 $0.4 $0.6 17.0x 10.8x 17.2x 0.0% 2.8x 14%

RUTH Ruth's Hospitality Group - - $19 $0.6 $0.7 20.0x 12.7x 36.2x 22.0x 0.0% 0.9x 9%

TXRH Texas Roadhouse O $90 $81 $5.7 $5.5 15.4x 13.3x 30.6x 28.2x 0.0% -0.4x 6%

Average 15.3x 10.8x 24.5x 15.1x 1.9x

Food Distribution

SYY Sysco O $85 $76 $39.9 $47.0 16.3x 13.3x 33.5x 24.1x 2.3% 2.8x 1%

USFD US Foods O $40 $36 $8.0 $12.9 13.4x 10.2x 29.6x 17.4x 0.0% 4.4x 2%

PFGC Performance Food Group O $56 $51 $6.7 $9.0 15.8x 11.4x 35.7x 22.6x 0.0% 3.2x 2%

Average 15.2x 11.6x 32.9x 21.3x 3.4x

NTM NTM

6

Appetite for restaurantsPositive on near-term & long-term fundamentals

Near-term

Restaurant industry should benefit from reopening and increased consumer mobility, noting industry

participants have suggested the potential for heightened sales given pent-up demand for dining

Reduced competition supports unprecedented opportunity for market share gains among existing

restaurants

Improved margin outlook, as commentary from both publics & privates suggest improved margin

profiles in a post-COVID era

Long-term

Structural factors have supported food away from home stomach share gains over the last several

decades, such as an increase in women in the workforce, a shift in the generational timeline (people

are getting married, having children & buying homes later in life) and increased demand for

experiences over goods

Acceleration of digital strategies to drive value creation

– Opportunity for further market share gains as restaurants are better equipped to capture

customer data and incentivize behavior, including driving increased frequency and spend

– Opportunity to increase addressable markets with new formats

– Opportunity to improve margins through efficiency gains & productivity enhancements

7

Looking back on 2020Unprecedented challenges & actions

The restaurant sector faced unprecedented challenges in 2020, as restaurants were forced to

shutter on-premise dining, reconfigure operations to shift off-premise and make significant

investments to meet enhanced standards

– Restaurants was among the hardest hit sectors as an industry built around people, connections

and in-person experiences

Select acts of kindness and leadership:

Texas Roadhouse founder & CEO gave up his compensation in 2020 & contributed $5MM to

support team members; a total of 13 executives voluntarily gave up portions of their compensation

Yum! Brands CEO David Gibbs voluntarily elected to forgo his salary for the balance of 2020 to

assist with funding one-time $1,000 bonuses to team members in company-operated stores and to

the Yum! Brands Foundation Global Employee Medical Relief Fund

McDonald’s CEO Chris Kempczinski offered a 50% reduction in his base salary, and other

executives took a 25% reduction in their base salaries (4/15-9/30)

Darden CEO Gene Lee gave up his salary (3/23-5/31), and other executives also temporarily

reduced their salaries by 50% (4/13-5/31)

The Cheesecake Factory CEO David Overton, along with other executives, took a 20% reduction in

salaries

8


Select enhanced pay & benefits: Starbucks paid employees an additional $3 per hour of service pay (end of March through May)

McDonald’s gave employees at corporate stores bonuses (May)

Yum! Brands gave its restaurant general managers at company-owned restaurants $1,000 bonuses

(end of March)

Shake Shack instituted a 10% premium pay policy (end of April through mid-August) and paid

hourly employees a holiday bonus of $250-400 (December)

Chipotle boosted hourly pay by 10% (mid-March through early June) and honored bonuses

Wendy’s offered free meals to team members, emergency paid sick leave, restaurant recognition

pay (10% increase in hourly pay in April) and protected general manager bonuses

Domino’s paid bonuses to eligible company-owned store and supply chain hourly team members

Papa John’s paid bonuses to eligible company-owned store and supply chain hourly team members

We also note franchisees across brands implemented their own assistance programs, including

premium pay and bonuses to employees

9


Select franchisee assistance programs:

McDonald’s offered franchisees the option to defer rent & service fees for March & April in most

markets globally, and provided specific organizations with additional assistance where necessary

Yum! Brands offered assistance to franchisees who needed access to more capital and were in

good standing, including grace periods for certain near-term payments; the company also deferred

2020 capital obligations for remodels & new unit development for US franchisees

Restaurant Brands International advanced cash payments and rebates to franchisees in markets

globally, including ~$70MM in North America; the company temporarily converted its rent structure

where it has property control to 100% variable rent (from fixed plus variable rent) and deferred rent

payments for up to 45 days; RBI also temporarily paused capital expenditure requirements

Wendy’s extended payment terms for royalties & marketing funds by 45 days for three months,

deferred base rent payments on properties owned by Wendy’s & leased to franchisees by 50% for

three months and extended its Image Activation & restaurant development requirements by one

year; Wendy’s also suspended franchisee marketing fund contributions toward breakfast in 2020

Jack in the Box reduced April marketing fees to 4% of sales (from 5%) & postponed collection,

deferred the collection of ~40% of April franchisee rental payments and delayed FY20 franchise

development agreements by at least six months & other required capital investments

10

Looking back on 2020Performance across our coverage varied

QSR/fast casual stocks outperformed the market, up 24% on average in 2020, with the global

QSR franchisors underperforming the group, while high-growth and company-owned business

models skewed to the US outperformed

– CMG was the best performing restaurant stock (+66%), followed by SHAK (+42%), DNKN

(+41%; note: DNKN was acquired by Inspire Brands), PZZA (+34.5%) and DPZ (+30.5%)

Casual dining companies underperformed in 2020, though TXRH outperformed the market and

peers (+39%)

The food distributors meaningfully underperformed, with all three stocks down for the year

Source: FactSet, Credit Suisse

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11

Looking forward to 2021Tale of two halves, with uncertainty still on the menu

The first half of 2021 will in part look similar to what we experienced in 2020, albeit with a greater

degree of hope as the vaccine rolls out more broadly across the general population

– We expect restaurants to remain in a planning and implementation phase, strategizing on how to

most effectively capitalize on a post-COVID environment, from heightened customer demand for

social gatherings to greater real estate availability

– Near-term trajectory of reopening remains a focus after a majority of US states reversed

reopening plans amidst a resurgence of COVID-19 cases in the late fall/early winter

We believe the general consensus is that a vaccine will be available to a majority of Americans by

mid-2021 (Credit Suisse biotech team forecasts herd immunity in the US by 4Q21), suggesting a

return to a more normalized life beginning in the second half of 2021

– But herein lies a host of other uncertainties, including the pace of recovery, level of demand for

eating out, permanency of recent changes in customer behavior and where it settles in a post-

COVID environment, state of the economy, employment & business closures, as well as potential

changes with the incoming Biden administration

The impact of the economy on the industry has received less focus than expected, in part due to

the uncertainty of what the environment looks like in a post-COVID world, as well as the offsetting

dynamics from reduced restaurant supply amidst heightened closures, expectation for outsized

demand for restaurants & experiences and benefit from additional stimulus, which seems likely now

that the Democrats control all three branches of government

12

Looking forward to 2021Finding certainty in an uncertain environment

As industry participants and investors grapple with what the restaurant industry looks like in a post-

COVID world, we expect the industry to look largely similar to pre-COVID

– We do not expect any drastic, lasting changes to customer behavior or food stomach share shift

– We do expect an increased focus on digital ecosystems, personalization and enhancing

convenience – but this is more of an acceleration of trends, rather than any new trends

1) We believe relationships are best developed and enhanced in-person – technology is not yet at a

point where virtual interactions can substitute in-person experiences

2) We believe brand matters – customers are not necessarily loyal to a product, but rather loyal to a

brand; products and menu items can be commoditized over time, but experiences cannot be

replicated

– Brands like Starbucks, Chick-fil-A and Taco Bell have tribe-like followings – not necessarily

because of the food/drinks they are offering, but because they have curated experiences that

make their customers want to be part of the brand

Starbucks has consistently highlighted the importance of elevating the customer experience

by elevating its employee experience as the #1 driver of SSS

13

Looking forward to 2021Finding certainty in an uncertain environment

3) Food away from home share has structurally increased over the last several decades – driven by an

increase in women in the workforce, a shift in the generational timeline (people are getting married,

having children & buying homes later in life) and increased demand for experiences over goods

– The trajectory of the recovery as states reopen offers confidence in the resiliency of restaurant

demand, as limited service restaurant SSS have largely recovered to positive and full service

restaurants have noted demand has exceeded capacity

4) The restaurant industry is resilient – 1 in 2 Americans have worked at a restaurant at some point in

their lives and 1 in 3 Americans have had their first job at a restaurant

– The quick shift to off-premise only operations in an industry built for on-premise operations and

dining underscores the adaptability of the industry

– The restaurant industry has low barriers to entry and skills are transferable across languages,

countries and generations

5) Big companies are likely to get even bigger – they have the capital and resources to withstand a

challenging and dynamic operating environment and invest to help offset headwinds; the worse it is

in the broader restaurant industry, the better it is for large restaurant companies as supply contracts

– That said, there are implications for employment, as the restaurant industry represents 10% of

jobs and is a critical component of the value chain – based on the National Restaurant

Association, every $1 spent in restaurants contributes ~$1.60-1.90 to the economy

14

Looking forward to 2021Value Creation in Restaurants

We view technology as a key driver in the elements of value creation, unlocking opportunities to:

Leverage the box (increase in-store sales) – demand for convenience

– Unlock incremental sales through digital channels (mobile order & pay, delivery, loyalty, digital

drive-thru lanes, curbside pickup)

– Increase throughput & capacity

– Leverage customer data to incentivize behavior

Expand the global footprint – increase real estate site potential

– New formats increase addressable market

– Increase number of access points

Improve margins – generate leverage & cost saves

– Increased capacity/throughput to drive margin leverage (not constrained to three meals; reduce

processing time/speed of service)

– Cost savings (e.g., labor scheduling, inventory management, automate tasks)

15

Looking forward to 2021High Conviction Outperform

QSR & Fast Casual

Chipotle (CMG) - $1,700 Target Price

Leverage the box – implementing sales initiatives that resonate with consumers (digital, delivery,

menu innovation, marketing, operations)

Expand the global footprint – improving returns; expansion of new formats (Chipotlanes, digital-only)

Improve margins – SSS leverage and cost savings opportunities ($100K in AUVs = 100bps

restaurant margin)

Papa John’s (PZZA) - $110 Target Price

Leverage the box – implementing sales initiatives to maintain and grow sales (menu innovation,

marketing, operations, digital, delivery)

Expand the global footprint – improving returns following strong sales and in-store operational

enhancements; recruit well-capitalized franchisees into system (including refranchising opportunities)

Improve margins – SSS leverage, cost savings opportunities (corporate stores & supply chain) and

refranchising efforts

16

Looking forward to 2021High Conviction Outperform

Casual Dining

Darden (DRI) - $141 Target Price

Leverage the box – implementing sales initiatives that resonate with consumers (operations, menu

innovation, off-premise, value, marketing, digital)

Expand the global footprint – improving returns; opportunities in smaller markets

Improve margins – SSS leverage, productivity enhancements and cost savings opportunities

(simplification of menu, processes and procedures)

Food Distribution

Sysco (SYY) - $85 Target Price

Leverage multiple levers to drive organic case growth – improved restaurant traffic, acquisition of

new business and expansion of wallet share

Expand inorganic case growth – increased focus on M&A opportunities to supplement organic case

growth strategies, including expansion into new markets and categories (supporting growth of new

business and wallet share)

Improve margins – sales leverage and cost savings opportunities (already announced $350MM

structural cost savings in FY21, with more opportunities in FY22)

17

21 Themes for 2021

18

Restaurant Recovery Outlook

19

State of the industryAppetite for restaurants

The trajectory of the sales recovery has been better than initially feared as restaurants have proven

to be more resilient in an environment without dine-in as they have transitioned to off-premise

While a resurgence of virus cases has reversed reopening plans in many states, restaurants are

operationally better positioned than at the initial outbreak in mid-March and there appears to be

greater consumer trust in restaurants (as well as at-home fatigue)

Near-term, we believe trends are unlikely to meaningfully improve until states resume reopening

plans and weather is more favorable, though the rollout of several vaccines and expectations for

widespread availability by mid-2021 offer hope for a sustainable recovery (Credit Suisse biotech

team forecasts herd immunity in the US by 4Q21) – we expect 2022 AUVs to be above 2019

levels across our coverage

Over the near, medium and long-term, existing restaurants should benefit from a reduction in

industry supply – current forecasts suggest ~10-20% of restaurants have closed/will close

We expect the focus in 2021 will be on reemergence and how companies can capitalize on the

opportunities ahead with a reduction in industry supply and more favorable real estate environment

to accelerate market share gains

We view large chains as fundamentally better positioned than independents given their access to

resources & capital and more established off-premise & digital infrastructures, with a prolonged

reopening potentially leading to an even more favorable backdrop long-term

20

State of the industryTrajectory of recovery

Restaurant industry SSS have continued to improve across all segments since mid-March lows,

though the disparity in performance remains wide between limited service and full service restaurants

Restaurant SSS were down ~50% in April, improved to down 7-8% in September & October, though

began to reverse in November amidst more prohibitive on-premise dining restrictions and an increase

in COVID-19 cases; QSR SSS have remained strong, while full service trends decelerated exiting

2020

Source: Black Box, Bloomberg, MillerPulse, Credit Suisse

QSR SSS & Casual Dining SSS (MillerPulse)Restaurant Industry SSS (Black Box)

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21


Based on data from Technomic, US restaurant industry sales growth declined ~21% in 2020,

representing nearly ~$125BN, including ~$22BN from the limited service segment and ~$101BN

from the full service segment, or six years of restaurant sales growth (average ~4% per year)

Technomic estimates the restaurant industry will grow ~16% in 2021, gaining ~$73BN in sales,

including ~$20BN in limited service and ~$53BN in full service

Technomic estimates imply the restaurant industry will recapture ~91% of 2019 sales in 2021, with

limited service to recover ~99% of sales and full service to recover ~80-85% of sales

Source: Technomic, Credit Suisse

Restaurant Industry Sales GrowthRestaurant Industry Sales

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$700

200

7

200

8

2009

201

0

201

1

201

2

2013

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Sale

s ($

BN

)

QSR Fast Casual Casual Dining Midscale Fine Dining

22


Based on data from Technomic, limited service restaurant sales growth declined ~7.5% in 2020,

including QSR sales growth of down ~6.5% and fast casual sales growth of down 11-11.5%

Technomic estimates the limited service restaurant segment will grow ~7% in 2021, including QSR

sales growth of 6.5-7% and fast casual sales growth of 8.5-9%

Technomic estimates imply the limited service restaurant segment will generate ~$301BN of sales in

2021, recovering 99% of 2019 sales, with QSR sales to fully recover to ~$243BN and fast casual

sales to recover to ~$57.5BN, down ~3.5% from 2019 levels


2020/2021 Limited Service Restaurant Sales vs 2019 LevelsLimited Service Restaurant Sales

$303BN$281BN

$301BN

$0BN

$50BN

$100BN

$150BN

$200BN

$250BN

$300BN

$350BN

$400BN

2019 2020 2021

Sale

s ($

BN

)

QSR Fast Casual

-6.4%

-11.3%

-7.4%

-0.1%

-3.6%

-0.8%

-12%

-10%

-8%

-6%

-4%

-2%

0%

QSR Fast Casual Limited Service (Total)

2020/2

021 S

ale

s vs

2019 S

ale

s

2020 vs 2019 2021 vs 2019

Limited Service Restaurants

23


Based on data from Technomic, full service restaurant sales growth declined ~37% in 2020,

including casual dining down ~32.5% and midscale/fine dining down ~48.5%

Technomic estimates the full service restaurant segment will grow ~31% in 2021, including casual

dining sales growth of 26.5% and midscale/fine dining growth of 45%

Technomic estimates imply the full service restaurant segment will generate ~$226BN of sales in

2021, recovering 80-85% of 2019 sales, with casual dining sales to recover to ~$168BN, down

~14.5% relative to 2019, and midscale/fine dining to recover to ~$58BN, down ~25% from 2019


2020/2021 Full Service Restaurant Sales vs 2019 LevelsFull Service Restaurant Sales

$275BN

$173BN

$226BN

$0BN

$50BN

$100BN

$150BN

$200BN

$250BN

$300BN

$350BN

$400BN

2019 2020 2021

Sale

s ($

BN

)

Casual Dining Midscale Fine Dining

-32.5%

-46.5%

-51.5%

-37.0%

-14.6%

-24.3%-26.6%

-17.6%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Casual Dining Midscale Fine Dining Full Service (Total)

202

0/2

02

1 S

ale

s vs

201

9 S

ale

s

2020 vs 2019 2021 vs 2019

Full Service Restaurants

24

State of the industryAssessing stomach share

Food away from home has gained stomach share over the last several decades, representing more

than 50% of sales pre-COVID, and likely ~30% of occasions

Throughout the pandemic, grocery share accelerated to ~60% of spend and ~80% of occasions

We expect food away from home to regain the majority of share of spend & occasions, with any shift

in stomach share likely driven by a reduction in business & tourist occasions, albeit unlikely to be as

meaningful as many of the at-home food companies are suggesting

For reference, our estimates suggest a restaurant meal is ~2.5x more expensive than a grocery meal

Source: USDA, Credit Suisse estimates

Food at Home vs Food Away From Home % of $ Spend & OccasionsFood At Home vs Food Away From Home % of Expenditures

35%

40%

45%

50%

55%

60%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20Y

TD

% F

ood E

xpenditu

res

Food At Home Food Away From Home

0%10%20%30%40%50%60%70%80%90%

100%

Pre

-Pandem

ic

Pandem

ic

Post

-Pandem

ic

Pre

-Pandem

ic

Pandem

ic

Post

-Pandem

ic

% of $ Spend % of Occasions

% o

f S

hare

Food At Home Food Away From Home

25

State of the industryDimensionalizing trends

Segment: QSRs have outperformed full service restaurants given their channel mix (65-70% drive-thru historically & limited dine-in), value appeal and level of convenience

Channel: 1) dine-in: trends have been challenged given dine-in capacity restrictions; many limited service restaurants have been slow to reopen; 2) drive-thru: QSRs have benefitted with the channel

representing ~90% of sales, up from 65-70% historically, and prompting the rollout of curbside; 3)

digital: digital channels have increased in mix across all restaurants for both pickup & delivery

Daypart: Breakfast & late night have demonstrated the slowest recovery given a reduction in commuter traffic & social gatherings

Traffic/Average Check: Traffic has been down & average check has been up more significantly for QSRs as occasions shift to larger family meals; average check has been down for full service

restaurants given reduced beverage attachment associated with off-premise

Occasion: Restaurants have lost the single diner transaction at a higher rate given less commuter traffic, and a factor driving larger average checks as customers consolidate occasions and purchase

more family meals; the coffee/breakfast category has faced an outsized impact from the shift

Geography: Geography has been a differentiating factor for restaurant performance throughout the pandemic, as those with longer lockdowns and greater exposure to urban areas have experienced

more significant declines; the Northeast & California have been the weakest regions, while the

Southeast has consistently been the strongest region

26

Full service restaurants facing operational, financial & consumer challenges in new world

Full service restaurants have fared worse than limited service restaurants in an environment

requiring increased social distancing and increasing shift toward off-premise given:

1) Capacity restrictions and social distancing requirements limit throughput

2) Increasing shift toward off-premise channels, with many full service restaurants not positioned

for multi-channel business, leading to reduced throughput and potential changes in employee

pay (reduced % tipped workers)

3) Average checks/profitability impacted given a reduction in high-margin beverage/alcohol

attachment of off-premise (with off-premise to be a bigger part of the sales mix)

4) Incremental costs as restaurants invest to enhance safety protocols for team members and

customers, including personal protective equipment, increasing sanitization/cleaning, shift

toward more disposable tableware & menus

5) Increasing investments required for digital ecosystems, with expectation for acceleration in

cashless payment adoption, noting full service restaurants and independents in particular have

invested less in technology & digital ecosystems

6) To the extent restaurants closed temporarily, it takes time and resources to re-ramp and make

necessary modifications to operations and layouts

27

Finding the silver lining for casual diningAccelerated efforts to innovate

Casual dining represents 70%+ of full service restaurant sales, the largest subsegment, though still

relatively fragmented, with ~30%+ of sales operated by large chains, relative to 80%+ among

chains within limited service restaurants

While there are clearly challenges in casual dining as a result of COVID, we believe it has also been

a catalyst to drive much needed innovation given years of complacency and share loss to limited

service restaurants

– Off-premise – off-premise has been touted as a key initiative for casual dining chains in recent

years, and efforts have been accelerated to recover sales with a multi-channel approach

– Digital – digital innovation has been relatively limited, though such will likely be prioritized as

consumers accelerate digital adoption & seek out limited interaction, and restaurants are forced

to manage under heightened scrutiny & look for opportunities to capture occasions across

channels, with interaction outside of the restaurants’ four walls increasingly important

Greater off-premise mix also supports greater digital adoption (off-premise has higher mix of

digital than on-premise)

– Value-proposition – many casual dining chains skew toward middle income consumers with a

segment of consumers prioritizing value; given a challenging economic environment, value

proposition will be important

28

Fine dining faces most significant challengesHigh ticket, high alcohol, high business & travel exposure

Fine dining represents ~11% of full service restaurant sales, and the most fragmented subsegment,

with ~12% of sales operated by large chains, relative to 30%+ in midscale and casual dining

We view fine dining as most at risk from recent COVID-19 challenges given:

– High average ticket & most discretionary in restaurants – likely to face the most significant

headwinds in an economic downturn

– High alcohol mix – relative profitability of on-premise and off-premise checks more pronounced

– High business and traveler mix – there has been a significant reduction in discretionary spending

among corporates and reduction in travel (with uncertainty regarding timing of a recovery)

– Greater exposure to urban markets – fine dining restaurants tend to be concentrated in high

traffic urban regions

– Limited off-premise mix historically (if at all) – infrastructure, operations & food offerings are not

well suited for multi-channel approach

– Hospitality and experience key to value proposition – modifications to high-touch, personalized

experiences likely to weigh on relative value of occasion

29

Chains better positioned than independentsWell capitalized, trusted & established infrastructures

We believe large chains are better positioned than independents given:

– Most large chains have remained open throughout the pandemic, which has largely allowed them

to maintain their staff, and we expect them to be better positioned to ramp up operations as

traffic returns

– Greater access to resources and capital, noting large public chains enhanced their cash positions

through debt and equity raises to position them to weather the challenges

– More established off-premise infrastructures, as many large chains have made investments in

the back-of-house & front-of-house to enhance operations for off-premise and digital

transactions (e.g., to-go stations, enhanced layouts, online ordering platforms)

– More established digital ecosystems, including online ordering, investments in waitlist

management, investments in table top tablets, more favorable terms with third-party providers

– Greater negotiating power with suppliers, landlords and lenders

– Likely more explicit guidelines as chains share consistent operational procedures over a large

base of restaurants

– Greater concentration in QSR, fast casual & casual dining segments, which will fare better than

fine dining

30

Source: The National Restaurant Association, OpenTable, Independent Restaurant Coalition, Technomic, CNBC, The New York Times, Credit Suisse

COVID-19 to leave a lasting impact on the future of restaurant industry supply

Based on industry resources, commentary and estimates, we believe 10-20% of restaurants could

close permanently, including 25% of full service restaurants, as a result of headwinds from COVID-

19, though such could be even higher should the duration of social distancing guidelines, lingering

concerns of health/safety and negative economic impact be even worse

– The National Restaurant Association estimates 17% of restaurants have already closed (12/20)

– OpenTable has indicated 32% of independent full service restaurants in the US have closed, an

increase from an initial estimate of 25% (12/20)

– Technomic estimates ~11% of restaurants closed in 2020, including ~11% of full service

restaurants & ~7% of limited service restaurants (majority to come from independents) (11/20)

– The Independent Restaurant Coalition (IRC) suggested the possibility that 85% of independents

could close if not provided additional government funding (6/20)

– Founder and former Chairman & CEO of Starbucks Howard Schultz suggested 30%+ of

independents could close without additional government intervention (per CNBC 4/20)

Restaurateur David Chang communicated similar sentiment, suggesting government

intervention would be necessary and likely needed higher up the chain (real estate investors)

to help alleviate pressure, as well support for hospitality employees

Restaurateur Danny Meyer has discussed deep challenges facing the restaurant industry,

with rent and labor costs too high, employee wages too low and insufficient restaurant

margins, calling for a systemic change across the industry

31

Source: CNBC, Credit Suisse

A second wave of closuresOver the next 12-24 months

While estimates regarding the number of restaurants that will not reopen is grim, risk still exists for

the restaurants that are able to open

– Initial pent-up demand not sustainable, particularly as stimulus wears off, consumers spend

recent savings and the impact on the economy is better understood

– Ongoing uncertainty regarding the pace of recovery to prior sales levels, especially amidst

capacity constraints and a challenging economic environment

– Profitability of new transactions are lower

Off-premise – generally lower profitability than in-store given less beverage attachment,

incremental packaging costs and incremental delivery costs (if applicable)

On-premise – incremental costs associated with new safety standards (PPE including

sanitization, masks, gloves, disposable tableware & menus, etc.)

In a normal operating environment, 60% of restaurants fail within their first year and 80% of

restaurants close within five years, underscoring the challenges of the industry Pre-COVID, full service industry unit growth had been negative over the last two years amidst

significant cost pressures weighing on profitability despite a relatively strong consumer backdrop

32

Source: CNBC, Bureau of Labor Statistics, Credit Suisse

When one restaurant closes, another one opensRestaurant resiliency and low barriers to entry

The restaurant industry has low barriers to entry, with 67%+ of all restaurants independently owned

and operated (and 92% within the full service segment)

– With the rise of ghost kitchens & virtual brands, the barrier to entry and risk to entry are even

lower, with low cost, turnkey solutions available to test concepts and gauge demand

The restaurant industry is a critical component of the US economy, employing nearly 10% of the

American workforce

– 1 in 3 Americans have had their first job at a restaurant

– 1 in 2 Americans have worked at a restaurant at some point in their lives

Given the low barriers to entry and opportunity for ownership across people of all skill sets, the

restaurant industry has historically been very resilient

– Restaurant employment dropped by ~50% in April 2020, though the industry has brought back

~60% of the ~6.1MM jobs lost between February and April, recovering to down ~20% through

December 2020

That said, December marked the second sequential monthly decline in employment

While we do not expect all restaurants to survive, and industry supply consolidation should be

beneficial for the long-term health of the sector, we still expect to see new restaurants to open

going forward that will capitalize on consumer trends

33

Source: Credit Suisse estimates

Off-premise to remain at sustainably higher levelLimited service restaurants

We estimate drive-thru and digital channels now represent ~90% of QSR sales, up from 65-70%

pre-COVID and digital channels comprise ~50% of fast casual sales, up from ~20% pre-COVID

We expect drive-thru and digital sales to remain at a sustainably higher level, accelerating the shift

to off-premise that existed even pre-COVID, and noting digital channels are generally stickier given

the increased level of convenience

Drive-Thru

65-70%

Sales MixDrive-Thru

Mobile Order

Delivery Digital ~20%

Sales Mix

Digital

Pre-COVID Post-COVID Pre-COVID Post-COVID

QSR Fast Casual

34

Off-premise to remain at sustainably higher levelFull service restaurants

Off-Premise

10-15%

Dine-In

85-90%

Off-Premise

20-30%

Dine-In

70-80%

Even as restaurants have reopened dining rooms, off-premise sales have remained at elevated

levels, with off-premise sales volumes running ~1.5-3x pre-COVID levels as restaurants appear to

be maintaining ~50% of peak off-premise sales on average

We expect off-premise sales volumes to remain at a sustainably higher level going forward given

changes in customer behavior, enhanced execution and greater customer awareness

Pre-COVID Post-COVID

Casual Dining

Off-Premise Sales Maintained as Dine-in Opened

0% 20% 40% 60% 80% 100%

Texas Roadhouse (TXRH)

Outback (BLMN)

LongHorn (DRI)

Chuy's (CHUY)

Olive Garden (DRI)

Carrabba's (BLMN)

Red Robin (RRGB)

BJ's (BJRI)

Cheesecake Factory (CAKE)

% of Peak Off-Premise Sales

Source: Company data, Credit Suisse estimates

Post-COVID Return to Prior Sales Levels ($000s)

Scenario 1 Scenario 2 Scenario 3 Scenario 4

Off-Premise AWS $38.5 $28.8 $19.2 $9.6

% COVID Off-Premise 100% 75% 50% 25%

On-Premise AWS $38.5 $48.1 $57.7 $67.3

% Pre-COVID On-Premise 57% 71% 85% 99%

Post-COVID AWS Shift $29.2 $19.6 $10.0 $0.4

% of Total AWS 38.0% 25.5% 13.0% 0.5%

On-Premise Mix 50% 63% 75% 88%

Off-Premise Mix 50% 38% 25% 13%

35


Reduced capacity to weigh on near-term dine-in salesExpectations for gradual recovery to on-premise dining & increase in off-premise In our base case assumption, we expect full service restaurants will maintain 50% of peak

off-premise sales volumes generated when operating as off-premise only, which implies restaurants

will need to recover 85% of prior on-premise capacity to return to pre-COVID sales levels

– Implies off-premise mix increases to 25% from our assumed ~12% pre-COVID

Assuming restaurants sustainably retain 50% of off-premise sales volumes generated when operating as

off-premise only, 85% of prior on-premise capacity will need to recover to return to pre-COVID sales volumes

Assumptions

Pre-COVID ($000s)

Annualized AUV $4,000

Average Weekly Sales $76.9

On-Premise $67.7 88%

Off-Premise $9.2 12%

COVID Off-Premise Only ($000s)

Annualized AUV ($000s) $2,000

% Prior Year Sales Levels 50%

Average Weekly Sales $38.5

On-Premise $0.0 0%

Off-Premise $38.5 100%

36

Sales recovery likely to varyAcross markets, brands and segments

We expect the pace and magnitude of sales recovery to vary across markets, brands and segments

– Suburban/rural markets (and geographies not as heavily impacted) have been more resilient than urban/metro areas, which we expect to continue given a prolonged reduction in

travel/tourism and increased flexibility to work from home

– Brands that had momentum pre-COVID likely have better execution, better retention rates and established strategies, which should support recovery efforts

– Segments within full service will have varying degrees of sales recovery, with fine dining the worst positioned given higher average checks, limited off-premise & high reliance on business

travelers/private dining (50%+ sales); casual diners are better positioned given their increasing

off-premise mix helping to offset dine-in declines, particularly those with lower average checks

and a strong value perception

Given strong performance as dining rooms reopened, even amidst capacity restrictions, anticipated

benefits from industry supply consolidation, and an assumption that on-premise prohibitions are

lifted by mid-2021:

– We expect full service restaurants to gradually recover sales in 2H21, with a full recovery for casual dining chains by 2022, while higher-end restaurants could see a more prolonged recovery

given expectations for still depressed business travel & tourism – we estimate casual dining

restaurants across our coverage generate 2022 AUVs ~2-7% above 2019 levels

– We expect QSR/fast casual restaurants across our coverage to generate 2021/2022 AUVs above 2019 levels

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

SS

S

Casual Dining Steakhouse (Casual Dining) Fine Dining

37


Dining during economic downturnsEconomic challenges likely to weigh on recovery

Full service restaurant sales are more of a consumer discretionary occasion, weighing on sales

trends during economic downturns – in 2008/2009, SSS across public full service restaurant

chains were negative for nine consecutive quarters, averaging down ~4% across 2.5 years and

down ~7% at the height of the recession from 4Q08-3Q09

– Higher-end full service restaurants performed even worse, while more value-oriented players,

family dining and bar & grill concepts appeared to be more resilient

Public Full Service Restaurant Industry SSSPublic Restaurant Industry SSS

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

SS

S

FSR SSS LSR SSS

38

Source: Technomic, Credit Suisse estimates

Post-COVID OutlookBase Case Assumption

In our base case assumption, we estimate:

– Closures: 25% of independent and 10% of chain restaurants close across full service and 5% of limited service restaurants close, resulting in ~100K restaurant closures (~83K full service &

~18K limited service) or ~14% of restaurants

– Sales Shift: 50% of sales from closed full service restaurants remain within full service and 50% shift to limited service & food at home; among the sales that remain in full service, 50% of

prior chain sales and 10% of prior independent sales shift to chains; 75% of sales from closed

limited service restaurants remain within the segment, with 100% allocated to chains

Based on our assumptions, the restaurant industry will lose ~$20BN of sales (-3.5%), including lost

sales in the full service segment of ~$28 BN (-10%) and sales gains in limited service of ~$9BN

(+3%); existing full service chains should benefit by ~$4.5BN (~5.5%) and existing limited service

chains should benefit by ~$24BN (~9.5%)

-$8BN

$2.0BN$2.0BN

$2.4BN

$22BN

-$28BN

$9BN

-$20BN

-$49BN

-$15BN

$11BN

$12BN

FSR Chains FSR

Independents

FSR Chains FSR

Independents

FSR Chains FSR

Independents

FSR Sales LSRs LSRs LSRs LSR Sales Total Restaurants

FSR Closures FSR Chain Sales Reallocated FSR Independent Sales

Reallocated

Net Change LSR Closures LSR Sales

Reallocated

FSR Sales

Realloacted

Net Change Net Change

39

Post-COVID OutlookBlue Sky Scenario

In our blue sky scenario, we estimate:

– Closures: 15% of independent & 5% of chain restaurants close across full service and 5% of limited service restaurants close, resulting in ~67K restaurant closures (~50K full service &

~18K limited service) or ~10% of restaurants

– Sales Shift: 75% of sales from closed restaurants remain within the full service segment and 25% shift to limited service & food at home; among the sales that remain in the segment, 50%

of prior chain sales and 10% of prior independent sales shift to chains; 75% of sales from

closed limited service restaurants remain within the segment, with 100% allocated to chains

Based on our assumptions, the restaurant industry will lose ~$8BN of sales (-1.5%), including lost

sales in the full service segment of ~$8.3BN (-3%); existing full service chains should benefit by

~$3.7BN (~4.5%) and existing limited service chains should benefit by ~$15BN (~6%)


-$4BN

-$29BN

$1.5BN$1.5BN

$2.2BN

$20BN

-$8BN

-$15BN

$11BN$4BN

-$0.1BN

-$8BN

FSR Chains FSR

Independents

FSR Chains FSR

Independents

FSR Chains FSR

Independents



Reallocated


Reallocated

FSR Sales

Realloacted


40

Post-COVID OutlookGrey Sky Scenario

In our grey sky scenario, we estimate:

– Closures: 35% of independent & 10% of chain restaurants close across full service and 25% of independent & 5% of chain restaurants across limited service, resulting in ~164K restaurant

closures (~115K full service & ~48K limited service) or ~23% of restaurants

– Sales Shift: 50% of sales from closed restaurants remain within the full service segment and 50% shift to limited service & food at home; among the sales that remain in the segment, 50%

of prior chain sales and 10% of prior independent sales shift to chains; 75% of sales from

closed limited service restaurants remain within the segment, with 100% allocated to chains

Based on our assumptions, the restaurant industry will lose ~$28BN of sales (-5%), including lost

sales in full service of ~$38BN (-14%) and sales gains in limited service of ~$10BN (+3.5%);

existing full service chains should benefit by ~$5.4BN (~7%) and existing limited service chains

should benefit by ~$35BN (~14%)


-$8BN

-$38BN

-$28BN

-$68BN

$2.0BN $2.0BN $3.4BN

$31BN

-$26BN

$19BN

$17BN

$10BN

FSR Chains FSR

Independents

FSR Chains FSR

Independents

FSR Chains FSR

Independents



Reallocated


Reallocated

FSR Sales

Realloacted


41

Evolution of the Digital Ecosystem

42

Enhancing the digital ecosystemIntegrating technology across all facets of organization

While restaurants have increasingly invested in technological ecosystems, we believe there will be

an acceleration in the implementation of technology across all facets of the organization and the

end-to-end customer experience as restaurants seek to:

Leverage the box (increase in-store sales)

– Unlock incremental sales through digital channels (mobile order & pay, delivery, loyalty, digital

drive-thru lanes, curbside pickup)

– Increase throughput & capacity

– Leverage customer data to incentivize behavior

Expand the global footprint

– New formats increase addressable market

– Increase number of access points

Improve margins

– Increased capacity/throughput to drive margin leverage (not constrained to three meals; reduce

processing time/speed of service)

– Cost savings (e.g., labor scheduling, inventory management, automate tasks)

The second derivative of digitalFrom implementation to integration & execution

Companies across all restaurant segments have increased investments to expand digital

ecosystems, though efforts have largely been concentrated on customer facing initiatives (e.g.,

mobile order & pay and delivery), with less regard to execution or long-term implications

– Primary focus has been unlocking opportunities to leverage the box (increase in-store sales)

largely by enhancing apps to add mobile order & pay capabilities and partnering with third-party

delivery platforms

More recently, we have seen companies establishing holistic infrastructures and strategies that

permeate throughout the organization as the restaurant and technology worlds learn to coexist –

challenging given a historically antiquated industry with low profit margins

Going forward, we expect the focus will shift to what we view as the second derivative of digital

– integrating technology to unlock value across all facets of the business including: 1) customer

facing initiatives to strategically increase digital utilization, capture customer data and secure more

loyalty, and 2) back of house opportunities to enhance margins amidst increasing cost pressures

43

Leverage the box (increase in-store sales)Increase digital utilization

Digital utilization (mobile order & delivery) remains relatively limited across the industry (<10% of

sales), though companies are seeking greater digital adoption given benefits of customer data, a

stickier digital customer, higher average checks, higher frequency and more profitable orders

– While the majority of digital growth has been delivery more recently, we expect a greater focus

on pushing in-store digital adoption (primarily mobile order & pay), as digital pickup orders are

the most profitable transactions (reduces transaction time, less labor required, less wear & tear),

and companies capture valuable customer data

Increase awareness

Separate sections/signage for digital transactions, social media posts & limited time campaigns to

encourage digital downloads

Loyalty/rewards programs

Addition of loyalty/rewards programs as an incentive to accelerate mobile order adoption, noting

companies with the highest mobile order utilization have strong rewards platforms, offering

opportunities to capture data to incentivize behavior and increase customer loyalty

44

Leverage the box (increase in-store sales)Execution over implementation

Now that restaurants have added customer facing capabilities (digital app, mobile order & pay,

delivery), we believe the focus shifts to optimize digital channels within restaurants to enhance the

in-store and digital customer experience

Modify store layouts

Add separate sections dedicated to digital and out-of-restaurant orders to reduce friction

Employee operations

Assign employees dedicated to digital orders (especially during peak hours)

Invest in technology to provide tools for best execution (upgrade POS systems, digital scanners,

digitized labels, etc.)

Packaging & menu development

Invest in packaging better suited for longer travel times/more transportable & multiple handlers

Modify and reduce menu size availability for specific channels to limit complexity and optimize the

out-of-restaurant experience

45

Leverage the box (increase in-store sales)Integration of digital channels

We expect restaurants will look to upgrade digital assets for more seamless integration across all

digital channels

Integrate third-party delivery within broader ecosystems

Mitigate the “multiple-tablet” problem in what appears to be a non-exclusive world of delivery with

multiple partnerships, which should help improve accuracy and limit lost orders

Integrate delivery within apps

Limit the customer shift to third-party aggregators

Get access to customer data from delivery channels

Introduce and integrate AI

Leverage decision logic technology to learn about customers, gather data and use data to

incentivize behavior

46

47

Leverage the box (increase in-store sales)Contactless order & pay

We expect restaurants will look for opportunities to implement contactless end-to-end processes,

including digital menus, ordering solutions and payment solutions, to limit interaction and ease

transaction friction

Full service restaurants generally point to payment as a key point of friction, with digital payment

solutions an opportunity to enhance the end-to-end experience

Menus

QR codes to be scanned on tables for customers to access menus on phones

In-restaurant tablets with digitized menus

Ordering solutions

In-restaurant tablets and digital apps with features to access menus and order in-restaurant or

mobile order ahead (including opportunities for upsell and add-on)

Payment solutions

In-restaurant tablets and digital apps with features to pay at table and with order ahead

Digital order notifications

Implementation of web/app messaging and notification systems to allow guests to inform

restaurants when they arrive, and restaurants can inform guests when orders are ready for pickup

48

Leverage the box (increase in-store sales)Modify operations for off-premise mix shift

We expect off-premise sales volumes will remain elevated as execution improves, marketing around

off-premise increases and customer awareness of off-premise has grown

Restaurant layouts

Add separate sections in restaurant and kitchens dedicated to off-premise orders to reduce friction

– Reduce distance food travels from kitchen to customer to enhance wait & service times

Add separate drive-thru lanes & parking spots to facilitate off-premise operations & the multi-

channel experience

Employee operations

Assign employees dedicated to off-premise orders (especially during peak hours)

Invest in technology to provide tools for best execution (upgrade POS systems, digital scanners,

digitized labels, etc.)

Packaging and menu development

Invest in packaging better suited for longer travel times/more transportable and multiple handlers

Modify & reduce menu availability for specific channels to limit complexity & optimize the experience

Enhanced features/channel availability

Expand available channels to include mobile/web order & pay, curbside pickup, third-party delivery

49

Leverage the box (increase in-store sales)Enhance procedures to ease concerns & attract dine-in

We expect customers will be less willing to wait for tables in large crowds (and degree of use of

communal bars is uncertain), and assume they will also seek out restaurants they trust are enforcing

enhanced safety procedures for employees and customers

Reservations and table management notifications

Implementation of web/app reservation and notification systems to inform guests of table availability

and when they are ready (can also integrate access to menus, order & payment solutions, etc., for

end-to-end contactless experiences)

Contactless order & pay

Access to menus and expanded availability of contactless order & pay with in-restaurant tablets and

phones (scan QR code, use near-field communication (NPC), go to a URL, download/use app) to

limit person-to-person contact and shared surfaces (e.g., menus)

Enhanced safety procedures

Increased sanitization (cleaning products, masks, gloves, sanitary wipes), temperature checks,

employee questionnaires/certifications, disposable menus/tableware

50

Leverage the box (increase in-store sales)Build relationships outside of restaurants’ four walls

As restaurants increasingly invest in digital platforms and technology infrastructures, we expect

them to better leverage CRM tools and look to establish loyalty, engage with customers to increase

frequency and encourage the use of multiple channels (especially if more of the at-the-table

transaction occurs digitally)

Customer relationship management (CRM)

Enhance personalization through implementation of guest engagement platform, including direct

booking capabilities, personalized guest profiles, targeted promotions, etc.

Loyalty/rewards programs

Addition of loyalty/rewards programs as an incentive to accelerate digital adoption, with greater

utilization supporting more opportunities to capture customer data to be used for personalization &

segmentation to incentivize behavior & increase customer loyalty

Guest engagement platforms and loyalty programs could be even more powerful for companies with

multiple concepts and locations as restaurants seek to capture different customer occasions and

increase frequency/loyalty through personalization

Expand the global footprintNew and enhanced formats

We expect restaurants will design new formats to mitigate friction of multiple channels, encourage

higher digital utilization and take advantage of the increasing shift to off-premise channels

Digital-forward restaurants

Likely smaller stores in dense locations, with limited seating and primarily focused on off-premise

and leveraging digital channels

Delivery/carryout focused restaurants

Limited menus, smaller formats, reduced seating

Enhancements through remodels

Add elements to encourage greater digital utilization (e.g., kiosks, in-store pickup shelves, pickup

windows, mobile-only drive-thrus)

Modify back of house to limit friction, including considerations of secondary production lines and

split kitchens (if possible)

51

Expand the global footprintVirtual, host and ghost kitchens

We expect more restaurants will explore opportunities to increase in-store capacity, particularly if

there are reduced capacity requirements near-term, or explore the potential for turnkey solutions to

test new markets (particularly if the off-premise mix is expected to be high)

Virtual Kitchens/Brands

Offer opportunity to increase in-restaurant capacity as existing restaurant launches separate virtual

brand available only on third-party platforms, likely during off-peak times (potentially expand into

additional dayparts)

Host Kitchens

Offer opportunity to increase in-restaurant capacity as existing restaurant provides kitchen to be

used by external operator (available on third-party platforms) during off-peak times as an alternative

to ghost kitchen for external operator

Ghost Kitchens

Offer opportunity to increase the number of access points, enter new markets and mitigate

disruption from operating multiple channels (mobile order, delivery, catering) within restaurants

52

Improve marginsBack of house opportunities

We expect a much greater focus on unlocking back of house opportunities by integrating technology

to optimize operations and realize cost savings, moving beyond customer facing initiatives to reduce

non-value add tasks, simplify roles, reallocate resources and better leverage data across the system

Optimize resources & reduce administrative tasks

Implement labor deployment software, automated scheduling, inventory management tools, digitized

invoices, track food waste, predictive analytics

Equipment

Digitize elements of the transaction (e.g., labels, upgrade digital assets, third-party delivery

integration)

Decision logic technology

If kitchen slower, can suggest menu items that won’t compound the problem

53

Improve marginsVoice technology

We view voice as the next wave of technology, with customer facing applicability already in the

marketplace and capabilities being implemented for back of house operations, helping to offset

increasing workforce challenges and regulatory pressures unlikely to subside

Voice order taking

Implement voice technology at the drive-thru

– McDonald’s is already in test following its acquisition of AI platform, Apprente, with deployment a

key milestone in the future of voice – 1) train customers on mainstream applicability and 2)

accelerate advancements for other companies to follow

Implement technology to accept voice orders over the phone

Voice inventory management

Eliminate some of the manual work required by writing and keying in inventory checks

54

55

Improve marginsIntegrate technology to increase productivity

We expect a much greater focus on unlocking productivity opportunities by integrating technology

to optimize operations and realization of cost savings to reduce non-value add tasks, simplify roles,

reallocate resources and better leverage data across the system

Digital contactless order & pay capabilities

Digital contactless order & pay capabilities to reduce staff resources & potentially increase table turns

Optimize resources and reduce administrative tasks

Implement labor deployment software, automated scheduling, inventory management tools, digitized

invoices, track food waste, predictive analytics

Equipment

Digitize elements of transaction (e.g., labels, upgrade digital assets, third-party delivery integration)

Leverage equipment/robots to eliminate/reduce manual tasks

Decision logic technology

Predictive analytics (e.g., if kitchen slower, suggest menu items that won’t compound the problem)

Voice technology

Implement technology to accept phone voice orders & eliminate manual tasks (e.g., inventory)

Technology comes at a costCorporate Level

Technology is a perpetual cost restaurants must incur to maintain their digital ecosystems

– As customer expectations evolve and the industry faces increasing pressures, investing in

technology is critical to enhance four wall economics through top-line leverage and cost savings

Select companies are making big investments in outside firms as they seek to gain a competitive

advantage against peers (accelerate digital innovation, access to talent, etc.)

56

February 2018: $200MM in Grubhub

July 2018: Acquires license for CardFree to accelerate digital development

December 2018: Acquires QuikOrder for $77MM

February 2019: $25MM digital investment, including $15MM for Accenture partnership

March 2019: $100MM investment in Venture Fund that invests in food & retail startups

March 2019: $300MM to acquire Dynamic Yield startup & $5MM investment in Plexure

September 2019: Acquires Apprente voice tech startup; launches McD Tech Labs

March 2020: Acquires Heartstyles, a leadership development program

Technology comes at a costRestaurant Level

Infrastructure, Equipment & Software – Back of house/front of house technology and equipment, maintenance fees, support, etc. (annual & one time fees)

Technology/Digital Transaction Fees – Franchisees generally pay fees on every digital order

Credit Card Processing Fees – Digital orders generally transacted with credit/debit cards

Mobile offers and loyalty programs – Many restaurant companies offer mobile/online-specific deals to encourage utilization and loyalty programs, with restaurants incurring the cost of discounts

Delivery Fees – Incremental costs: 1) commission and delivery costs for third-party delivery (average ~15-30% of average ticket); 2) proprietary delivery infrastructure (if applicable)

Customer Level Delivery Fees – Customers pay higher prices for delivery through 1) delivery fees, 2) service fees

and 3) inflated menu prices

– Near-term, we expect customers will bear a disproportionate amount of the costs as: 1) third-

party aggregators are fighting for share and seem to be more willing to negotiate with

restaurants to accept lower rates, while shifting costs to customers through delivery & service

fees; 2) increased regulations on third-party fees in many jurisdictions limit what aggregators can

charge restaurants (for now, temporary); and 3) restaurants have flexibility in pricing menus on

third-party platforms, with most charging higher delivery menu prices relative to in-store

57

58

Inflection in digital trends and accelerating adoptionExpect increased investments and focus going forward

Customer facing technology is largely unsophisticated across full service, lagging behind upgrades

made by QSR & fast casual peers which have accelerated investments in technology in recent years

Going forward, we expect an increase in digital adoption and utilization for both off-premise and

on-premise transactions, driven by customer demand and changing restaurant operations

Sustainably higher off-premise sales mix to support increased digital utilization: – Greater awareness of digital ordering, with recent advertising focused on digital off-premise

availability

– Digital customers tend to be stickier (and do not revert back to less convenient phone/walk-in

ordering) and restaurants have captured more customer information they can use going forward

Expect increased digital adoption for on-premise: – Increased customer adoption for off-premise along maturity curve across the industry should

support an easier transition to on-premise dining

– Increased willingness from restaurants to explore and invest in technology given acceleration in

digital adoption across cohorts, supporting a better ROI

– Increased desire & acceptance of technology solutions among customers and employees to limit

interaction where possible

– Opportunities to leverage technology to generate cost efficiencies, especially given significant

margin pressures in recent years and uncertainty in the sales outlook

59

Integrate technology in & out of the restaurantUnlocking capacity & reallocating resources

Restaurants are using technology in the back of house & front of house to shift non-value add tasks,

simplify roles, reallocate resources and better leverage data across the system

– Administrative tasks – scheduling tools, inventory management tools, conversational ordering

– Equipment – digitize elements of the transaction (labels, third-party integration)

– Decision logic technology – if kitchen slower, suggest menu items that won’t compound problem

– Mobile order & pay – remove ordering, ringing up & payment process (~30% of order time)

More restaurant companies appear to be establishing “innovation labs” with cross-functional teams to

speed the level of innovation and iterations

– In November 2018, Starbucks opened the Tryer Center to accelerate innovation & reduce

implementation risk – the center is designed to have projects go from idea to action in 100 days

– In August 2019, Domino’s opened the Innovation Garage to foster a collaborative environment to

test new technology, with the capacity to configure up to two stores within 1-2 days

– In September 2019, McDonald’s announced the launch of McD Tech Labs to develop advanced

tech solutions with machine learning, AI and related technologies

– In November 2020, Chipotle announced new design concepts & menu innovation are envisioned

at the Cultivate Center, with the 22K sq ft site the home to Chipotle’s official test kitchen, the

Center of Excellence for Design & Construction, as well as a consumer research center

– In 2021, Papa John’s is opening a new global HQ in Atlanta, noting the new space will be the

testing ground for continued menu innovation and will optimize integration across all facets of the

organization

60

Loyalty/Rewards

61

Loyalty & rewards programs to enhance digital ecosystems

We view loyalty programs as an unlock to encourage greater digital utilization – attracting customers

to the digital ecosystem, with digital customers that tend to have greater frequency & higher spend,

and allowing restaurants to better manage operations and unlock throughput

– As more companies launch loyalty programs, it raises the bar for what customers expect

restaurants to offer – we have seen this with mobile ordering & delivery so far, with loyalty

seemingly the next digital initiative

Restaurants are looking to shift more orders to digital channels as digital orders: 1) have higher

average checks; 2) tend to be more profitable (lower in-store impact, eliminates ordering &

processing time); 3) can unlock capacity constraints and reduce/reallocate labor; and 4) collect data

on customers which can be utilized to inform decisions and incentivize behavior

– As mobile order & pay usage remains pretty low, and delivery is currently only available through

third-party platforms, restaurants need to find a way to get customers to use their proprietary

platforms to collect data, which is a key benefit of a loyalty program

62

The value of loyaltyIn a disloyal segment

Reviews on loyalty appear to be mixed across the restaurant space, with a few companies that have

leveraged loyalty programs as a foundation for the business (Starbucks, Domino’s), while others

have been more skeptical regarding incrementality with fear of sales dilution

Debates on the value of a loyalty program exist for both high frequency & low frequency occasions

– More bullish advocates indicate an opportunity to increase frequency & capture share

irrespective of frequency

We estimate Starbucks has the highest customer frequency of any large restaurant chain,

and its 10+ year loyalty program has driven the majority of US SSS in recent years

Domino’s has relatively limited frequency, with the average customer ordering 5-6x per year,

though the loyalty program has been a significant driver of growth since launching in 2015

– Bears note loyalty could dilute an existing occasion or increase sales without driving profitability

Tim Hortons launched its loyalty program in early 2019, which was dilutive to SSS before

modifications were made in 2020

Darden has suggested limited benefit from its loyalty program test, which has since been

canceled, though the company noted data from loyalty was richer than other channels

Our take: a loyalty program is only as powerful as the infrastructure supporting it, noting a loyalty program is a tool to capture and leverage customer data to incentivize behavior – and that can work

with both frequent and infrequent transactions if done effectively

63

What makes a successful loyalty program?Customer View

Simple – easy to join and easy to understand

– Domino’s has one of the simplest loyalty programs – buy 6 pizzas and get 1 pizza free – the program was designed to be simple, easy to understand and easy to join; the brand also has

among the largest and most successful digital platforms in restaurants

Awareness – prominently featured, effective marketing and train employees

– Feature rewards programs on websites & apps, run campaigns to encourage sign-up and

effectively train team members on the construct & value of the programs

Digital – encourage increased digital utilization

– Digital customers are stickier and digital transactions often receive the highest customer

satisfaction, likely because they provide a more seamless experience

– Restaurants with the most successful loyalty programs often have the highest digital utilization –

Starbucks, Domino’s, Panera, Chipotle

Exclusivity – offer exclusive rewards to the most loyal customers

– Chipotle launched Guac Mode in early 2020, offering customers that joined the loyalty program by 2/20 extra rewards in 2020; Chipotle also gives loyalty members early access to new product

launches, such as Carne Asada in September, as well as its Chipotle Goods merchandise lines

– Papa John’s has started to offer Papa Rewards members early access to new products, including the Double Cheeseburger Pizza in October & new Epic Stuffed Crust in December

– Dunkin’ offers DD Perks members early access to its limited-edition merchandise drops, which often sell out quickly

64

What makes a successful loyalty program?Restaurant View

The existence of a loyalty program alone is not sufficient to be an effective multi-year, profitable

growth driver – the value is in the ability to capture customer data to use for personalization and segmentation to incentivize behavior – as part of a larger omni-channel strategy

Loyalty programs also serve as promotions/discount tools, making it critical for companies to have

well established infrastructures to understand the impact of the program on sales & profitability –

driving traffic at the expense of average ticket is not what we would view as an effective program

Types of Loyalty Programs

Frequency-based – reward customers based on transactions (example: Domino’s)

Spend-based – reward customers based on $ spend (examples: Starbucks, Chipotle, Wendy’s)

Surprise & Delight – reward customers spontaneously (example: Panera)

Source: Domino’s app, Starbucks website, Company data, Credit Suisse estimates

Starbucks Domino’s

Spend-Based Rewards Program Frequency-Based Rewards Program

65


Select loyalty program spend requiredQSR & fast casual restaurants

Pizza

Fast Casual

Coffee

Burger/Sandwich & Other QSRs

$60

$60

$75

$75

$100

$100

$100

$120

Domino's

Hungry Howie's Pizza

Pizza Hut

Papa John's

Marco's

PizzaRev

Pieology

Blaze Pizza

Spend Required for Reward

$14

$23

$25

$33

$50

$15-60

$15-70

$100

$100

Chick-fil-A

Smashburger

Taco Bell

Whataburger

Subway

McDonald's

Wendy's

Wayback Burgers

Potbelly


$15

$24

$30

$50

$88

$99

$125

Noodles

Qdoba

Zoe's

El Pollo Loco

Cava

Sweetgreen

Chipotle


$20

$32

$40

$48

$50

$60

$60

$60

$12.50-75

Tim Hortons

Pret A Manger

Dunkin'

Biggby Coffee

Gregory's

Caribou Coffee

Scooter's Coffee & Yogurt

Peet's Coffee & Tea

Starbucks


66

Source: Company data, Credit Suisse

Select loyalty & rewards programsFull service restaurants

• Darden (Olive Garden, LongHorn, Cheddar’s, Yard House, Seasons 52, Bahama Breeze, The Capital Grille, Eddie V’s): brand news, events & offers – includes 25MM email addresses

• Dine Brands (Applebee’s, IHOP): e-mail program sends rewards on birthday & other offers

E-mail List

• BJ’s Restaurants: 1 point per $1 spend; 100 points for $10 credit

• TGI Fridays: 1 point per $1 spend; tiered redemption (50-150 points)

• Darden (Olive Garden, LongHorn, Cheddar’s, Yard House, Seasons 52, Bahama Breeze, The Capital Grille, Eddie V’s): cross-branded test was in <10% of stores, though pilot program has been discontinued

Spend Based

• Bloomin’ Brands (Outback, Carrabba’s, Bonefish, Fleming’s): dine 3x in 6 months & get 50% off next visit (up to $20/$40 for Fleming’s) to be used within 3 months

• Chili’s: free chips & salsa or nonalcoholic drink each visit if visit within 60 days

• Red Robin: dine 9 times, get 10th item free; 5 visits in 5 weeks, get $20 credit for next visit

Frequency Based

Company HighlightStarbucks

Starbucks has ~19.5MM members (of ~75MM Starbucks customers) in the Starbucks Rewards

program representing ~47% of US company sales and a meaningful percentage of US SSS growth

– Starbucks Rewards members are “stickier” customers with greater frequency and spend

Best-in-class digital ecosystem with evolving capabilities, digital relationships with non-reward

members and strong personalized marketing

– Ability to leverage customer data to make strategic decisions and influence behavior is & will

remain the company’s competitive advantage

67


Starbucks Rewards as % of US SalesStarbucks Rewards Members & Growth

The Starbucks Rewards program comprises ~19.5MM members with growth of 15%+ over the last five years

Starbucks Rewards members represent ~25% of Starbucks customers and an outsized 47% of US company sales

-10%

0%

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Company HighlightDomino’s

Domino’s competitive advantage is driven by how the company captures and leverages customer data

to inform strategic decisions (suggested sell, personalized marketing, new unit development, etc.)

– Digital makes up ~75% of Domino’s orders (Papa John’s ~70% & Pizza Hut ~60%)

Domino’s is the largest restaurant company that offers a frequency-based loyalty program

We estimate Domino’s has more than 30MM active rewards members, nearly 50MM members

enrolled for the loyalty program and at least 85MM total customers in its database, underscoring the

opportunity for continued meaningful contribution from Piece of the Pie Rewards going forward

68


Digital Sales MixDomino’s Rewards Members

0%

10%

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2017 2018 2019 2020E

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Active Loyalty Members (ordered within 6 months) Enrolled Loyalty Members

Company HighlightChipotle

Chipotle has grown Chipotle Rewards to ~17MM members in ~18 months, and likely ~20MM

members by the end of 2020, one of the fastest growing loyalty program in the history of

restaurants, and underscoring the power of the brand

Loyalty is still in early innings of what should be a powerful multi-year growth driver, and we expect

the brand to leverage data to incentivize behavior on a broader scale in 2021 and going forward

Assuming loyalty grows to ~20MM members by 2020 & 23MM by 2021, we estimate just 1 more

visit per new & 0.5 more visits per existing loyalty customer could contribute ~3.5% to SSS in 2021

69


Chipotle Rewards SSS ContributionChipotle Rewards Members & Growth

3.05.0

7.08.5

11.5

15.017.0

20.0

23.0

26.0

29.0

0

5

10

15

20

25

30

35

1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 2020E 2021E 2022E 2023E

Chip

otle

Loya

lty M

em

bers

(M

M)

We expect Chipotle Rewards could approach ~20MM members by the

end of 2020, and grow ~3MM thereafter

2019 2020E 2021E 2022E

Chipotle Rewards Members (MM) 8.5 20.0 23.0 26.0

YOY Change in Members 11.5 3.0 3.0

YOY % 135% 15% 13%

Average Rewards Members (MM) 4.5 14.3 21.5 24.5

Chipotle AUV ($000s) $2,205 $2,211 $2,510 $2,642

Stores (End of Year) 2,622 2,760 2,960 3,170

YOY Change in Store Count 2,533 138 200 210

Average Stores 1,356 2,691 2,860 3,065

Loyalty Members/Store (End of Year) 3,242 7,246 7,770 8,202

YOY Change in New Members/Store 4,005 524 432

Avg. Loyalty Members/Store 5,295 7,517 7,993

YOY Change in Avg New Members/Store 5,295 2,222 476

Incremental Transactions/Member 1.0 1.0 1.0

Incremental Transactions/Existing Member 0.5 0.5

Avg. Transaction Size $13.00 $13.25 $13.50 $13.75

Incremental Sales/Store ($000s)

New Members $70 $30 $7

Existing Members $49 $53

Incremental Sales/Store ($000s) $70 $79 $60

Est. SSS Contribution 3.2% 3.6% 2.4%

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Company HighlightWendy’s

Wendy’s launched Wendy’s Rewards in July 2020, a spend-based loyalty program with tiered

redemption

Wendy’s has noted the loyalty program has contributed to an increase in app downloads and early

results are in-line with expectations, with the brand seeing higher average checks and frequency

Opportunities to increase awareness through compelling offers and as part of future marketing

messages should support continued growth of the program

70

Source: Sensor Tower, Wendy’s website, Credit Suisse

Wendy’s Loyalty ProgramWendy’s Digital App Downloads

Digital app downloads accelerated starting in July

2020 following the launch of the loyalty program

Company HighlightMcDonald’s

McDonald’s plans to roll out the MyMcDonald’s Rewards program in 2021 following a loyalty program

test in Phoenix in late 2020

The rewards program will be a spend-based program with tiered redemption (similar to Wendy’s

Rewards)

71

Source: McDonald’s website, Credit Suisse

McDonald’s is launching MyMcDonald’s Rewards in 2021, a spend-based loyalty program with tiered redemption

Customers earn 100 points for every $1 spent, and can redeem rewards after spending $15-60

72

Company HighlightBloomin’ Brands

Bloomin’ has the most sophisticated rewards program in casual dining, with Dine Rewards a

frequency-based program encompassing its four concepts (Outback, Carrabba’s, Bonefish, Fleming’s)

– Bloomin’ has noted rewards members visit 3.5x more than the average customer, spend more than

3x that of a non-member and are more likely to visit multiple concepts; visits across nearly all

frequency cohorts appear to increase as a result of the rewards program

– Program characteristics: dine three times in six months and earn 50% off next visit (up to

$20/$40 at Fleming’s) with rewards expiring after three months

Bloomin’ Dine Rewards Members vs Non-MembersDine Rewards Members (MM)


1.5 1 $81

5.3

1.3

$269

Annual Visits Unique Concepts 12-Month Spend

Non-Members Dine Rewards

0.4

1.5 2.2

3.0 3.7

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5.8 6.4

7.0 7.6

8.2

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73

Restaurants of the Future

New retail formats address changing consumer demands

Restaurants have been built for customers to order at the restaurant – as consumer behaviors and

expectations evolve, and more consumers look to order digitally, restaurants are adjusting the way

they do business – opening new store formats, modifying layouts and enhancing operations

– Unlocks opportunities to improve returns and additional unit growth opportunities

The most common (and easiest to implement across different concepts) changes we see are: 1) the

addition of separate in-store pickup shelves for mobile/delivery orders to reduce friction & increase

awareness of the availability of digital orders; and 2) assign employees exclusively to digital orders

(likely during peak hours & in concepts with high digital utilization)

We are also seeing restaurants explore new store formats and layouts, with modifications including:

1) smaller store formats with limited or no dine-in seating; 2) separate entrances for delivery

couriers; 3) changes to traditional production lines (e.g., stores with down-the-line in-store ordering

could shift digital orders to separate kitchen/area); 4) addition of pickup or walkup windows; and 5)

addition/expansion of drive-thru lanes, including those exclusively for digital orders

We have also seen full service restaurant concepts test new concepts with a more “fast casual”

positioning and tech-focused integration, likely targeting a younger demographic

74

Envisioning a future for full service restaurantsOpportunity for more stomach share

We believe full service restaurants could demonstrate the most meaningful transformation following

recent challenges and learnings as they have enhanced operations to better execute off-premise,

positioning many casual dining chains to better compete with their QSR and fast casual

counterparts that the segment has lost share to over the last several years

We can envision a world where casual dining chains design new restaurants with an off-premise

focus, including the potential for drive-thru additions, smaller formats and limited seating restaurants

– In many cases, casual dining companies are generating off-premise sales that rival AUVs at QSR

and fast casual restaurants

Olive Garden is generating off-premise sales of ~$30K per week, equivalent to $1.5-1.6MM

of sales annually, relatively in-line with AUVs at Burger King & Wendy’s

The Cheesecake Factory generated off-premise sales of $75K per week when operating off-

premise only, equivalent to ~$4MM of sales annually, exceeding AUVs at the majority of

QSR/fast casual restaurants (for reference, McDonald’s AUV ~$3MM, Chipotle ~$2.2MM)

– Darden has noted plans to build new restaurants and modify layouts among existing restaurants

to enhance the curbside experience, noting plans for dedicated parking spots closer to the

kitchen to reduce the distance the food moves and greater use of technology (such as the

recent Hello I’m Here messaging feature)

Darden suggested Olive Garden could be even quicker than QSR drive-thrus, with a goal for

an average pickup time of about one minute

75

Chipotle has led the industry with its digital-forward unit prototypes, with Chipotlane units to comprise

70% of the 2021 new unit class and ~60% of the 2020 new unit class, and to represent ~10% of

the portfolio by the end of 2021

– On average, Chipotlane units in the comp base have AUVs ~10% higher than traditional units and

a ~10% higher digital mix, and Chipotlane units in the 2020 new unit class have AUVs ~25%

higher than traditional units in the class and better margins

Chipotle recently opened its first digital-only unit, the Chipotle Digital Kitchen, which requires guests

to order ahead, with the company noting the new concept will allow the brand to enter more urban

areas that otherwise wouldn’t support a full size restaurant & provides flexibility with future locations

76

Source: Chipotle, Credit Suisse


Restaurants with Chipotlanes (digital drive-up lane) are

generating better returns than traditional stores, with higher digital mixes, margins and overall sales

Chipotle is also adding new restaurant designs and improvements, including walk-up windows and better

placed in-store shelves to further enhance operations, reduce friction & increase convenience

Chipotle recently opened a digital-only restaurant that should allow the brand to

enter more urban areas and provides flexibility with future locations

Shake Shack is testing a variety of new design formats and enhancements as part of its omni-

channel strategy, including the rollout of elements of its Shack Track initiative, with the addition of

walk-up windows, drive-up windows and improved in-Shack pickup areas

– New concept designs feature dedicated curbside pickup parking spots, multiple drive-thru lanes

and separate drive-up lanes for app pickup and delivery

– Curbside pickup is available at ~70 US company units (~40% of US company base) and

represents ~1/3 of app orders where available

– The majority of new Shacks will have some version of a Shack Track in 2021, including the

brand’s first drive-thru

77

Source: Shake Shack, Credit Suisse

Company HighlightShake Shack

Shake Shack plans to open its first drive-thru in late 2021, with 5-8

targeted by the end of 2022

The majority of new Shacks in 2021 will have some version of a Shack

Track, including pick-up windows, drive-up windows & improved in-Shack pickup area

Digital represents ~60% of sales currently, up from 18% in early March,

underscoring the importance of opening new Shacks & enhancing the existing system with a digital focus

0%

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Starbucks is accelerating the rollout of Starbucks Pickup stores as it looks to reposition its asset

base with a combination of traditional café, drive-thru and digital-forward store formats (with digital-

forward store formats primarily in urban markets)

Starbucks expects its 15K+ US store portfolio to shift from 65% café/35% drive-thru currently to

16K+ US units with 55% café/40% drive-thru/5% pickup & new formats over the next three years

78

Source: Starbucks, Credit Suisse

Company HighlightStarbucks

The Starbucks Pickup store is smaller than Starbucks’ traditional

stores with limited seating and a focus on to-go orders

65% 55%

35%

40%

5%

FY20 FY23E

Café Drive-Thru Pickup/New Formats

Starbucks US Store Base (by format)

7864

115

160K 160K

980K

730K

2019 Future 2019 Future

# of Stores by Format (Midtown Manhattan) Population (Midtown Manhattan)

Café Pickup Population Daytime Population

Midtown Manhattan

US Store Base & Population

Starbucks expects its US portfolioto shift from 65% café/35% drive-

thru currently to 55% café/40% drive-thru/5% pickup & new formats over the next three years

For example, Starbucks is planning to optimize its Midtown Manhattan store base,

with nearly 20% of units to be pickup in the future, in part due to expectations for reduced commuter traffic

Taco Bell unveiled its new Go Mobile concept design, a smaller unit (~1,325 square feet vs ~2,500

square feet on average) prototype incorporating dual drive-thru lanes (including drive-thru lane

prioritizing digital orders), curbside pickup and a bellhop to facilitate mobile orders, a curbside pickup

option and smart kitchen technology

– Taco Bell plans to open its first Go Mobile restaurant in 1Q21

79

Source: Taco Bell, QSR Magazine, Credit Suisse

Company HighlightTaco Bell

The new design features dual drive-thru lanes (including for

mobile pickup), curbside & a bellhop to facilitate mobile orders

Taco Bell unveiled its new Go Mobile concept design, a smaller

unit prototype with greater technological integration

The Go Mobile concept prioritizes the drive-thru and offers a seamless

and integrated digital experience with enhanced access

KFC unveiled its Next Generation prototype that prioritizes digital integration, with modern visuals,

cubbies for digital orders, dedicated parking spots for off-premise orders and curbside delivery, self-

service kiosks, a drive-thru lane designed for mobile orders and a pickup entry for online orders

– The standard design features a smaller dining room and outdoor seating (the “Colonel’s Porch”),

with added options for off-premise

– One iteration of the new layout is an express store with no dining room

80

Source: KFC, QSR Magazine, Credit Suisse

Company HighlightKFC

KFC’s Next Generation prototype features a drive-thru lane designed

for mobile orders

Dedicated parking spots for off-premise orders, as well as a pickup

entry for online orders, creates amore seamless digital experience

The new prototype includes self-service kiosks, complementing drive-thru digital

access features

Sweetgreen unveiled designs for its first drive-thru location, set to open in Colorado in winter 2021

– The unit features dedicated parking spots with concierges for in-car ordering, a lane specifically

designed for digital pickup orders & a wayfinding feature that allows employees to easily find

guests to deliver orders

– The new concept design is part of the brand’s larger plan to expand into suburban markets

The new layout will likely be optimized for digital ordering, noting the brand already had 50%+ of

orders transacted through digital channels pre-COVID (though the elevated digital mix is likely in

part driven by the company’s concentration in urban markets)

81

Source: CNBC, NRN, QSR Magazine, Credit Suisse

Company HighlightSweetgreen

The new layout optimizes for digital ordering, which comprised 50%+ of

Sweetgreen’s transactions pre-COVID and grew 70%+ throughout the pandemic

The design also features exterior windows that enable drive-thru

customers to see the kitchen & food preparation area from their cars

The dedicated in-car ordering parking spots feature solar-

paneled overhangs and intercom boxes

Sonic released a new restaurant design, “Delight,” as part of a broader brand refresh that shifts

away from its traditional “2 Guys” marketing strategy

– The new prototype features drive-in docks for in-car ordering, a drive-thru and a covered outdoor

patio with string lights & lawn games

– The exterior is brightly-colored, and the interior features a new, more operationally-efficient

kitchen design

82

Source: Sonic, QSR Magazine, Credit Suisse

Company HighlightSonic

Sonic’s “Delight” concept features a brightly-lit, heavily-branded exterior

as part of a modernized brand identity

The new design also includes a covered patio to enhance the dine-in experience,

complementing enhancements made for its off-premise channel

One of the first “Delight” units features 18 drive-in docks for easy in-car

ordering that are wider than normal & are separate from the drive-thru lane

An Applebee’s franchisee is retrofitting a Texas location to include a drive-thru pickup window, which

will be the first for the brand

– Customers can order & pay via the brand’s digital channels, or call ahead and pay in person, and

guests will be given an estimated pickup time after they place their order

Applebee’s noted it will evaluate the performance of the new layout to determine whether it should

be included in concept designs going forward

83

Source: Applebee’s, NRN, Credit Suisse

Company HighlightApplebee’s

84

Delivery

Framing the US delivery marketDelivery continues to grow

85

Delivery represented ~$40BN of US restaurant sales in 2019, and increased to an estimated

~$70MM in 2020 as adoption among customers & restaurants accelerated throughout the

pandemic, though we would expect absolute delivery sales to decline in 2021 off of the 2020 peak,

albeit remain elevated relative to 2019

Off-premise ~$300BN

Total Restaurant Industry~$600BN

Delivery

~$70BN

Restaurant Industry ~$450BN

Restaurant Industry ~$600BN

2019 2020E

Off-Premise~$300BN

Delivery ~$40BN

Off-Premise~$330BN

Source: Euromonitor, Technomic, Credit Suisse estimates

US customers shift toward convenienceOff-premise continues to gain share

Off-premise sales growth has outpaced on-premise as customers shift toward more convenient

channels, a trend that accelerated in 2020 as off-premise represented ~70% of restaurant sales in

2020, relative to ~50% historically

– While off-premise sales mix will decrease going forward, we expect off-premise sales to remain

elevated from pre-COVID levels

Delivery is the fastest growing off-premise channel, which grew at an average of ~15% from 2017-

2019, and an estimated ~70% in 2020 (per Euromonitor)

86

Off-Premise Sales Channel CompositionOff-Premise & On-Premise Sales Composition

Source: Euromonitor, Credit Suisse estimates

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Delivery Drive-Thru Takeout

Top delivery considerations & outlookImplications for customers, restaurants & partners

Economics

– Current: high commission costs pressure margins & restaurants are increasingly shifting

incremental costs to customers

– Outlook: 1) higher delivery prices relative to in-store; and 2) costs to increasingly shift to the

customer (delivery fees, service fees, small order fees)

Data

– Current: limited access to customer data transacted through third-party platforms

– Outlook: increased focus on capturing customer data, with integration of delivery into digital apps

likely near-term; limited expectations for data sharing

Operations

– Current: omni-channel strategy increases restaurant complexity

– Outlook: restaurants to integrate with POS system, white-label delivery available directly through

app/website, modify layouts & explore alternative formats/solutions

Third-party platforms

– Current: restaurant customers are shifting to third-party customers

– Outlook: most restaurants to integrate delivery within direct digital channels and be available

through white-label & third-party delivery; partnerships with multiple aggregators (no exclusivity)

Quality

– Current: restaurants lose quality control with last mile & not all menus are conducive to delivery

– Outlook: we expect restaurants will simplify delivery menus & enhance packaging

87

Delivery pressures restaurant margins & profitabilityConvenience comes at a cost

Third-party commission and delivery costs of ~20-30% drive significant margin pressure and are a

source of concern among restaurant operators

– Commissions are customer acquisition costs to some extent, but they are perpetual, and the

convenience of offering delivery comes at a cost

While delivery transactions are generally not as accretive as in-store orders, delivery economics may

not be as bad as they seem at face value (in a normalized environment)

1) May not require incremental costs, making delivery orders more profitable assuming they are at

least partially incremental sales (e.g., unused labor capacity, rent & other fixed costs)

2) Operators may not offer same in-store deals/discounts

3) Generally higher average ticket and could be higher dollar profit, even if margins as a

percentage of sales are lower

That said, delivery is now substituting in-store transactions amidst recent challenges and the

overwhelming shift to off-premise, putting a spotlight on the margin dilutive nature of these

transactions

To address the added costs associated with delivery, restaurants (and third-party aggregators) are

increasingly shifting delivery costs to customers and improving profitability through a combination of

increased delivery menu prices, delivery fees, service fees and small order fees

88

Economics

Cost of convenienceDelivery increasingly expensive for customers

89


In-Store

Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg Check

Average Check $8.00 $12.00 $16.00 $12.00 $16.00

% Menu Price Adjustment 20% 20%

Adjusted Average Check $14.40 $19.20

Delivery Fee $1.99 $1.99 $1.99 $1.99

Service Fee 15.0% 15.0% 15.0% 15.0%

Small Order Fee (if appicable) $2.00 $2.00 $2.00 $2.00

Order Cost to Customer $8.00 $15.79 $20.39 $18.55 $24.07

Cost of Delivery - Customer Level

No Menu Price Adj. Menu Price Adj.

Restaurants are adjusting menu prices on platforms

to offset the cost of delivery

Restaurants and platforms are increasingly shifting

costs to the customer

Economics

Restaurants are increasingly raising delivery menu prices to shift the cost burden to customers and

offset incremental costs, with commentary from several restaurant companies suggesting limited

pushback from menu price increases

– Nearly every large restaurant chain has raised delivery menu prices on third-party platforms

and/or have added incremental service fees

Cost of convenienceIncreased menu prices, delivery fees & service fees

90

Source: Chipotle, DoorDash, Credit Suisse

Economics

Chipotle Delivery

(white-label through app)

Chipotle Order Ahead

(through app)

Chipotle Delivery

(through DoorDash)

Delivery menu prices are ~10-15% higher than order ahead

Delivery menu prices are ~10-15% higher than order ahead, and together with delivery & service fees, delivery prices are ~25% higher (add a $2 tip, and closer to ~45% higher)

Delivery menu prices on DoorDash are the same as white-label delivery through the Chipotle app, though delivery & service fees vary depending on the platform

Cost of offering increased accessHigher average checks & higher costs

91


Economics

Assume slightly higher packaging costs

Assume leverage from

partially fixed labor and operating costs

While delivery comes with incremental costs, delivery transactions generally have higher average

checks adding to profit dollars, though without incrementality, will be margin dilutive

– Delivery orders tend to generate average checks 1.5-2x the size of a traditional in-store order as

customers amortize the cost of delivery by ordering multiple meals or share costs with groups

Increased delivery menu prices should help offset at least some of the incremental costs of delivery

Assuming delivery occasions are at least partially incremental, delivery could be margin accretive

In-Store

Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg Check

Delivery

1.5x Avg

Check

Delivery

2x Avg Check

Average Check $8.00 $12.00 $16.00 $12.00 $16.00

Food & Paper 28.5% 29.0% 29.0% 29.0% 29.0%

Labor 28.0% 18.7% 14.0% 14.0% 10.5%

Royalty 4.0% 4.0% 4.0% 4.0% 4.0%

Advertising 4.0% 4.0% 4.0% 4.0% 4.0%

Other Operating 12.0% 8.0% 6.0% 6.0% 4.5%

Rent 12.0% 12.0% 12.0% 12.0% 12.0%

Commission 0.0% 20.0% 20.0% 20.0% 20.0%

EBITDA per order 11.5% 4.3% 11.0% 11.0% 16.0%

EBITDA $ per order $0.92 $0.52 $1.76 $1.32 $2.56

Cost of Delivery - Restaurant Level

No Incrementality Assumes Incrementality

The Value EquationAssessing the cost of convenience

The value equation suggests that value reflects the confluence of cost, quality and

speed/convenience

We believe customers are overweighting the added convenience of delivery, though we expect cost

and quality to become more important as newness declines

– We also note restaurant companies across segments are enhancing convenience by improving

omni-channel experiences beyond just delivery (e.g., separate pickup areas for off-premise

orders, digital drive-thru lanes, curbside pickup, etc.)

92

Economics

ValueQuality + Speed/Convenience

Cost

=

Delivery offers enhanced convenience

Delivery demand will likely become more elastic over time

Quality to be increasingly important as newness declines

(and costs are higher)

Who owns the data?Restaurants vs third-party platforms

Third-party platforms own the customer data for transactions through their platforms – NOT the

restaurants, underscoring the importance for restaurants to integrate delivery through their

own branded websites/apps

Data is arguably the most important element of increased digital utilization (including delivery) to

better forecast demand, personalize offers, segment customers and influence behavior

Most significant risk: third-party platforms use the rich customer data to launch their own food

offerings based on demand & trends

– Increasing availability of turnkey solutions (virtual & ghost kitchens), reducing capital

requirements and barriers to entry

We expect restaurants will increasingly look to integrate delivery within their proprietary apps, and

leverage third-party delivery companies for their local logistics platforms to fulfill orders that originate

outside of marketplaces (and through restaurants’ direct digital channels)

– Restaurants would not share transaction-level details or customer data with third-party platforms,

mitigating the negative data element associated with third-party delivery partnerships

93

Data

Delivery channel adds operational complexityUnderscores need for an omni-channel strategy

The addition of new ordering channels increases restaurant complexity, adding friction to operations

and customer experiences

– Lack of POS integration creates inefficiencies

“Multiple tablet’ problem, as restaurants require multiple tablets to key in orders if lacking

POS integration, particularly challenging in what appears to be a non-exclusive world of

delivery with multiple partnerships

– Potentially leads to slower service times for in-store customers and poor experiences for digital

customers if there is lack of signage (in-store pickup) or poor delivered quality (delivery)

New digital channels require changes in both back & front of house layouts to address congestion,

capacity constraints and added complexity

– Execution: Restaurants are adding designated pickup areas for digital/delivery orders, modifying back of house and front of house layouts and considering digital/delivery channels in

future prototypes

– Integration: Restaurants are investing in IT infrastructures to integrate delivery within their POS systems, improving accuracy and limiting lost orders, to integrate delivery within their apps, and

to increase throughput/accuracy with more automation (e.g., digitize labels, labor scheduling,

automated inventory ordering, predictive analytics)

94

Operations

Enhancing omni-channel operationsExecution & integration

Execution

Addition of designated pickup areas in restaurants for out-of-restaurant orders to reduce friction

Modification of back of house and front of house layouts

Development of new prototypes with an omni-channel focus, including pickup/delivery focused

images with limited or no dine-in seating

Integration

Integrate delivery directly within POS systems to improve accuracy & limit lost orders, reduce order

entry errors and decrease labor costs

– Technology companies such as ItsaCheckmate & Chowly enable integration of various ordering

platforms directly into POS systems, noting many restaurant companies are establishing

relationships with multiple third-party aggregators

Integrate delivery in white-label app to increase control of end-to-end experience, pricing &

customer data, and build a more holistic understanding of the digital customer, with greater

opportunities to shift customers to more margin accretive channels

95

Operations

Adding delivery to white label appOffer access & control customer experience

Chipotle & Burger King are a couple of the only large restaurant chains to offer white-label delivery directly through its app, with the companies engaging DoorDash to fulfill delivery through its

local logistics platform

McDonald’s plans to add the ability to order delivery directly through the app in 2021

Shake Shack started testing delivery integration directly through its app in late 2020 in select restaurants in Miami, with plans for a broader rollout across the system in 1H21

Wendy’s & Chick-fil-A both offer a delivery option through their apps, but the apps subsequently redirect customers to choose a third-party platform to order from, rather than keeping customers

within the brands’ digital ecosystems

96

Operations

Will restaurants do self-delivery?In our view, no

As demonstrated by third-party delivery companies, there are significant economic and logistical

complexities associated with last mile delivery, and we do not believe most restaurants are equipped

to staff and execute delivery in a profitable manner

To operate a profitable delivery network, we believe density, volume of delivery drops and

consistency are key, thus better positioning third-party delivery platforms with greater access to

customers and restaurants

Domino’s has highlighted the challenges of operating a delivery network profitably, and as a

company with arguably the most sophisticated delivery infrastructures in restaurants, Domino’s

continues to pursue a strategy to limit the distance delivery drivers travel, noting delivery in itself is

unprofitable business (the money is in the food)

97

Operations

Opportunity cost of shifting customers to third-party platforms

98

Third-Party Delivery Platforms

As restaurants partner with third-party providers and encourage customers to order through the

platforms, they are also shifting their own customers

– Introduces customers to competitors on the platform

– Lose access to valuable customer data

– Platforms don’t necessarily have restaurants’ best interest in mind

Delivery provider is last customer touchpoint, and could have implications for quality of food

delivered and overall experience

Third-party platforms increased efforts to expand the suite of offerings to restaurants, further

entrenching themselves within restaurants – CRM platforms, app development, delivery analytics,

ghost kitchens, etc.

Third-party aggregators searching for loyaltyAdds to value proposition & risk to restaurants

99


Third-party aggregators appear to be increasing efforts on attracting customer loyalty to their

platforms, with commentary suggesting minimal customer loyalty across third-party platforms

Digital pickup: While aggregators have been primarily focused on delivery, they are expanding offerings to digital pick-up – the most profitable transaction to restaurants and likely to grow to a

meaningful mix of industry transactions over time

Loyalty: Select restaurants have partnered to offer their loyalty programs through aggregator platforms – we view loyalty programs as a key value incentive to attract customers to restaurants’

proprietary platforms – shifting that availability to aggregator platforms will likely reduce customers’

willingness to transact through branded platforms

Discounts/perks: Select restaurants are partnering with aggregators to offer discounts/perks for delivery – that might encourage trial, but retrial is unclear, especially as customers have access to a

large number of restaurants also offering discounts/perks – becoming a race to the bottom

Delivery subscriptions: Aggregators offer subscription services for delivery, in which customers pay a monthly fee for unlimited delivery orders – we see this as the greatest opportunity to attract

customer loyalty to the platform, but as we expect restaurants to increasingly integrate delivery

within their own apps (and charge a delivery fee), delivery through a restaurant’s branded app is

likely more expensive than ordering the restaurant through a third-party platform – allowing third-

party platforms to offer better value than the restaurant themselves

Evolution of third-party deliveryOffering delivery in & outside of the marketplace

Over the last several years, we have seen an evolution of the services provided by third-party

delivery companies

– Grubhub (2004) and Seamless (1999) started as aggregator platforms for online food ordering,

and later expanded to start offering delivery as a service to restaurants without their own

infrastructures (2015); DoorDash (2013), Uber Eats (2014) and Postmates (2011) were started

to provide on-demand delivery for transactions through their platforms

– Third-party delivery companies continue to expand services offered & channels served, including

white-label delivery solutions to fulfill delivery orders placed outside of their marketplaces

As restaurants upgrade their digital assets and data analytics capabilities, and look to build a more

holistic digital ecosystem and customer experience, we expect them to increasingly integrate

delivery within their proprietary apps, and leverage third-party delivery companies for fulfillment

– DoorDash operates DoorDash Drive, with select national partners including Chipotle, Wingstop &

Little Caesars

– Grubhub offers Delivery-as-a-Service, with select partners including KFC & Taco Bell

– Uber Eats offers a white-label delivery solution, with select partners including Shake Shack

(started testing in late 2020, with plans for nationwide rollout in early 2021) & Sweetgreen

– Postmates provides an on-demand delivery solution for businesses across different channels and

partners with Square as a delivery service provider for merchants that work with Square

100


A new take on exclusivityNon-exclusive third-party; exclusive white-label

Large chains initially started their delivery journeys through exclusive relationships with one third-

party partner to limit operational complexity and improve deal terms (lower commissions, better

marketing support)

More recently, large chains have shifted strategies away from exclusivity, expanding their delivery

networks to work with multiple third-party providers and have presence on multiple platforms as: 1)

restaurant technology has improved to better enable integration between restaurant POS systems

and third-party partners, 2) presence on multiple platforms appears to be relatively complementary

or at least incremental (different market leaders in different markets), and 3) chains have gained

more negotiating power amidst heightened competition among aggregators and better monetization

of the value they bring to the platforms

– The shift away from exclusivity accelerated during 2020 as demand for delivery accelerated

While exclusive presence on one third-party platform is likely in the past, restaurants are exclusively

partnering with one provider for their white-label delivery solutions

– While few large chains currently offer delivery directly through their digital channels, this will be a

more important area of focus as restaurants increasingly look to capture more customer data,

build holistic digital ecosystems and regain control of as much of the end-to-end customer

experience as possible

101


Consolidation in third-party marketplaceAll about the scale

102


2020 marks a year of several notable deals in the third-party delivery space as companies seek

scale to: 1) improve economics through increased delivery driver productivity, better negotiating

power and more efficient combined delivery network; 2) realize cost synergies from lower advertising

and elimination of R&D or G&A redundancies; 3) lead to a potentially more rational/less promotional

environment; 4) offer customers more choice across a wider range of restaurants & merchants; 5)

offer restaurants more tools & technology to connect with a larger consumer base; and 6) offer

access to new markets, restaurants/merchants & customers

On June 2020, Just Eat Takeaway.com & Grubhub entered into an agreement to combine in an all-

stock deal valuing Grubhub at $7.3BN, expected to close in 1H21; the announcement followed

widely reported negotiations between Grubhub & Uber

– While consolidation with a domestic competitor likely would offer more strategic benefits, a

Grubhub/Uber transaction could have faced anti-trust obstacles

In July 2020, Uber & Postmates announced they reached an agreement in which Uber would

acquire Postmates in an all-stock transaction valued at ~$2.65BN, which closed December 2020

In a smaller deal in August 2019, DoorDash acquired Caviar for~ $410MM

DoorDash, Uber Eats, Grubhub & Postmates together represent ~99% of the US delivery marketplace

Increased regulations around third-party deliveryShifting costs

103


Many cities, counties & states have enacted legislation for temporary delivery & commission fee

caps for third-party platforms to reduce the burden as more sales have shifted to expensive and

margin dilutive delivery channels

City/county officials argue that restaurants have limited negotiating power to lower fees and capping

the fees will help ease the financial burden in an environment where delivery may be one of only a

few options, compared to an incremental revenue stream prior to the pandemic

Third-party delivery companies have argued that fee caps would ultimately be a negative for

restaurants as third-party platforms would be forced to increase delivery & service fees charged to

customers, likely reducing demand and capital allocated for promotions, and could limit their abilities

to fund benefit programs for merchants, couriers and customers, as well as relief efforts

– DoorDash & Uber Eats raised fees for customers in California to help cover new benefits for

drivers under Proposition 22

– DoorDash has reportedly raised fees in nearly a dozen cities & counties to offset fee cap limits

While all fee caps instituted have been passed as temporary, we believe the passing of the

legislation suggests there could be greater oversight regarding regulations of fee caps in the future

Increased regulations around third-party deliverySelect jurisdictions that have implemented fee caps

104

Source: Media reports, Credit Suisse


Jurisdiction Fee Cap Effective Period

Chicago, IL 15% Effective until indoor dining capacity >40% for at least 60 days

Washington, DC 15% Effective until end of public health emergency

Las Vegas, NV 15% Effective until 2/1

New York City, NY 20% Effective until 90 days after indoor dining capacity 100%

Los Angeles, CA 15% Effective until 90 days after indoor dining capacity 100%

San Francisco, CA 15% Effective until two months after indoor dining capacity 100%

San Jose, CA 18% Effective until 6/20

Oakland, CA 15% Effective until 90 days after the end of declared emergency

Santa Clara County, CA 15% Effective until end of public health emergency

Philadelphia, PA 15% Effective until 90 days after the end of public health emergency

Portland, OR 10% Effective until 90 days after the end of state of emergency

Seattle, WA 15% Effective until indoor dining is unrestricted

Oregon 15% Effective until 60 days after the end of state of emergency

Washington 18% Effective in counties with indoor dining capacity <50%

Quality control in deliveryNot all cuisines or menu items travel the same

105

Source: Credit Suisse

Quality

Certain cuisines may not travel well, which could impact the experience for the customer

– Restaurants are trimming menus that are available for delivery, often limiting what is available for

delivery to maximize quality of food delivered & reduce risk of spillage

Transport of food by third-party could have food safety implications

– Many restaurants have added adhesive seals to offer comfort in the safety of delivered orders

Companies are exploring different packaging for delivery to maintain the order’s integrity and

enhance the quality of food delivered (e.g., separate packaging for hot/cold items)

Shake Shack McDonald’s Dunkin’

Accounting for deliveryAgent vs principal; third-party vs white-label

Restaurants are accounting for delivery transactions in different ways depending on whether they

view themselves as the principal or agent and whether the delivery transaction is generated through

third-party aggregator platforms or brand channels

Third-party: Restaurants use third-party partnerships as a customer acquisition tool and to provide increased access to customers

– Revenue: gross food sales or net sales (gross food sales less commissions to third-party

partners) depending on assessment of agent vs principal arrangement

– Costs: commissions & fees paid to third-party platforms (if net sales, commissions are not

recognized on face of P&L); customers are also charged delivery & service fees, though these

costs are between the third-party platform & the customer

Commissions/fees are generally charged as a % of gross food sales

White-label: Restaurants use third-party logistics platforms to fulfill delivery demand generated through their own white-label channels (app, website)

– Revenue: gross food sales, delivery fees & service fees

– Costs: delivery fees paid to fulfill orders using third-party logistics platforms

Generally fixed fee per order

Self-delivery: Restaurants fulfill delivery through their own infrastructures– Revenue: gross food sales, delivery fees & service fees

– Costs: delivery costs incurred to fulfill order

106

Drawing a parallel to the online travel agenciesIncrementality, antiquated tech, deals & fragmentation

107

Third-party delivery marketplaces are often compared to the online travel agency (OTA) industry

with expectations for a similar share shift trajectory, especially relevant as hotels are developing

strategies to reengage with customers directly

Proliferation of OTA marketplaces in hotel industry: antiquated technology infrastructures at legacy hotel chains and strong value perceptions of online OTAs contributed to the proliferation of OTA

websites within a highly fragmented industry that had underutilized capacity, supporting the case for

incrementality

– Today, OTAs represent the majority of the online hotel booking market

The restaurant industry demonstrates similar characteristics amidst: 1) a highly competitive environment with flat traffic growth; 2) antiquated technology platforms; 3) strong growth of third-

party delivery platforms touting aggressive discounts/deals; and 4) significant supply-side

fragmentation in restaurants making marketplaces attractive for many customers (through

convenience & deals) and restaurants (incrementality)

While we recognize the similarities between the impact from OTAs on the hotel industry and the

impending challenges facing restaurants from delivery, we see key differences between the two, and

believe restaurants are better positioned to offset headwinds earlier in the trajectory of the marketplace

disruption.

Drawing a parallel to the online travel agenciesAddressable market

108

Restaurants: The delivery (direct and third-party) channel is relatively nascent, representing ~5-7% of overall restaurant sales, which means third-party aggregators are seeking to gain share from

other delivery transactions (direct) or from other dining occasions (at home, drive-thru, takeout),

which requires a shift in consumption trends

OTAs: In contrast, OTAs look to capture share from the total addressable hotel industry, and do not require a shift in consumption

Even if third-party aggregators can capture the majority of delivery sales, we believe there is a limit to

overall delivery sales penetration, insulating the industry to some extent. We do recognize third-party

aggregators are entering the mobile order ahead channel, which would expand the potential

addressable market and add to share gains (albeit at a more favorable margin).

Drawing a parallel to the online travel agenciesValue

109

Restaurants: Delivery transactions come at a much higher cost relative to other restaurant channels, which we believe is a barrier to the overall penetration of delivery and aggregator market

share

– Attractive deals/discounts by aggregators over the last couple of years have encouraged

customer acquisition and deals/discounts offered by restaurants to encourage trial (likely with

the view of high incrementality) have supported the rapid growth of third-party delivery

– As third-party aggregators face increased competition and more pressure to improve profitability,

and incrementality of delivery to restaurants declines (from substitution & broader delivery

availability), we expect the perceived value from delivery declines, noting the full cost of delivery

without subsidies is generally quite expensive (inflated menu prices, service fee, delivery fee,

small order fee, etc.)

OTAs: In contrast, OTAs are able to offer similar pricing to direct hotel bookings (and potentially perceived as better value)

We view value as a key difference in the OTA and delivery marketplace, as the cost for delivery will be

notably higher than an in-restaurant (or mobile order) transaction, relative to the same cost when

booking through an OTA or directly through the hotel.

Drawing a parallel to the online travel agenciesTransaction frequency & ticket size

110

Transaction Frequency

Restaurants: Restaurant occasions are generally higher frequency than hotel stays (average McDonald’s consumer visits ~25x per year), supporting the case for direct engagement and ability

to convince customers of the value of real estate on their phones, rather than a marketplace

intermediary

– Higher transaction frequency also provides customers more comfort around pricing expectations

OTAs: In contrast, infrequent hotel guests may be less willing to digitally engage

Ticket Size

Restaurants: Lower cost occasions reduce the need for significant comparison among all available restaurants – both price and availability

OTAs: In contrast, OTAs offer the opportunity to compare prices across different hotels, likely more important with higher ticket purchases

Customers engage with restaurants more frequently than hotels, supporting an opportunity for

restaurants to leverage that advantage to communicate the value of digitally engaging with restaurants

directly, and limiting the need for significant price comparison.

Drawing a parallel to the online travel agenciesRestaurant positioning

111

Restaurants: We believe certain segments of the restaurant industry face greater risk than others based on their relative value and convenience

– QSRs likely face less risk to aggregators (and delivery overall) given lower tickets, more

favorable value, higher penetration, greater lunch mix and already enhanced convenience with

drive-thrus

– In contrast, fast casual and casual dining concepts have higher tickets and generally do not offer

drive-thrus, making delivery much more attractive given a new form of convenience

Casual dining chains likely face the greatest risk, as the overall cost of delivery could be at parity

with the in-dining experience (drinks, desserts, in-store tips), increasing the likelihood of greater

delivery sales mix over time

– That said, the in-person restaurant experience cannot be substituted with delivery, and we

believe there will be greater demand for on-premise dining following 2020 lockdowns

Drawing a parallel to the online travel agenciesThe go-forward

112

While we believe there is a limit to the impact of aggregators on the restaurant industry relative to

the OTA marketplace, largely driven by barriers of delivery penetration, third-party delivery

companies have been making efforts to expand their suite of offerings to restaurants and increase

integration in the businesses – which could increase the current addressable market and mirror

OTAs in a bigger way

– While we do not believe the restaurant industry outlook is parallel to that of the OTAs in the hotel

industry, aggregator expansion into mobile order and other booking avenues could be a risk

going forward

Delivery mix is likely limited, but we are very bullish on where digital ordering can go

That said, restaurants are still well positioned to capture their customers directly and offset some of

the marketplace risks: 1) we are still in early innings in the digital evolution; 2) restaurants can use

brand engagement to create more loyalty and increase touch points; 3) companies are building

infrastructures to develop capabilities to personalize marketing and incentivize behavior; 4)

restaurants can increase value offered through digital channels to capture real estate on customers’

phones; and 5) commentary from aggregators has suggested limited loyalty within the aggregator

landscape (suggesting restaurants are not “too late” to get their customers back)

113

Pizza segment vs third-party delivery playersBulls vs bears

Pressure from third-party delivery on the pizza segment has been a common source of debate as

investors question the magnitude of the impact for pizza concepts that have historically faced little

competitive intrusion in the delivery channel

While aggregators have been growing rapidly and gaining share over the last few years, growth

accelerated during the pandemic as the restaurant industry was forced to largely shift operations to

off-premise only, and third-party platforms acquired significant new customers & restaurants

Bulls on the pizza segment are optimistic that pizza has sufficient mind share for delivery, and expect consumers to recognize the difference in experience, quality and value; they also point out

continued challenges regarding the economics of third-party delivery and rising cost to customers

Bears on the pizza segment argue that the recent acceleration in restaurant and customer acquisition has heightened the competitive environment, accelerated customer adoption to third-

party delivery across cohorts and has improved the economics for third-party delivery companies as

they gain scale

– Many investors expect customers will have a preference to third-party aggregator platforms in

restaurants similar to what we have seen in other industries, with comparisons to streaming

services like Netflix & Spotify

114

Source: SensorTower, Credit Suisse estimates

Third-party delivery intensifies competition, but expect stabilization from here

Aggregators have gained relative market share through restaurant acquisition, customer acquisition,

geographical expansion and subsidized delivery costs over the last several years

Our working thesis has been as the market matures, expansion wanes & discounts decline, we

believe it will be more difficult for aggregators to take as much share

Even with the accelerated adoption of delivery in 2020, average monthly app downloads among the

largest aggregators in 2020 were down ~7% from 2019 (only DoorDash was up), and average

monthly downloads among the top three pizza chains were up ~9% in 2020 relative to 2019

Pizza App Monthly DownloadsDelivery App Monthly Downloads

0MM

1MM

2MM

3MM

4MM

5MM

6MM

7MM

8MM

9MM

10MM

Jan-1

8

Mar-

18

May-

18

Jul-1

8

Sep-1

8

Nov-

18

Jan-1

9

Mar-

19

May-

19

Jul-19

Sep-1

9

Nov-

19

Jan-2

0

Mar-

20

May-

20

Jul-2

0

Sep-2

0

Nov-

20

App D

ow

nlo

ads

DoorDash Uber Eats Grubhub Postmates

0.0MM

0.5MM

1.0MM

1.5MM

2.0MM

2.5MM

Jan

-18

Mar-

18

May-

18

Jul-1

8

Sep-1

8

Nov-

18

Jan-1

9

Mar-

19

May-

19

Jul-1

9

Sep-1

9

Nov-

19

Jan-2

0

Mar-

20

May-

20

Jul-2

0

Sep-2

0

Nov-

20

App D

ow

nlo

ads

Domino's Pizza Hut Papa John's

115

Pizza well positioned for value environmentBest bang for your buck

The pizza category is well positioned for a heightened value environment, as larger, family-oriented

orders remain popular and the relative gap between pizza delivery & QSR delivery will likely expand

– Delivery menu prices are inflated on third-party platforms across the industry

– Third-party aggregators continue to increase delivery & service fees

– QSRs often do not offer the same value deals through third-party delivery as they do in-store

Relative Value – Papa John’s Direct Order vs AggregatorFamily Meal Relative Value – Domino’s vs McDonald’s

Source: Grubhub, DoorDash, Domino’s, Papa John’s, Credit Suisse estimates

116

Off-Premise in Casual Dining

117

Off-premise is a growing channel in full service restaurants & likely to represent a greater portion of mix

AUV*

Traditional

Full Service

Restaurant

Off-Premise

10-15%

Dine-In

85-90%

Off-Premise

20-30%

Dine-In

70-80%

Off-premise orders tend to generate higher average tickets relative to in-store orders with more people on the order, though generally less beverage attachment

Off-premise will likely represent a more meaningful sales mix going forward

*Average unit volume

FuturePre-COVID

118

Source: Company data, NPD Crest, Credit Suisse estimates

Multi-channel approach to capture occasionsExpanding the addressable market

The casual dining occasion is much less frequent than what exists in limited service, with the

average American eating at casual dining restaurants 17x per year (out of 185 meals), and with

~4-8 restaurants in the average portfolio, frequency per guest averages ~2-4 times per year

The low frequency nature of the industry underscores the importance of expanding the addressable

market, with potentially less risk of cannibalization given the difference in the occasion

Select casual diners have also noted high levels of incrementality with a multi-channel approach,

while others have been more skeptical and cautious that sales will shift to less profitable channels

Outback Customer Annual VisitsRestaurant Meals & Snack Occasions Per Capita

1.6 1.51.9

6.7

0

1

2

3

4

5

6

7

8

Dine In Only Delivery Only To-Go Only Delivery & Any Other

Channel

Ann

ual

Visits

0

20

40

60

80

100

120

140

160

180

200

Breakfast Casual Dining Other Lunch/

Dinner/Snacks

Total Occasions

Ann

ual

Res

taur

ant

Occ

asio

ns P

er C

apita

119


Off-premise sales mix continues to increaseReflecting demand for convenience & better execution

Off-premise represented nearly 14% of sales for public full service restaurant chains at the end of

2019, up from ~8.5% three years ago

Over the last several years, we have seen an increasing focus on off-premise as restaurants seek to

build sales through additional channels and better compete with the convenience offered by limited

service restaurants that have been gaining share

– This trend was accelerated throughout 2020

Off-Premise Mix (4Q19)Off-Premise Mix

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2016 2017 2018 2019

Off

-Pre

mise

Mix

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Carrabba's (BLMN)

Maggiano's (EAT)


Olive Garden (DRI)

Chili's (EAT)

Outback (BLMN)

Red Robin (RRGB)

Chuy's (CHUY)

Cracker Barrel (CBRL)

Applebee's (DIN)

BJ's (BJRI)

IHOP (DIN)

LongHorn (DRI)


Off-Premise Mix

120


Off-premise growth accelerated in recent monthsSupporting sustainable increase in off-premise channel

As restaurants shifted operations to off-premise only, off-premise sales volumes increased by 2-8x

pre-COVID levels, with public casual diners generating ~40-50% of prior year sales at peak off-

premise sales volumes & prior to dine-in reopens

As dining rooms reopen, restaurants appear to be maintaining ~50% of peak off-premise sales,

including Cheesecake at nearly 90% of peak off-premise, Olive Garden at ~60% & LongHorn 50%

Changes in customer behavior, enhanced execution & greater customer awareness support a

sustainable increase in off-premise sales volumes

Off-Premise Sales Maintained as Dine-in OpenedOff-Premise Average Weekly Sales (Pre-COVID & Current)

0% 20% 40% 60% 80% 100%


Outback (BLMN)

LongHorn (DRI)

Chuy's (CHUY)

Olive Garden (DRI)

Carrabba's (BLMN)

Red Robin (RRGB)

BJ's (BJRI)


% of Peak Off-Premise Sales

$0K $20K $40K $60K $80K


Outback (BLMN)

LongHorn (DRI)

Chuy's (CHUY)

Olive Garden (DRI)

Carrabba's (BLMN)

Red Robin (RRGB)

BJ's (BJRI)


Off-Premise Average Weekly Sales

Pre-COVID Off-Premise

Current Off-Premise

121

Source: Company data, Company websites, Credit Suisse

Off-premise = to-go + delivery + cateringNot all channels created equally

Off-premise comprises to-go, delivery and catering, with to-go generally the largest & most

established portion of off-premise, and delivery a more nascent (and controversial) channel

Off-premise average checks tend to be at-parity or slightly higher than dine-in transactions, with

more guests per transaction and higher appetizer & dessert attachment, offset by less beverage

(particularly alcohol) attachment

Off-Premise Channels by Concept

BJ's

(BJRI)

Outback

(BLMN)

Carrabba's

(BLMN)

Bonefish

Grill

(BLMN)

Fleming's

(BLMN)

Cheesecake

Factory

(CAKE)

North Italia

(CAKE)

Cracker

Barrel

(CBRL)

Chuy's

(CHUY)

Applebee's

(DIN)

IHOP

(DIN)

Olive

Garden

(DRI)

Longhorn

(DRI)

Cheddar's

(DRI)

Yard House

(DRI)

Seasons 52

(DRI)

Bahama

Breeze

(DRI)

The Capital

Grille (DRI)

Eddie V's

(DRI)

Chili's

(EAT)

Maggiano's

(EAT)

Red Robin

(RRGB)

Texas

Roadhouse

(TXRH)

To-Go

Delivery

(Small Order)

Catering

122


Reduced beverage attachment as headwindBeverages as most profitable menu category

Reduced beverage attachment is a meaningful headwind to the shift to off-premise (assuming

limited incrementality) and concepts with higher alcohol mixes face greater pressure

On average, the alcohol mix ranges from ~10-30% across full service restaurants, with mix

generally lower for value oriented concepts and more significant for higher-end restaurants

Beverages is the most profitable category on the menu, making it particularly important for those

with higher alcohol mixes to maintain margins

We believe alcohol margins are ~50-70%

Alcohol Mix by ConceptAlcohol Mix by Segment

0%

5%

10%

15%

20%

25%

30%

35%

Casual Dining

Steakhouse

Casual Dining Upscale Casual

Dining

Bar & Grill Fine Dining

Alc

ohol

M

ix

0% 5% 10% 15% 20% 25% 30% 35% 40%

Yard House (DRI)Eddie V's (DRI)

North Italia (CAKE)The Capital Grille (DRI)

Fleming's (BLMN)Seasons 52 (DRI)

Bahama Breeze (DRI)Bonefish (BLMN)

Buffalo Wild WingsBJ's (BJRI)

Chuy's (CHUY)Maggiano's (EAT)Applebee's (DIN)

Carrabba's (BLMN)Chili's (EAT)

Cheesecake Factory (CAKE)Texas Roadhouse (TXRH)

Longhorn (DRI)Outback (BLMN)Cheddar's (DRI)

Red Robin (RRGB)Olive Garden (DRI)

Alcohol Mix

123

Off-Premise ChannelTo-Go

To-go has comprised the majority of the off-premise channel and been a key driver of SSS in

recent years

– Accounting for to-go has likely weighed on reported traffic trends, as most restaurant

companies report off-premise orders as a single transaction, relative to in-store where traffic is

per person, inflating average check at the expense of traffic counts

Nearly every casual dining restaurant has offered to-go over the last several years given the

increasing consumer shift toward convenience and limited investment required (at a minimum,

restaurants can accept phone-in orders)

To-go orders are generally less profitable given less beverage (both alcohol & soft drinks)

attachment, though online to-go orders generate better profitability with less labor consumption

(decreased processing time) and higher average checks (higher incidence of appetizers & desserts)

– Restaurants have increasingly invested in digital infrastructures to encourage digital utilization of

off-premise orders, which we expect will be accelerated

124

Off-Premise ChannelLarger Order Catering

Catering is likely to be the smallest off-premise channel and only applicable for certain concepts

Catering often has a high degree of seasonality, skewing late in the calendar year during the holiday

time and mid-year with graduation celebrations

Catering seems to be primarily offered at Italian concepts and bar & grill concepts, which

conceptually seems appropriate given the shareability and affordability of menu offerings

– In contrast, customization in types of meat cuts and cook temperatures at steak concepts

makes it more difficult in a catering environment relative to pasta, salads and quesadillas

Since March, catering has been largely non-existent given lack of group gatherings, though we

would expect sales to return as occasions pick up over time

Throughout COVID, many restaurant chains that have traditionally not offered catering have

expanded menu offerings to include larger family meals given the shift in consumption patterns –

we believe this incremental offering could be maintained even post-COVID

125

Off-Premise ChannelDelivery

Efforts and approaches around small order delivery have been nascent and varied, as many large

chains have instead focused on more profitable off-premise channels

– The large casual dining chains tend to have greater presence in suburban/rural markets, which

have had less significant adoption of small order delivery than urban areas

– Some full service restaurants have built their own delivery infrastructures, while others have

partnered with third-party platforms

Darden offers large order delivery for Olive Garden with its own infrastructure, though Darden

has not formally established small order delivery partnerships across its brands

Bloomin’ Brands has in-house delivery at nearly all Outback & Carrabba’s restaurants and

offers delivery through DoorDash for Outback and third-party delivery through national

platforms for Carrabba’s & certain Bonefish restaurants

Cheesecake Factory offers delivery through an exclusive partnership with DoorDash

Brinker signed a multi-year exclusivity deal with DoorDash for Chili’s and Maggiano’s

Dine Brands offers delivery for Applebee’s and IHOP through multiple third-party platforms

Texas Roadhouse is not exploring third-party delivery

We believe most restaurants are not offering value deals through third-party delivery, somewhat

offsetting margin pressure from commission & delivery fees and less beverage attachment

Some full service restaurant companies are also developing virtual brands to complement their

existing restaurant operations and drive incremental sales through delivery

126

Ghost Kitchens

Ghost kitchens offer ways to expand into new markets & mitigate operational disruptions

Ghost/dark/cloud kitchens provide existing and new companies the opportunity to expand with

minimal upfront investment, lower operational costs, faster time to market, benefits from shared

services and opportunities to test new markets without significant risk

– New concepts without a physical presence could leverage a ghost kitchen to test markets

– Existing concepts could test demand in a market before opening a high cost freestanding store or use ghost kitchens to handle out-of-restaurant/digital channels (mobile order & pay, delivery,

catering) to help alleviate multi-channel disruption

Ghost kitchens usually provide standardized kitchen equipment and shared services, while

restaurant brands operating out of the kitchen facilities are generally responsible for customizable

equipment necessary for their operations and execution

As restaurants face challenges from operating multiple channels in restaurants designed for

traditional in-store orders, ghost kitchens could provide an alternative to modifying in-store

operations and layouts by taking over out-of-restaurant orders, particularly delivery (and potentially

catering), as presence in prime foot traffic locations is less important (i.e., can be within a few

blocks of high dense areas at more favorable real estate costs)

Ghost kitchens can also provide restaurants a way to increase access points, especially as they

seek to improve the quality of delivered food

127

Democratizing the restaurant industryNot so un-Amazonable

Currently ghost kitchens are positioned as complementary to the industry, but we view them as

potential competitors over time

We see cost as the key barrier to growing the delivery segment over time – in contrast, cost is not a

factor in the online travel agency world (often compared to delivery aggregator trajectory), as OTAs

offer the same (or even more favorable rates) than the alternative (direct booking)

– If aggregators can improve the cost structure of delivered meals (likely through ghost kitchens or

virtual brands), they quickly become more formidable competitors

Aggregators have the advantage of technology on their sides – these businesses are tech at

their cores, relative to restaurants which use technology as enablers for their primary food

businesses

We are already seeing aggregators partner with companies outside of the restaurant world

(e.g., supermarkets) to develop ghost kitchens and virtual brands for ready-to-eat meals

Aggregators have started to open ghost kitchens and are attracting established brands based on

known demand in select markets, suggesting the data exists and knowledge is growing – the

aggregators are supporting the businesses of the restaurants in their facilities – we envision a world

where ghost kitchens can support virtual brands based on the data captured and experiences

gained from current partner brands

128

Emerging ghost kitchen companies demonstrating solid growth as restaurants explore alternative formats

Kitchen United Mix operates commercial kitchen facilities to support multi-unit operators’ off-premise growth in new and existing markets, with pickup from KU and delivery options available

– KU offers physical space for rent, back of house labor and a technology platform to integrate

restaurants’ ordering platforms with delivery aggregators

– Customers can order from multiple restaurants operating within the facility, a competitive

advantage not available through aggregator platforms

– The company has identified opportunities to build out 400 Virtual Kitchen Centers & install 5,000

kitchens across the US;

Currently has four kitchen centers open and ~50 restaurants, with plans for 20 kitchen

centers and ~200 restaurants by the end of 2021

– KU fills a mix of local, regional and national providers within the same site, leveraging its data

analytics capabilities to curate the optimal mix of member brands that are synergistic and those

the company expects will have sufficient demand in the trade areas; member brands are also

launching virtual kitchens out of the space

– Restaurant partners can generate ~$6-7MM of volume on the high end, with mid-market brands

in new trade areas likely generating closer to ~$1MM of annualized volume

– In 2020, gross sales among restaurant partners were up 678%, and generated SSS of 377%;

KU revenue was up ~200%, with SSS ~100%

– Select restaurant chain partners include Chick-fil-A, Wendy’s, Panera & White Castle

129

Source: Kitchen United (per ICR conference), WSJ, Restaurant Business, TechCrunch, Credit Suisse


REEF Technology operates REEF Neighborhood Kitchens, providing restaurants turnkey delivery solutions for the preparation, distribution and expansion of food concepts

– The kitchens are built on parking facilities as the company seeks to transform underutilized urban

spaces into delivery hubs

– REEF is looking to expand its presence to ~10,000 delivery hubs from 4,500+ currently

– REEF raised a $700MM funding round in November, led by Mubadala Capital & SoftBank, and

joining investments from Oaktree, UBS Asset Management and Target Global

– Select restaurant partners include Wendy’s, BurgerFi and Papa Murphy’s

CloudKitchens is a delivery-only ghost kitchen company supporting virtual brands and delivery channels of existing brands, led by Uber founder & former CEO Travis Kalanick

– CloudKitchens has reportedly acquired more than 40 properties across more than two dozen

cities over the past two years, which would make the company one of the largest ghost kitchen

networks in the US

Kitopi is a managed cloud kitchen platform that partners with restaurants to expand their delivery availability, handling all operational elements for orders placed through third-party delivery apps

– The ghost kitchen operator has presence in three countries, operates more than 30 kitchens and

has more than 120 restaurant partners, and is dually headquartered in NY & Dubai

– In February 2020, Kitopi raised $60MM to expand to 100+ global locations (from 30+) and

continue to develop its in-house suite of technology services for operators

– In March 2020, Kitopi launched its groceries vertical, Shop Kitopi, currently available in Dubai

130

Source: WSJ, Pitchbook, Company data, Credit Suisse


DoorDash Kitchens operates a ghost kitchen facility in CA, offering customized kitchen space to

several operators with a focus on high-volume delivery areas for established brands

Zuul Kitchens operates delivery-only ghost kitchens that provide operational support to restaurants, recognizing kitchens have not been designed for delivery and burden traditional

operations

– In September, Zuul launched Zuul Market, a new service that delivers batch orders prepared at

its SoHo location to offices and apartment buildings in a single delivery drop

– Zuul raised a $9MM funding round in July 2020 to expand operations in NYC for a total of

$10.5MM raised to-date

– Zuul opened its first facility in NYC in September 2019

Franklin Junction, backed by private equity firm NRD Capital, provides host kitchen matching services, pairing restaurants that want to expand into new markets with restaurants that have

excess capacity

– The network is currently operating across ~35 US states with 500+ host kitchens and 20+

brand partners

Current brand partners include Ruby Tuesday, Nathan’s, Fuzzy’s Taco Shop, The Captain’s

Boil and Melt Shop

– The company recently launched a virtual concept, WingDepo, available exclusively through third-

party delivery partners, with plans to expand nationwide by early 2021

131

Source: Pitchbook, Credit Suisse

Large chains are leveraging ghost kitchens

Wendy’s opened its first ghost kitchen location in Toronto in November, in partnership with REEF– The company expects to open several ghost kitchen locations, highlighting the opportunity to

offer a new avenue for urban customers to access the brand

Cracker Barrel plans to convert one of its restaurants in Indianapolis into a catering-only kitchen to handle larger catering orders & some individual third-party delivery orders in 2021

Wingstop opened its first domestic ghost kitchen in June with a ~400 square foot unit in Dallas (relative to average unit ~1,750 square feet)

Red Lobster opened its first ghost kitchen location in Chicago in November, noting it enables the brand to efficiently expand its presence in urban markets

Nathan’s Famous: Nathan’s has utilized host & ghost kitchens to expand operations both domestically and abroad, partnering with Franklin Junction to broaden its reach in the US, Kitopi to

grow its presence in the Middle East and Reef Kitchens

Chick-fil-A has partnered with a few ghost kitchens, such as DoorDash Kitchens & Kitchen United

BurgerFi is partnering with Reef Kitchens through a licensing deal to expand its footprint in the US

Sweetgreen partners with several ghost kitchens, including CloudKitchens, Kitchen United & Zuul

132

133

Virtual Brands

Virtual brands could add to the competitive environmentIncreasing restaurant supply without a physical footprint

Virtual brands provide existing and new companies the opportunity to leverage existing capacity,

take advantage of demand, test new cuisines, menu items & dayparts and attract incremental

customers and occasions

– Offer the opportunity to increase in-restaurant capacity as existing restaurants launch separate

concepts available exclusively on third-party platforms

– Require minimal upfront investment and incremental operating costs

Third-party delivery companies are also using data to determine demand for specific cuisines in

select markets to partner with existing restaurants to launch virtual brands, with third-party delivery

companies completing the last mile and splitting profits with the restaurants

– We envision a world where ghost kitchens can support virtual brands based on the data captured

and experiences gained from current partner brands

134

Large chains are launching virtual conceptsTo complement existing restaurant brands

It’s Just Wings (Brinker International)

In partnership with DoorDash, Brinker launched It’s Just Wings, a chicken-wing virtual brandavailable across more than 1K Chili’s & Maggiano’s restaurants

It’s Just Wings is one of a few virtual concepts with its own website, underscoring the strategy to

build a brand for the long-term, noting Brinker expects to generate annualized sales of $150MM in

the first year, implying sales of ~$150K per restaurant with limited incremental investment

It’s Just Wings features a simplified menu with three varieties of wings and several sauces

Given the success of the brand, Brinker has suggested it is considering non-virtual options, as well

as the opportunity to expand its virtual brand portfolio with additional concepts

Tender Shack (Bloomin’ Brands)

Bloomin’ is testing Tender Shack, a virtual chicken brand, noting an opportunity to expand the

concept across its portfolio of restaurants

– Tender Shack offers a limited menu of chicken tenders, sandwiches and sauces

Neighborhood Wings by Applebee’s (Dine Brands)

Dine Brands launched Neighborhood Wings by Applebee’s in partnership with Grubhub, noting

wings are a top selling menu item at Applebee’s, and the new concept provides an opportunity for

incremental sales and for the brand to test new wings flavors

Unlike peers, the virtual concept features the Applebee’s brand in the name

135

Large chains are launching virtual conceptsTo complement existing restaurant brands

Pasqually’s Pizza & Wings (Chuck E. Cheese)

Chuck E. Cheese launched Pasqually’s Pizza & Wings, available on Grubhub, Uber Eats, DoorDash

and Postmates across its system, featuring a limited menu of pizza and wings/apps, with links to its

third-party partners to order

The Wing Experience & The Burger Experience (Smokey Bones)

Smokey Bones launched The Wing Experience, a virtual wing concept, and The Burger Experience,

a virtual burger concept, featuring the company’s top selling wings and burgers, as well as specific

items created for the virtual concepts

Wingville (Fazoli’s)

Fazoli’s launched a new wing concept, Wingville, to be available across the system by spring 2021

– Early tests showed a nearly 11% increase in sales and the brand is projecting an incremental

$2,500 per week per location

– The new equipment unlocks opportunities for additional menu items that the brand otherwise

had not been able to offer (fried mozzarella skewers, toasted ravioli, Pasta chips, Italian nachos)

The Burger Den & The Melt Down (Denny’s)

Denny’s is launching two delivery-only concepts, The Burger Den & The Melt Down, in February

across half of its ~1,500 units, noting favorable test results and high incrementality

136

Source: NRN, QSR Magazine

Franchising virtual brandsUncertain long-term value creation

Virtual Dining Concepts (VDC) is a company launched in early 2020 by Earl Enterprises, which

provides a turnkey solution for restaurants to launch and operate a virtual dining brand available

through the VDC platform

VDC is essentially a franchisor of a portfolio of virtual brands that operators can select from for their

restaurants, with each VDC concept including fully branded packaging, marketing support and

social media, and VDC having existing relationships with leading e-commerce platform Olo, as well

as with third-party delivery providers including DoorDash, Grubhub, Postmates and Uber Eats

VDC offers ~15 virtual concepts on its platform for operators to choose from across different

cuisines, with several launched in collaboration with celebrities & influencers, including MrBeast,

Mariah Carey, Tyga, Mario Lopez and Pauly D

VDC suggests restaurants will earn 30% profit on every dollar of sales generated through the virtual

brand, which we believe assumes no incremental equipment, labor or rent is required

VDC exemplifies the risk we see regarding virtual brands, ghost kitchens and third-party

partnerships – restaurant operators increase the value of the brands on the platform through

awareness and execution at no cost to VDC, gaining sales near-term, though there is no added

value to their core brands long-term and any kitchen facility (restaurant or not) can operate these

brands

137

Note: Virtual Dining Concepts is a subsidiary of Earl Enterprises, portfolio company operator of hospitality & restaurant brands including Brio Italian Grille, Bravo! Italian Kitchen, Planet Hollywood, Buca di Beppo, Bertucci’s, Earl of Sandwich & more.

Food distributors look to support virtual conceptsCapitalizing on the off-premise opportunity

In August 2020, US Foods launched US Foods Ghost Kitchens, a program designed to streamline

the process for operators to start a virtual concept, including technology to help identify menu

opportunities, dedicated marketing support and a detailed playbook to guide decision making

– Through its Ghost Kitchens program, US Foods suggests it could help launch a virtual brand

within three weeks at an average start-up cost of ~$5K and average profit margin of 35%+

In September 2020, Sysco announced the launch of Foodie Solutions, an innovative platform that

provides toolkits focused on strategies that capitalize on the increased demand for delivery and

alternative dining options

– The Virtual Kitchen Toolkit includes information on operating a virtual kitchen, noting they support

expansion efforts into new markets for traditional brick & mortar restaurants, could be the next

step for food truck operators to scale their brands and could be a low-cost option for an

emerging operator looking to enter foodservice and test a concept

138

Virtual concepts to add sales near-termBut cautious on long-term value creation

We are cautious on the long-term value creation from the launch & implementation of virtual brands:

– Requires restaurants to shift focus and investments away from the core brand, and allocate

resources and time to an initiative that might be near-term

– Success in large part is driven by an external party (aggregators), with high reliance on

placement on third-party partnerships, noting algorithms and relationships can change frequently

and without control

– To extent restaurants franchise/license a virtual brand, they would be building up brand equity for

an external party with limited, if any, benefit to them long-term

– Risk of lack of transparency to consumers

While we do see the opportunity for virtual brands to add sales near-term, we see limited benefit to

long-term value creation, noting these concepts that exclusively exist on third-party platforms can be

removed as easily as they were added (and third-party platforms will likely create their own)

We believe the vast majority of value in restaurants is derived from the brand itself – virtual concepts

do not contribute to building brand equity, nor do they benefit from existing brand equity

We do not believe all virtual concepts will be unsuccessful – should restaurants allocate resources to

develop and execute a brand that is complementary to existing operations, it can contribute to long-

term value creation – but the underlying implication is that the value comes from the brand, and

success is predicated on the same drivers that would make a brand with a physical footprint

successful

139

140

Drive-Thru & Drive-Up Curbside

141

Every ~10 seconds saved at drive-thru = 1% in salesper former McDonald’s CEOs Jack Greenberg & Don Thompson and Wendy’s CEO Roland Smith

Drive-thru has historically represented 65-70% of sales for QSRs, making it a critical element to

unlock throughput gains, noting service times can have a meaningful impact on unit sales

– The drive-thru channel has performed well throughout the pandemic, now representing ~90% of

QSR sales, and will likely settle above pre-COVID levels even as the environment normalizes

Based on a study conducted by SeeLevel, on average, it took a drive-thru customer approximately

six minutes to wait & be serviced at the drive-thru in 2020, up ~30 seconds from 2019 and nearly

90 seconds from 2016

Change in Drive-Thru Time (Seconds)Drive-Thru Time (Seconds)

Source: SeeLevel, Credit Suisse

150

200

250

300

350

400

2016 2017 2018 2019 2020

Drive

-Thru

Tim

e (

Seco

nds)

Note: Drive-thru time represents wait times + service times.

0

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020 Total

Change in D

rive

-Thru

Tim

e (

Seco

nds)

142

Drive-thru times have slowed across chainsAs menu & in-store complexity have increased

Increased menu complexity (larger menus, more customization) & the addition of digital channels are

creating a more challenging operational environment in an industry where turnover can be 100%+

Despite the implementation of simplification initiatives implemented over the last couple of years, we

have yet to see a meaningful inflection in drive-thru times

QSRs continue to make efforts to improve drive-thru service times through menu simplification and

technological integration, with implications on both the top & bottom lines

The increase in drive-thru mix throughout the pandemic has likely weighed on 2020 drive-thru times

Change in Drive-Thru Time (Seconds)Drive-Thru Time (Seconds) – 2020 and Change 2020 vs 2016

Source: SeeLevel, Credit Suisse

0

20

40

60

80

100

120

140

160

150

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450

500

550

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Change in D

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)

2020 D

rive

-Thru

Tim

e (

Seco

nds)

2020 Drive-Thru Time Change in Drive-Thru Time (2016-2020)

Note: Drive-thru time represents wait times + service times.

-50

0

50

100

150

200

Chic

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Change in

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2017 2018 2019 2020 2016-2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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143

Convenience is kingMajority of traditional QSR asset bases have drive-thrus

Drive-thrus offer increased access and convenience for customers, supporting AUVs that are ~20-

30% higher on average, noting the majority of QSR asset bases incorporate drive-thrus

– Many companies are adding additional drive-thru lanes for remodeled restaurants where possible

and new prototypes are being built to with multiple drive-thru lanes (note: there is generally an

option for a digital-focused drive-thru lane)

On average, drive-thru stores represent 95%+ of asset bases for traditional QSRs

Some restaurants have suggested potential for drive-thru only stores (e.g., Wendy’s, Jack in the Box)

Drive-Thru Stores as % of US Asset BaseDrive-Thru Sales Mix


Volume Increases ~20-30%

AUV*

Traditional

QSR

Drive-Thru

65-70%

Sales Mix

*Average unit volume

144

Speeding up the drive-thruSimplification & reducing complexity

Over the last couple of years, nearly every restaurant in our coverage has talked about efforts to

improve drive-thru times given the importance of a channel representing 65-70% of QSR sales

– Initiatives include: 1) remove low-volume menu items/platforms; 2) rationalize repetitive and slow

moving SKUs; 3) limit the available menus across channels & dayparts; 4) optimize in-restaurant

layouts & processes; and 5) shift non-value add or administrative tasks out of the restaurant

Traffic gains – greater throughput unlocks transactions at peak dayparts driving traffic improvement– But likely takes time to be realized by customers (takes a few times to realize faster drive-thru)

– We see drive-thru service times as critical to the breakfast daypart, noting breakfast tends to have

an outsized drive-thru sales mix relative to other dayparts

– Use of technology at drive-thru (e.g., digital menu boards, handheld POS) could also generate

higher average checks and throughput gains

Cost savings – menu and operational simplification should unlock labor and cost of goods savings (e.g., less labor required, less food waste, remove slow moving & more complex products)

We believe dynamics throughout the pandemic could be weighing on the flowthrough of productivity

gains as 9 in 10 occasions have been transacted at the drive-thru (where drive-thrus are available)

and order sizes have been meaningfully larger than normal

145

Select simplification initiatives across our coverageMenus, processes, layouts

McDonald’s – simplified its menu in mid-March, which has supported an improvement in drive-thru times (~25 seconds) and gross margins – most notably removed All Day Breakfast, which is unlikely

to come back in full across all markets; in recent years, McDonald’s has also removed its Signature

Crafted sandwich line, increased flexibility in breakfast offerings after 10:30AM and rolled out digital

menu boards across the US system

Taco Bell – simplified its menu by removing 25+ items in 2020; reduced the size and availability of its breakfast offerings; drive-thru times have improved 17 seconds year-over-year

Shake Shack – streamlined its menu in early 2020 to reduce complexity in response to the challenging operational environment, including the removal of some noncore items (e.g., Chicago

hotdog, concretes)

Wendy’s – continues to look for simplification opportunities – automate more tasks, remove lower volume menu items (i.e., chicken tenders were removed to bring on Made to Crave); enhance drive-

thru speed

Jack in the Box – indicated opportunities to rationalize SKUs (sauces, bread carriers, cheese), equipment and procedural changes; targeting a one minute reduction in drive-thru wait times

Dunkin’ – rolled out menu simplification initiative (removed ~10% of required items & 23 optional items) in 2017/2018, noting it drove a ~1% SSS drag and 100bps margin improvement; now

appears to innovate with “one off, one on” approach, with each new product replacing an existing one

146

Fast casual exploring drive-thrusDigital to enable increased convenience

While drive-thru is not a key attribute for fast casual asset bases, many are testing drive-thru

prototypes to enhance their competitive positioning as customers increasingly demand convenience

– This likely modifies unit growth strategies and could support an increase in addressable markets

as fast casuals expand into sites that might otherwise not have been suitable

Chipotle has expanded its strategy for Chipotlanes, the company’s digital drive-thru, noting ~10% of the portfolio will incorporate Chipotlanes by the end of 2021, and ~70% of new opens in 2021 will

be Chipotlane units

– Chipotlanes in the comp base have AUVs 10%+ higher than traditional stores in their unit class &

the 2020 Chipotlane unit class opened with AUVs 25% higher than non-Chipotlanes in the class

Shake Shack is opening its first drive-thru location in late 2021, and is targeting 5-8 drive-thrus by the end of 2022, noting the drive-thru model is “an important step towards increasing Shake Shack’s

addressable market opportunity”

Cava has a “Pickup by Car” option in several of its locations, which is effectively a digital drive-up window similar to Chipotlanes, with the company noting strong adoption from guests

Sweetgreen plans to open its first drive-thru in 2021 as part of a broader strategy to expand into suburban markets

Smashburger is exploring new prototypes, including a virtual drive-thru

BurgerFi recently opened its first drive-thru restaurant

147

Convenience with curbsideEnhancing access without the drive-thru

Restaurants across the industry are adding curbside options to increase access and convenience

where drive-thru is not available

– Curbside is generally a feature exclusively available for digital orders, supporting an increase in

digital utilization

We view curbside as most impactful for restaurants that do not offer drive-thru, increasing

convenience & access that otherwise is not available (generally fast casual & casual dining

restaurants)

Starbucks plans to roll out curbside to ~2,000 US stores by the end of FY21 (~20% of US company portfolio), which is likely targeted among the ~40% of stores in the portfolio that do not

have drive-thrus

Dunkin’ had a curbside option in ~1,500 stores by the end of 3Q (~15-20% of asset base), with the company noting non-drive-thru stores with curbside were significantly outperforming the rest of

non-drive-thru stores (drive-thru represents ~70% of asset base)

Shake Shack rolled out curbside to ~70 Shacks (~40% of US company asset base), which represent ~1/3 of app orders for restaurants with the option

Domino’s rolled out Carside Delivery and Pizza Hut launched curbside pickup across their US asset bases to enhance their carryout businesses

Texas Roadhouse & Darden both added & enhanced curbside pickup recently, noting Darden has indicated plans to add dedicated parking spots close to the kitchen to further improve service times

148

Franchisee Economics

Assessing the health of the franchisee systemSpotlight on franchise unit economics

Over the years, franchised systems have increasingly shifted to asset-light business models and

many franchise operators have gotten larger through refranchising efforts

– Company-owned store bases are often small and include the best units in the system, making

then less indicative of the underlying health of the franchise system

– Restaurant companies do not generally provide much disclosure regarding franchisee profitability

and data provided is often not comparable

Amidst challenges posed by pandemic-related headwinds, franchisee economics have been thrust

into the spotlight as business models for both franchisors and franchisees have been stressed and

the risks of highly levered franchisors have come to the forefront

Average unit volumes, payback periods, units per operator within the system & profitability can vary

widely by brand, with varying implications for growth and investment prospects

We look to assess the health of franchisee systems and unit level economics for the US franchisees

in our coverage by reviewing disclosures in Franchise Disclosure Documents (FDDs) and other

available industry data

Note: (1) Company-specific pages in this section are not necessarily comparable across brands, but

they are comparable over time; (2) industry-level pages in this section are comparable across

brands; (3) figures represent pre-COVID financials

149

Franchise unit economics

150

Franchisee EBITDAR (Pre G&A) Per Unit ($000s)

Average Payback Period (Years)

Restaurant AUV ($000s)

Franchisee EBITDA Per Unit ($000s) & EBITDA Margin

Source: Franchise Disclosure Documents, Restaurant Research Journal, Company data, Credit Suisse estimates

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

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8.0%

10.0%

12.0%

14.0%

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$50

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Size matters – bigger is not always betterComposition of franchise systems

Refranchising efforts and an inflow of private equity capital into restaurants has led to greater

franchisee consolidation

– Private equity companies likely require a large base of restaurants and a large development

agreement to be willing to enter the system to make it worth their while

Large franchise operators are generally more growth-minded, have greater access to capital &

resources and can benefit from scale, improving enterprise-wide economics

– But large franchisees also come with risk, as failure risk is concentrated with select operators,

there could be a power struggle between the franchisor and franchisee and large franchisees

tend to have higher leverage (growth capital)

While a system of small operators makes the franchisor less susceptible to risk of failure of any

single franchisee, a franchise system that is too fragmented is generally more challenging to grow,

as franchisees may not be willing or have the access to necessary capital

Recent developments exemplify the benefits and costs related to franchisee composition – Papa

John’s is seeking to refranchise company stores to well-capitalized operators (likely private equity) to

accelerate unit growth; Pizza Hut’s largest franchisee with ~1,225 units, NPC International, filed for

bankruptcy in July 2020, noting high levels of debt – NPC represented a meaningful 17% of the

US store base

151

0

10

20

30

40

50

60

Piz

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Jack

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Dom

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Size matters – bigger is not always betterComposition of franchise systems

Franchise operators across US brands in our coverage operate anywhere from 5-55 units on

average, with Papa John’s the most fragmented with an average of ~5 units per franchisee, and

Pizza Hut the least fragmented with ~55 units per franchisee (though averages could be misleading)

– The largest franchisee of each brand operates ~100 units (McDonald’s) to 1,000+ units (Pizza

Hut, Burger King), with large franchise organizations often operating multiple brands

Some systems limit the units that can be operated by a single entity to mitigate concentration risk –

Wendy’s franchisees can operate up to 400 units & Taco Bell limits organic growth to 225-250 units

152

# of Stores Operated by Largest Franchisee in System Average # Stores Per Franchisee

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

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Units

Primary Brand Other Brands

Source: Franchise Disclosure Documents, Company websites, Credit Suisse estimates

Source: Company data, Franchise Disclosure Documents, Restaurant Research Journal, Credit Suisse estimates

Franchisees benefitted from PPP loansSupporting 2020 unit economics

Average Loan per Franchisee ($000s)Average Loan per Store ($000s)

Despite 2020 challenges, the majority of franchisees were eligible for the Paycheck Protection

Program (PPP) through the CARES Act, which offered a forgivable loan amount equal to 2.5 months

of last year’s payroll, up to $10MM per company – a windfall for franchisees that in many cases,

could support FCF in excess of 2019 levels

Assuming an AUV of $1MM and ~30% labor rate, franchisees should have received ~$60K per

restaurant, likely qualifying up to 100-150 restaurants per system before reaching the $10MM max

We believe the majority of QSR franchisees were ineligible for the second round of PPP loans

153

$1,157

$1,849 $2,037

$1,992

$1,313

$717 $561

$382 $573

$3,068

$225

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$101 $100 $95 $90 $88

$71 $69 $65 $55 $49

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$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

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57

99 100 106 111 113

141 145 153

182

206

0

50

100

150

200

250

McD

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Max

# S

tore

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47%45%

36%

26%

17%

3% 3% 1% 0%0%

10%

20%

30%

40%

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Source: Company data, Franchise Disclosure Documents, Restaurant Research Journal, Credit Suisse estimates

Size mattered with PPP loansLarge franchise operators likely maxed-out

% US Franchise Store Base That Likely Reached $10MM Max LoanMax # Stores Per Franchisee Before Reaching $10MM Loan Max

But averages could be misleading, as there are very large operators in some of these systems, with

many operating multiple chains – and they likely only received a portion of payroll needs given the

$10MM maximum loan cap – based on our review (including all brands operated by each

franchisee, as the loan applies to the overall enterprise), Pizza Hut, Taco Bell, Wendy’s, Burger

King, KFC & Popeyes have the greatest composition of their store bases run by large operators

We estimate ~40-50% of YUM, WEN & QSR US franchisees maxed-out on the $10MM loan,

while nearly all of PZZA, MCD, DPZ & Dunkin franchisees should have received the full loan

154

Snapshot of largest US franchise operators

155

Source: Franchise Times, Company data, Credit Suisse estimatesNote: Reflects pro forma Flynn Restaurant Group. Flynn Restaurant Group has agreed to acquire NPC International’s 925+ Pizza Hut units and approximately half of NPC’s ~393 Wendy’s units, with the deal expected to close by 2Q21.

Company Sales Units Brands

Flynn Restaurant Group ~$3.5BN ~2,350 Applebee's, Arby's, Taco Bell, Panera, Pizza Hut, Wendy's

Carrols Restaurant Group ~$1.5BN ~1,100 Burger King, Popeyes

Dhanani Group $1-1.5BN ~850 Burger King, Popeyes, La Madeleine

Sun Holdings ~$1BN ~550 Burger King, Popeyes, Arby's

MUY! Companies ~$1BN 750-800 Pizza Hut, Wendy's, Taco Bell

KBP Investments $900-950MM ~900 KFC, Taco Bell

Summit Restaurant Group $800MM ~450 IHOP, Applebee's, Sonny's

Covelli Enterprises $650-700MM 300-350 Panera, Dairy Queen, O'Charley's

Pacific Bells ~$650MM ~300 Taco Bell, Buffalo Wild Wings

GPS Hospitality $600-650MM ~500 Burger King, Pizza Hut, Popeyes

Yadav Enterprises ~$600MM 350-400 Jack in the Box, Denny's, TGI Fridays

Tacala ~$500MM 300-350 Taco Bell, KFC, Yum! Multi

Manna ~$500MM 250-300 Wendy's, Fazoli's, Golden Corral

K-Mac Enterprises $450-500MM ~300 Taco Bell, Golden Corral, Yum! Multi

Meritage Hospitality $450-500MM 300-350 Wendy's

WKS Restaurant Group $450-500MM ~250 Denny's, El Pollo Loco, Wendy's

Doherty Enterprises $450-500MM ~150 Applebee's, Panera, Quaker Steak & Lube

Ampex Brands $400-450MM 350-400 KFC, Pizza Hut, Long John Silver's

Sizz ling Platter $400-450MM ~400 Little Caesars, Wingstop, Dunkin'

Franchisee relationshipsAlignment is necessary for success

Success for a franchised system is predicated on franchisee relationships – franchisors and

franchisees need to build trust, develop good communication and establish goals that are well aligned

– Franchisors rely on franchisees to execute common strategies and invest to grow the business

When correspondence with management is unsuccessful, franchisees often leverage the media as a

last resort to progress their agenda – though this could lead to unintended consequences, escalating

the conflict, adding more distractions and potentially weighing on consumer sentiment

In recent years, we have seen several instances of franchisee friction, which is generally initiated

following sluggish SSS and/or increased cost pressures and investment requirements:

Subway

Subway franchisees have been facing years of weak sales and profits amidst a number of

management changes, a unit growth approach that has led to cannibalization across different

franchisees, media scandals and an overall strategy that has failed to be relevant

Franchisees have been pushing back on value promotions, noting the infamous $5 Footlong

promotion is largely unprofitable

– In June 2020, 75% of franchisees surveyed by the North American Association of Subway

Franchisees (NAASF) indicated they opposed a 2-for-$10 Footlong promotion planned for the

summer, noting the survey represented ~3,000 franchisees with ~11,000 restaurants,

suggesting at least ~1/3 of Subway restaurants were opposed to the promotion

156


McDonald’s

The National Owners Association (NOA), an independent franchise association comprised of

McDonald’s franchisees, was formed in 2018 as an independent advocacy organization reportedly

representing 80%+ of McDonald’s US franchisees – the NOA is the first independent organization

of operators in the history of the McDonald’s business

– At that time, franchisees seemed to be unhappy with lackluster returns from the expensive

EOTF remodel program, a national value strategy that was weighing on margins and an

increasing control shift from local to national

– In response, McDonald’s improved the down time related to remodels, extended the timeline for

remodels and modified its national value program to increase local market flexibility

In December 2020, management informed franchisees of incremental charges for technology &

people and plans to remove a 30-year Happy Meal subsidy, resulting in friction as franchisees felt

there was a lack of communication, and suggesting they could be reluctant to push value in 2021

Jack in the Box

In 2018, the National Jack in the Box Franchisee Association (NFA), which represents ~95% of

franchisees, sued corporate and communicated a vote of “no confidence,” requesting the Board

replace the leadership team, citing lack of a strategy following several years of sluggish sales

– In December 2019, CEO Lenny Comma resigned from the company

– In November 2020, the NFA and Jack in the Box settled a nearly two year lawsuit

157


Tim Hortons

In 2017, franchisees publicly discussed dissent with management amidst sluggish sales, margin

degradation, cost cuts and several management changes following the merger with Burger King at

the end of 2014

– RBI CEO, Daniel Schwartz, took over the reigns at Tim Hortons in 2017, and soon after

appointed Alex Macedo as President of Tim Hortons; Axel Schwan was promoted to President

of Tim Hortons two years later

Over the last two years, Tim Hortons has made a number of management changes in an effort to

improve franchisee relationships and performance – based on our conversations with franchisees, it

appears they are pleased with the additions, and management appears to have increased its

communication with franchisees

158

Franchise fees across brandsRoyalty & marketing fees

Franchise royalty fees average ~4-6% across our coverage, with McDonald’s & Wendy’s charging

~4%, and Pizza Hut & Dunkin’ at the high end at ~6%

– We also note several franchisors lease the land/building, earning an additional fee/spread, with

McDonald’s most notably the landlord for the majority of US franchisees, while Wendy’s, Jack in

the Box and Burger King also have large real estate portfolios

Franchise marketing fees average ~5% across our coverage, ranging from ~4-7%, with most

requiring national fund contributions, as well as local contributions (which appear to vary more)

159

Marketing Fee by BrandRoyalty Fee by Brand

Source: Company data, Franchise Disclosure Documents, Credit Suisse estimates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Piz

za H

ut

Dunkin

'

Tac

o B

ell

Dom

ino's

Popeye

s

Jack

in t

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ox

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ohn's

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er

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g

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Wendy'

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McD

onald

's

Roya

lty F

ee

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Piz

za H

ut

Dunkin

'

Taco

Bell

Dom

ino's

Popeye

s

Jack

in t

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ox

Papa J

ohn's

Burg

er

Kin

g

KF

C

Wendy'

s

McD

onald

's

Mark

etin

g F

ee

National Marketing Local Marketing

Note: Local Marketing fees vary by market.


Franchise EBITDA per Store ($000s)Franchise AUVs ($000s)

McDonald’s AUVs have increased by ~2-2.5% per year over the last nine years, though AUVs

accelerated more recently, with an increase of ~4% over the last three years (2017-2019)

We estimate the average McDonald’s restaurant generated ~$420K in EBITDA in 2019

We believe McDonald’s will generate peak AUVs and EBITDA in 2020, noting gross margins have

shown solid improvement in 2020 amidst menu streamlining and lobby closures, even with

incremental COVID-related costs; we also believe the vast majority of franchisees received PPP

loans, further bolstering profitability

160

$2,000

$2,200

$2,400

$2,600

$2,800

$3,000

$3,200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

AU

Vs

($00

0s)

$300

$320

$340

$360

$380

$400

$420

$440

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Fra

nch

isee E

BIT

DA

per

Sto

re (

$00

0s)


Company HighlightDomino’s

Domino’s frequently highlights the strength of its franchisee relationships and the uniqueness of its

franchise base, with 95%+ of franchise owners having started in a Domino’s restaurant and the vast

majority solely dedicated to operating Domino’s restaurants

Over the years, the franchise base has become more consolidated, with the average franchisee

operating ~7 stores, compared to an average of ~4 stores 10+ years ago

In 2020, the average Domino’s store generated $158K+ in EBITDA and the average franchisee

generated $1MM+ of EBITDA at an enterprise level, noting consistent increases for 10+ years

161

EBITDA per Franchisee ($000s)Franchise EBITDA per Store ($000s)

$20

$40

$60

$80

$100

$120

$140

$160

$180

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0E

Fra

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isee E

BIT

DA

per

Sto

re (

$00

0s)

$50

$250

$450

$650

$850

$1,050

$1,250

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0E

EB

ITD

A p

er

Fra

nch

isee (

$00

0s)


Company HighlightJack in the Box

Franchisee Operating Income by AUV ($000s)Franchisee Operating Income ($000s) & Margin %

Franchisee operating income and margins have decreased over the last couple of years amidst

ongoing cost pressures, noting 40%+ of Jack in the Box’s store base is concentrated in California,

which has among the highest wage costs in the country

As expected, the higher the AUV, the higher the operating income

– Units in CA appear to be the most profitable, as nearly 65% of units with AUVs of more than

$1.5MM are located in CA

– For contrast, 45% of units with AUVs <$1.25MM are located in TX (vs 14% in CA)

162

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

$120

$130

$140

$150

$160

$170

$180

FY17 FY18 FY19

Opera

ting M

arg

in

Opera

ting Inco

me (

$00

0s)

Operating Income Operating Margin

0%

5%

10%

15%

20%

25%

30%

35%

($100)

($50)

$0

$50

$100

$150

$200

$250

$300

% o

f F

ranch

ise B

ase

Opera

ting Inco

me (

$00

0s)

AUVOperating Income % of Franchise Base


Company HighlightPopeyes

Restaurant Profit ($000s) & Restaurant MarginFranchise AUVs ($000s)

Popeyes franchise AUVs increased by low double-digits in 2019 following the launch of the chicken

sandwich in 2H19, with further growth in 2020 as SSS have trended at ~20-30%

Profitability has also shown notable improvement, with franchisees generating their best year of

profit in 2019, and should show further increases in 2020

Improving new unit economics and positioning in a relevant chicken category should support an

increased appetite for unit growth, noting RBI has highlighted strong interest among franchisees

163

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

2013 2014 2015 2016 2017 2018 2019

AU

Vs

($000s)

20.0%

20.5%

21.0%

21.5%

22.0%

22.5%

23.0%

23.5%

$200

$220

$240

$260

$280

$300

$320

$340

$360

$380

2013 2014 2015 2016 2017 2018 2019

Rest

aura

nt

Marg

in

Rest

aura

nt

Pro

fit

($00

0s)

Restaurant Profit Restaurant Margin


164

Breakfast Battle

Cracking the breakfast eggRecapturing the most important meal of the day

Breakfast has historically represented 20%+ of QSR daypart sales and likely an even greater

percentage of traffic given lower ticket transactions

Throughout the majority of 2020, the breakfast daypart faced significant challenges, with the

habitual nature of the occasion with generally high-traffic, lower-ticket transactions more susceptible

to outsized declines from reductions in commuter traffic and changes in customer behavior

While we recognize there are concerns that the breakfast daypart will be permanently impaired, we

believe fears are overblown, noting the high frequency nature of the occasion suggests challenges

are more a function of disruption to routine than a change in demand, and we would expect

customers to reestablish old habits into new routines as visibility into the future improves

Our confidence in the recovery of the breakfast daypart is supported by:

1) Ongoing daypart recovery & opportunities for increased marketing & traffic-driving initiatives

2) Underlying demand for breakfast

3) Decelerating growth of at home breakfast food & coffee sales

4) Expectation that the majority of the US workforce will return to offices (with increased flexibility)

165

Pre-COVID Breakfast StoryAttractive proposition, but not easy to penetrate

Despite strong breakfast traffic growth in the industry over the last several years, traditional QSRs

have not appeared to share in the gains – ~50% of McDonald’s traffic loss has been at breakfast

over the last five years, Burger King has failed to push its breakfast mix beyond 15% and Wendy’s

just recently entered the breakfast game in its fourth attempt at the daypart

Heightened competition from nontraditional players (C-stores) and growth of national coffee players

(Starbucks & Dunkin’), slower drive-thru times and a pullback in discounting/aggressive promotions

have likely been factors weighing on traditional QSR breakfast

Considerations for Breakfast:

– Habitual – the habitualness of breakfast makes it a blessing and a curse – creating loyalty in a

traditionally disloyal industry, but that also makes it difficult to change behaviors

– Local/Regional – breakfast is not “one size fits all” (South prefers biscuits, West prefers muffins)

– Location – with the majority of QSR sales at the drive-thru (skew even higher at breakfast),

location of stores are critical (McDonald’s selects A sites on right side of road)

– Coffee – primary driver of breakfast traffic is coffee (McDonald’s noted coffee as the primary

driver at breakfast; Burger King guests have indicated coffee is the main traffic driver &

credibility in coffee is necessary to drive breakfast gains)

– Hero Item – one hand, easy to eat product necessary (e.g., egg McMuffin)

166

Source: Technomic, FDDs, Restaurant Research Journal, Company data, Credit Suisse estimates

Considerations in the QSR breakfast landscapeBreakfast businesses range in size

US Breakfast Mix by ConceptUS Breakfast Sales by Concept

We estimate breakfast represents ~20% of sales or ~$35BN among 20 of the largest QSR chains

– Among the 30 largest QSR competitors, we believe half have substantial breakfast businesses

(range from ~5-60% of sales), while the other half don’t offer breakfast at a national level

McDonald’s generates the largest breakfast business in QSR (ex-coffee), with a ~25% sales mix

representing a ~$10BN sales layer, nearly the same size as the entire Burger King US system

– Compares to ~15% at Burger King (~$1.5BN), ~23% at Jack in the Box (~$800MM), ~8% at

Wendy’s ($750-800MM), 6-7% at Taco Bell ($700-750MM) & ~12% at Sonic (~$550MM)

167

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

Sta

rbuck

s

McD

onald

's

Dunkin

'

Chic

k-f

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Burg

er

Kin

g

Hard

ee's

Jack

in t

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ox

Wendy'

s

Tac

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ell

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ngle

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Carl'

s Jr.

Krisp

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rem

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Dairy

Queen

Arb

y's

Bre

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st S

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s ($

BN

)

0%

10%

20%

30%

40%

50%

60%

70%

Sta

rbuck

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McD

onald

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Chic

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dee's

Jack

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s Jr.

Kris

py

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Bre

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ale

s M

ix

Note: Wendy’s reflects estimated breakfast mix of ~8%.

Breakfast underperforms in 2020Though not all bad news

2020 was expected to be the year of the breakfast battle as Wendy’s March 2020 launch of

breakfast was a catalyst for the industry to prepare for intensified competition

– McDonald’s highlighted breakfast chatter had galvanized the system with plans to revitalize

breakfast with more aggressive value, improved drive-thru service and a refocus on beverages

As consumption patterns changed, favoring larger order sizes and fewer trips, breakfast experienced

outsized losses for a daypart heavily reliant on high-traffic, low-ticket occasions

Many companies reduced marketing allocated toward breakfast given lower expected returns, with

coffee companies shifting more focus to the afternoon and traditional QSRs to lunch/dinner, with

many across the space reducing hours because of low traffic in early morning hours

Companies’ morning strategies have varied widely since the onset of the pandemic, and we expect

learnings will contribute to breakfast strategies in 2021 and going forward

– McDonald’s continued its efforts at the drive-thru, streamlining its menu, including the elimination

of All Day Breakfast; breakfast SSS turned positive in September

– Taco Bell reduced operating hours, condensing the availability of its breakfast offerings or in

some cases, eliminating breakfast from the menu

– Wendy’s launched breakfast as planned in early March, though corporate invested ~$15MM in

2H20 (vs $50MM originally planned) & abated franchisee breakfast marketing fund contributions

– Dunkin’ reduced operating hours and launched new menu items appealing to the afternoon

– Starbucks closed more than 50% of its US company-operated store base at the height of the

pandemic

168

Resuming breakfast battle in 2021Heightened competition for loyalty & frequency

We expect competition to intensify in 2021 as restaurants look to recover lost traffic, sales & profit,

and the likely perception that they are competing for a smaller breakfast pie

In July 2020, Wendy’s launched a rewards program nationally, which we expect will lead others to

follow suit, noting McDonald’s has already announced plans to roll out loyalty in 2021

– We believe loyalty programs could enhance competitiveness of traditional QSRs at breakfast

given the strong contribution from loyalty to coffee players Starbucks & Dunkin’

Wendy’s plans to increase marketing dollars allocated toward breakfast, with franchisees to resume

marketing fund contributions for breakfast (Wendy’s abated marketing fund contributions in 2020 to

provide relief to franchisees) & corporate to contribute incremental advertising dollars

In September 2020, Starbucks launched Stars for Everyone, a tender agnostic program allowing

members to earn rewards irrespective of payment method, unlocking friction caused by requiring

customers to preload Starbucks cards

McDonald’s remains committed to the breakfast daypart, noting improved drive-thru service times

should help (higher drive-thru utilization during breakfast), as well as local value toward breakfast

and impactful innovation

Burger King has suggested an increased focus on breakfast in 2021, supported by a greater

allocation of marketing dollars and new menu innovation

Panera introduced an unlimited coffee subscription in February 2020 for $8.99/month as a way to

increase frequency at a compelling value to customers; the initial pilot of the subscription program

increased frequency by 200%+ and food attachment to 70% for subscribers

169

Ongoing breakfast recoveryFocus on reestablishing routines

Breakfast has faced outsized challenges throughout the pandemic given the habitual nature of the

daypart that is more reliant on high frequency, single-person transactions

That said, breakfast has recovered over the last several months, albeit at a slower pace than other

dayparts, with the morning transaction underperformance gap decreasing at the end of May and

into June as restrictions were lifted

170

Source: WSJ/NPD, Credit Suisse

QSR Morning vs Total TransactionsQSR Morning & Total Transactions

-20%

-15%

-10%

-5%

0%

5%

10%

2-F

eb

16-F

eb

1-M

ar

15-M

ar

29-M

ar

12-A

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26-A

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10-M

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24-M

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21-J

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27-S

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25-O

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Morn

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ns

-60%

-50%

-40%

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0%

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2-F

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15-M

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Total Transactions Morning Transactions

Morning transactions meaningfully

underperformed from mid-March through June

Ongoing breakfast recoveryFocus on reestablishing routines

Coffee & breakfast chains began seeing the daypart improve as states reopened, consumer mobility

increased and at home fatigue set in, though many companies noted a shift in occasion to later hours

and higher average checks

– A full return of breakfast traffic is likely predicated on the return to in-person school and

commuting, though the same is likely true of other dayparts as industry traffic remains depressed

Dunkin’ SSS returned to positive in August; Starbucks generated positive SSS in drive-thru stores in

F4Q & in suburban markets in September; McDonald’s breakfast SSS turned positive in September

171


Starbucks US SSS (Open Stores)Dunkin’ US SSS (Open Stores)

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

April

May

June

July

August

Septe

mber

Oct

ober

Dunkin

' U

S S

SS

(O

pen S

tore

s)

-30%

-25%

-20%

-15%

-10%

-5%

0%

April

May

June

July

August

Septe

mber

Oct

ober

Nove

mber

Sta

rbuck

s U

S S

SS

(O

pen S

tore

s)

Ongoing breakfast recoveryAsset base considerations

Performance of drive-thru stores has meaningfully outpaced non-drive thru stores supported by

increased demand for convenient access with limited interaction, as well as the impact from

consumers exiting urban markets in favor of suburban areas, likely leading to sales transfer outside of

metro regions

Dunkin’ drive-thru locations generated double-digit SSS in 3Q (~70% of Dunkin’s asset base has

drive-thrus), accelerating from positive mid-single-digit SSS in the last two weeks of 2Q

– Stores in newer markets with higher drive-thru penetration (~90% of stores in newer markets

have drive-thrus) have performed better, with Dunkin’ noting stores in the Midwest, Southwest &

West had double-digit SSS in 2Q & 3Q

– In contrast, stores in urban markets have been more challenged, with Dunkin’ noting it was

offering select financial assistance programs to franchisees in these networks

Starbucks drive-thru locations had positive SSS in F4Q and suburban locations turned positive in the

month of September (~60% of Starbucks’ asset base has drive-thrus)

– Stores in urban markets have been a drag on the system, with SBUX noting closed stores (~3%

of US company-operated base) in urban markets were a ~2% drag to SSS in F4Q

172

Underlying demand for breakfastSupported by convenience, value & better offerings

Pre-COVID, the breakfast daypart grew traffic by ~4% per year (per NPD 5-year average; year-end

May 2019), outperforming lunch & dinner, which have been closer to flat

As the fastest growing daypart with strong profitability/margins and given the habitual nature of the

occasion, breakfast is an attractive proposition, encouraging traditional QSRs & nontraditional

competitors (e.g., convenience stores) to ramp up and enhance the quality of offerings

173

Source: FDDs, Restaurant Research Journal, Wendy’s presentation/NPD, Company data, Credit Suisse estimates

Breakfast Sales MixTotal QSR Traffic by Daypart

+4.1%

-1.2%-0.8%

+2.5%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Breakfast Lunch Dinner Late Night

QS

R T

raff

ic (

May

201

4-2

019)

Note: Wendy’s reflects estimated breakfast mix of ~8%.

0%

10%

20%

30%

40%

50%

60%

70%

Dunkin

'

Sta

rbuck

s

Hard

ee's

Boja

ngle

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McD

onald

's

Kris

py

Kre

me

Jack

in t

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ox

Carl'

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Chic

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Bre

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Top 30 QSRs average

breakfast sales mix

Underlying demand for breakfast & coffee chainsHabitual nature of occasion supports loyalty

Breakfast & coffee chains generate the most significant frequency among consumers, underscoring

the habitual nature of the daypart, as well as a high level of brand affinity & not an easy at home

substitution – we estimate the average:

– Starbucks customer visits at least 30x per year, with Starbucks Rewards members transacting

nearly 60x per year

– Dunkin’ customer frequents the brand ~14x per year

– McDonald’s customer visits ~25x per year

174

Source: Numerator, Company data, Credit Suisse estimates

Starbucks Average Visit Frequency & Spend Per YearAverage Visit Frequency Per Year

0

5

10

15

20

25

30

35

Starbucks Dunkin' McDonald's Average QSR

Ave

rage V

isit

Fre

quency

per

Year

30+

~$200

~60

~$370

Frequency per Year Spend per Year

Average Starbucks Rewards member

Underlying demand for espresso & cold beveragesHarder to replicate & appeal to younger cohorts

Espresso-based & cold platforms have contributed to strong growth at Dunkin’ & Starbucks in

recent years, reflecting consumer demand for these platforms that are harder to replicate at home,

underscoring our view that customers will reestablish pre-COVID behaviors as part of new routines

Dunkin’ espresso & specialty beverages performed well throughout the pandemic; espresso makes

up ~10% of US sales & grew ~40% in 2019 after relaunching espresso at the end of 2018

Starbucks cold platforms represent ~60% of the beverage mix – cold has been the primary focus of

innovation with Starbucks seeing momentum across dayparts & customer segments

175


Starbucks US SSSDunkin’ Espresso Mix & Growth

20%

25%

30%

35%

40%

45%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

Esp

ress

o G

row

th Y

OY

%

Esp

ress

o M

ix

Espresso Mix Espresso Growth YOY %

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

F4Q

17

F1Q

18

F2Q

18

F3Q

18

F4Q

18

F1Q

19

F2Q

19

F3Q

19

F4Q

19

F1Q

20

US

SS

S

Beverage Food Other

Underlying demand for coffeeIncreased consumption of specialty beverages

Based on US coffee consumption data from the National Coffee Association, daily coffee

consumption has been relatively stable over the last few years after stepping up in 2017 – 62% of

Americans reported drinking coffee within the past day of the 2020 survey, relative to 57% in 2015

But what Americans are consuming is changing, with increased consumption of espresso-based &

non-espresso based beverages (e.g., cold brew, nitro) instead of traditional coffee

Trends are more pronounced among younger cohorts, with 27.5% of respondents under 40

drinking espresso-based beverages within the prior day, 10pp higher than the oldest cohort at 17%

176

Source: National Coffee Association, Daily Coffee News, Credit Suisse

Americans Consuming Coffee Within the Past DayAmericans Consuming Coffee Within the Past Day

52%

54%

56%

58%

60%

62%

64%

66%

2015 2016 2017 2018 2019 2020

% R

esp

ondents

Americans consuming coffee within the past day

0%

10%

20%

30%

40%

50%

60%

70%

80%

Average Age 18-24 Age 25-39 Age 40-59 Age 60+

% R

esp

ondents

Americans consuming coffee within the past day

2016 2017

At home breakfast food growth deceleratingSignaling shift back to food away from home

While at home breakfast sales growth remains elevated, growth across categories has decelerated

from highs, with breakfast food sales growth averaging ~11% from March to December and ~7%

for the four weeks ended 12/26, relative to ~0.2% over the three years pre-COVID

– Continued breakfast growth deceleration would support our expectation for an ongoing shift back

to food away from home (albeit near-term, such could reverse temporarily)

177

Source: Nielsen, Credit Suisse estimates

At Home Breakfast Food Sales GrowthAt Home Breakfast Food Sales Growth

Note: Nielsen categories include: Cereal (Ready to Eat), Cereal (Hot), Yogurt, Jellies & Jams, Syrup, Breakfast Foods (Frozen) & Bread & Baked Goods (Fresh).

-5%

0%

5%

10%

15%

20%

25%

30%

1/2

7/1

8

3/2

4/1

8

5/1

9/1

8

7/1

4/1

8

9/8

/18

11/3

/18

12/2

9/1

8

2/2

3/1

9

4/2

0/1

9

6/1

5/1

9

8/1

0/1

9

10/5

/19

11/3

0/1

9

1/2

5/2

0

3/2

1/2

0

5/1

6/2

0

7/1

1/2

0

9/5

/20

10/3

1/2

0

12/2

6/2

0

YO

Y %

-5%

0%

5%

10%

15%

20%

25%

30%

12/2

8/1

9

1/2

5/2

0

2/2

2/2

0

3/2

1/2

0

4/1

8/2

0

5/1

6/2

0

6/1

3/2

0

7/1

1/2

0

8/8

/20

9/5

/20

10/3

/20

10/3

1/2

0

11/2

8/2

0

12/2

6/2

0

YO

Y %

Cereal (Ready to Eat) Cereal (Hot)Yogurt Jellies & JamsSyrup Breakfast Foods (Frozen)Bread & Baked Goods (Fresh)

At home coffee growth deceleratingSignaling shift back to food away from home

Ground packaged & single serve coffee sales are up ~11% from March through December 2020,

though growth has decelerated as consumers have shifted back to consuming coffee outside of the

home, with at home coffee growth of ~6% in the four weeks ended 12/26, representing the lowest

growth rate since the start of the pandemic

– In the two years pre-COVID, ground packaged & single serve coffee sales have demonstrated

growth of ~0.2%, including ground packaged coffee sales of -1.2% and single serve coffee

sales of +1.4%

178

Source: Nielsen, Credit Suisse estimates

CPG Coffee Sales ($MM)CPG Coffee Growth

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1/2

7/1

8

3/2

4/1

8

5/1

9/1

8

7/1

4/1

8

9/8

/18

11/3

/18

12/2

9/1

8

2/2

3/1

9

4/2

0/1

9

6/1

5/1

9

8/1

0/1

9

10/5

/19

11/3

0/1

9

1/2

5/2

0

3/2

1/2

0

5/1

6/2

0

7/1

1/2

0

9/5

/20

10/3

1/2

0

12/2

6/2

0

YO

Y %

Single Serve Coffee Traditional Packaged Coffee Total

$0MM

$100MM

$200MM

$300MM

$400MM

$500MM

$600MM

$700MM

$800MM

$900MM

1/2

7/1

8

3/2

4/1

8

5/1

9/1

8

7/1

4/1

8

9/8

/18

11/3

/18

12/2

9/1

8

2/2

3/1

9

4/2

0/1

9

6/1

5/1

9

8/1

0/1

9

10/5

/19

11/3

0/1

9

1/2

5/2

0

3/2

1/2

0

5/1

6/2

0

7/1

1/2

0

9/5

/20

10/3

1/2

0

12/2

6/2

0

CP

G C

off

ee S

ale

s ($

MM

)

Single Serve Coffee Traditional Packaged Coffee

Expect to return to office with more flexibilityImplication for urban markets elusive

The reduction in commuting has had an outsized effect on breakfast given the habitual nature of the

daypart, though we are optimistic that people will return to work on-site, albeit with increased

flexibility, supporting our view that the breakfast daypart is not structurally impaired

Confidence in our view is supported by commentary from companies and surveys conducted

suggesting productivity could be waning, employees want to return to offices and a full work from

home schedule could have negative implications for job satisfaction and culture

We believe the implication for urban markets is more elusive, as an increase in flexibility to work

from home will likely have a negative effect on consumer traffic in metro areas, though the benefit

from sales shift to suburban markets could at least partially offset headwinds

– Darden has noted stronger performance of its high end brands in suburban markets as

occasions shift from urban into suburban regions; Starbucks has also noted similar dynamics

Starbucks is repositioning its portfolio to close underperforming stores in metro markets, and open

smaller, digital-forward pickup stores to complement the asset base – as an example, Starbucks

has indicated it will maintain 79 stores in Midtown Manhattan in the future, though the composition

will change to include 64 café and 15 pickup formats, from 78 café and 1 pickup location in 2019 –

this includes the assumption that the Midtown population will remain at 160K people and the

daytime population will decrease by ~25% to 730K people (from 980K in 2019)

– Notably, Starbucks expects to sustain the same number of stores in Midtown Manhattan, which

could suggest Starbucks expects Manhattan occasions eventually approaches normal levels,

though with less daily commuter traffic amidst increased work flexibility

179

Source: Bureau of Labor Statistics, Credit Suisse estimates

Working from home is not for everyone & not everydayReturn to office with greater flexibility

Work From Home ShiftWork From Home by Income

Based on data from the Bureau of Labor Statistics, pre-COVID, ~45% of US workers were in

occupations where working from home is technologically feasible, of which ~20-25% actually

worked from home, implying ~11% of US workers worked from home to some degree

While enhanced working from home flexibility will be more permanent post-pandemic, such is

concentrated in specific industries where it is feasible

We assume ~50% of employees that transitioned to remote work during the pandemic will continue

to do so to some degree, translating ~to ~28% of the US workforce going at least partially remote

180

0%

10%

20%

30%

40%

50%

60%

70%

80%

Low Income Middle Income High Income

% R

em

ote

Work

by

Inco

me C

ohort

Pre-Pandemic Pandemic Post-Pandemic

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pre-Pandemic Pandemic Post-Pandemic

% o

f U

S W

ork

froce

Remote Work Office Work

Demand to return to work on-siteFostering culture, relationships & productivity

While several large Silicon Valley companies were early to announce plans for prolonged work from

home flexibility, they have also invested billions into campuses intended to enhance creativity, attract

& retain employees, build teamwork and improve the workplace environment

Working remotely also has potential risks & consequences, including reduced creativity, impact on

culture, security implications, mental health impacts, job satisfaction, efficacy of training & more

– Facebook noted ~50% of employees could work remotely over the next 5-10 years, but an internal survey showed 50%+ of employees wanted to return to the office ASAP, and the

company signed a lease for 730K additional square feet of office space in NYC in August

– Amazon announced plans in August to expand across six urban cities, adding 3,500 corporate jobs & 900K square feet of office space, and expects most to eventually return to offices

– Snap CEO Evan Spiegel reportedly expressed concern that some employees found working from home miserable & the concept of knowledge workers working from home indefinitely is

dystopian

– Morgan Stanley CEO James Gorman said a vast majority of employees for a vast majority of their time will continue to work in offices

– Goldman Sachs Chairman & CEO David Solomon has highlighted the importance of culture & benefits from being and working together; President & COO John Waldron has expressed

concerns of decay of productivity over time and plans to invest in culture & development

– Blackstone Chairman & CEO Steve Schwarzman highlighted the importance of being together physically to train new people and reinforce Blackstone’s culture

181

Source: CNBC, WSJ, Credit Suisse

Source: PwC, Credit Suisse

Employees want flexibilityBut they also want to return to work

Employer: Expectations for Working RemotelyEmployee: Frequency of Working Remotely

PwC conducted a survey from 5/29-6/4 among 120 US company executives across three sectors

and 1,200 US officer workers across a range of industries to assess the outlook for the remote

work/office environment

The survey indicates employees are seeking greater flexibility than pre-COVID-19 but want to return

to the office for at least part of the work experience, and employers do not appear to be planning

for structural change to a fully remote workforce

68% of employees said they still want to work from the office at least once per week

182

57%

17%

16%

25%

9%

26%

18%

32%

0% 20% 40% 60% 80% 100%

Before

After

Less than 1 day per week 1-2 days per week 3-4 days per week 5 days per week

How often did you work remotely before COVID-19?

How often would you like to once COVID-19 is no longer a concern?

36%

2%

11%

25%

21%

34%

39%

77%

55%

Pre-COVID-19

During COVID-19

After COVID-19

What % of your office employees do you anticipate will work remotely at least one day a week? (US executives)

Few (0-29% of employees) Many (30-59% of employees) Most (60-100% of employees)

Source: PwC, Credit Suisse

Companies are expanding office spaceSuggesting expectations for a return to office

Employee: Reasons to Return to OfficeEmployer: Office Need Expectations

70% of US executives surveyed by PwC anticipate total office space needs in three years will at

least be the same as current needs, with 51% expecting they will need more office space

Employees also have desire to return to offices, largely for collaboration with teams, as 50% of

employees surveyed indicated the #1 reason they go to work is to collaborate with teams & the #1

reason for being unproductive while working at home is difficulty collaborating with team members

Both employers & employees appear to recognize the value of an in-person team environment

183

3%

12%

15%

19%

26%

16%

9%

Reduce 25%+

Reduce 16-25%

Reduce 5-15%

Stay about the same

Increase 5-15%

Increase 16-25%

Increase 25%+

How do you anticipate your total office space needs will be different three years from now? (executives)

50%

39%

Collaborate with other

team members

Difficulty collaborating

with team members

Why did you work in the office before COVID-19 (#1 reason)? (office workers)

What reasons are you unproductive while working remotely (#1 reason)? (office workers)

184

Chicken Wars


Everyone wants a bite of chickenChicken targeted as key pillar of growth

5-yr Sales Growth by Segment2019 Sales by Segment

Chicken has been identified as an opportunity for growth across the industry, with chicken almost 2x

the size of beef globally and growing at a faster rate

Chicken represents a more than $30BN segment, the fastest growing within QSR at an 8%+

CAGR over the last five years, though restaurants in other cuisine segments are also entrenching in

the chicken space to capitalize on the attractiveness of the category and enhance competitive

positions

185

3.1%

4.2%

7.5%

8.1%

1.6%

6.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Burgers Pizza Coffee Chicken Sandwich Mexican

5-y

r S

ale

s C

AG

R

$88

$44

$36$32 $32

$26

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100


Sale

s ($

BN

)

Top 500 Sales Segment Sales

Source: Technomic, Company data, Credit Suisse

Chicken segment relatively small by unitsBut growth to intensify competition

Chick-fil-A, Chicken, Burger & McDonald’s 5-yr Sales CAGR2019 Units by Segment

For every 1 chicken restaurant, there are 2.5 burger restaurants, though we expect burger chains to

face increasing competition as chicken expands at a faster rate, with McDonald’s (largest burger

chain) noting Chick-fil-A (largest chicken chain) tends to open units where there is an existing

McDonald’s

– Chicken has grown at 2.5-3x the rate of the burger segment over the last five years

– Chick-fil-A generates AUVs of ~$5-5.5MM, nearly double McDonald’s ~$3MM AUVs, and has

grown at an ~11% CAGR over the last five years, 4x that of McDonald’s

186

32.8K

22.1K

32.8K26.2K

11.4K 10.4K

38.2K

29.8K

44.3K

27.6K

13.6K 15.5K

63.0K 62.1K

48.8K

39.7K

25.8K

19.4K

Sandwich Pizza Burgers Coffee Mexican Chicken

Small Chains &

Independents

Top 500 Chains

Top 5 Chains

10.9%

8.1%

3.1%2.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Chick-fil-A Chicken Burger McDonald's

5-y

r S

ale

s C

AG

R

Chicken wars aren’t overCompetition heats up

In August 2019, Popeyes launched a new chicken sandwich, with the combination of a high quality

new product & viral social media response contributing to unprecedented demand, representing a

catalyst to accelerate Popeyes growth trajectory & improve its competitive positioning

The viral “twitter war” between Popeyes and a few other restaurant concepts offered valuable

lessons to the QSR industry – 1) the power of relevant new product innovation to attract incremental

customers and occasions, and 2) the power of social media and creative marketing to support new

product news and overall brand engagement

McDonald’s is rolling out a new Crispy Chicken Sandwich in February 2021, a menu item

franchisees have been highly requesting amidst the growth of the chicken category

– The sandwich will be pre-breaded to limit operational complexity

KFC is rolling out a new Crispy Chicken Sandwich, available in select markets starting in early

January, and across the US system by the end of February

Burger King is currently testing a new hand-breaded Crispy Chicken Sandwich in select markets,

which will reportedly roll out across the system by May

– Burger King is uniquely well positioned given its relationship & franchisee overlap with Popeyes

Wendy’s rolled out a new Classic Chicken Sandwich in October 2020

Jack in the Box rolled out a new Cluck Sandwich in mid-December 2020

Zaxby’s is planning to roll out a new chicken sandwich in early 2021

187

We like our chicken……hot & spicy

The spotlight was on spicy chicken in 2020 (most debuted in late summer as 2020 innovation was

delayed), building on 2019’s chicken sandwich, with both to be key areas of focus in 2021

– Spicy chicken is often an extension of existing chicken products, limiting added operational

complexity

– We expect companies will target menu innovation that is on-trend/relevant as they look to

reaccelerate traffic, building on extensions of existing platforms or products to limit operational

complexity or adding new menu items that they expect will be incremental to sales & profit

188

August 2020: Jack in the Box brought back Spicy Chicken Strips to the menu permanently after being introduced in April 2019

August 2020: Wendy’s launched a new Spicy Crispy Chicken Sandwich, building on its spicy platform

September 2020: Shake Shack brought back Hot Chick’n and expanded on its hot platform with the addition of

Hot Chick’n Bites & Hot Spicy Fries, available at Hot, Extra Hot & Fire heat levels – Shake Shack noted the spicy version of its Chick’n Shack sandwich was “one of the most requested menu items to date”

September 2020: McDonald’s introduced Spicy Chicken McNuggets & Might Hot Sauce, marking the first time the brand introduced a new flavor of its Classic McNuggets in the US – we expect McDonald’s to bring back Spicy McNuggets in 2021

September 2020: Popeyes brought back its Spicy Ghost Pepper Wings

September 2020: Chick-fil-A announced the test of a new Honey Pepper Pimento Chicken Sandwich

The muse of innovationSo many ways to sell chicken

Restaurants across the industry are leveraging chicken in creative ways as they look to build on

successes of the chicken category in recent years & throughout the pandemic

Chicken Sandwich

McDonald’s is launching its much-anticipated Crispy Chicken Sandwich in the US in February, KFC

is rolling out the KFC Chicken Sandwich, which will be available across the US system by the end of

February, and Burger King is reportedly introducing a new Crispy Chicken Sandwich by May

We also note Wendy’s launched its new Classic Chicken Sandwich in October & Spicy Crispy

Chicken Sandwich in August and Jack In the Box rolled out a new sandwich in December

Chicken Wings

New wing competition is emerging with the launch of virtual concepts by large chains, including It’s

Just Wings (Brinker), Neighborhood Wings by Applebee’s (Dine Brands), The Wing Experience

(Smokey Bones) & Wingville (Fazoli’s), as Wingstop has demonstrated the appeal of wing delivery

with impressive SSS throughout the pandemic (2Q/3Q SSS 32%/25%)

Domino’s upgraded its wings platform in July 2020, complementing its delivery prowess

Plant-Based Chicken

KFC & Beyond Meat continued their partnership with an expanded test of Beyond Fried Chicken in

July 2020 in select stores in CA, which was preceded by an initial one-day debut in August 2019 in

Atlanta and expanded test in February 2020 in Nashville & Charlotte

El Pollo Loco rolled out plant-based Chickenless Pollo nationwide in March 2020

Jack in the Box tested the Unchicken sandwich in select markets in partnership with Tyson

189


McDonald’s is launching its highly anticipated Crispy Chicken Sandwich in February 2021 in three

versions (crispy, spicy, deluxe) following a test at the end of 2019 in select markets

– The chicken sandwich is a product highly requested by franchisees given the strong performance

of chicken & chicken sandwiches in recent years and pressure from Chick-fil-A and Popeyes

Learning from the viral success of Popeyes’ launch, a changing content consumption landscape and

increased efforts to reach a younger consumer, McDonald’s has notably improved its social media

and marketing strategy in 2020, which we expect will bode well for the chicken sandwich launch

190


Illustrative Example of Chicken Sandwich SSS LiftIllustrative Example of Chicken Sandwich SSS Lift

McDonald's US AUV ($000s) $3,000

Daily Chicken Sandwiches Sold 100

Price/Sandwich $3.99

Daily Chicken Sandwich Sales $399

Prior Buttermilk Crispy Chicken Sandwiches Sold 50


Daily Buttermlik Crispy Chicken Sandwich Sales $250

Annualized Chicken Sandwich Sales ($000s) $143.6

% Incremental 50%

Less: Lost Prior Chicken Sandwich Sales ($000s) $90.0

Incremental Sales $53.6

% Sales Lift 1.8%

Chicken Sandwich as % of Sales 4.7%

Base Case

McDonald's US AUV ($000s) $3,000

Daily Chicken Sandwiches Sold 150


Daily Chicken Sandwich Sales $599

Prior Buttermilk Crispy Chicken Sandwiches Sold 50


Daily Buttermlik Crispy Chicken Sandwich Sales $250

Annualized Chicken Sandwich Sales ($000s) $215.5

% Incremental 50%

Less: Lost Prior Chicken Sandwich Sales ($000s) $90.0

Incremental Sales $125.5

% Sales Lift 4.2%

Chicken Sandwich as % of Sales 6.9%

Blue Sky

191

Value & Innovation on the Menu

192

Prudency & creativity on the menuBalancing value & innovation

We expect companies will be prudent in their approaches to both value and menu innovation amidst

challenging (and sometimes conflicting) dynamics

– Restaurants are looking to build back traffic, though many are also facing economic headwinds

from sales declines throughout 2020 and incremental costs associated with COVID-related relief

(e.g., PPE, sick leave) as well as fees associated with technology (e.g., more digital partners;

higher delivery mixes); many have also streamlined menus to reduce complexity

– Consumers are likely facing a more challenging economic environment in 2021 amidst

heightened business closures and increased unemployment

Restaurants will likely offer everyday value as appropriate, as well as pursue strategies with

differentiation across dayparts and channels, addressing value through targeted offers at specific

dayparts or only available through specific channels

As many companies have pursued simplification initiatives over the last few years and throughout

2020 (e.g., McDonald’s, Taco Bell, Olive Garden, Shake Shack, etc.), we expect restaurants will be

prudent in adding new ingredients, equipment and processes to limit operational complexity

Unemployment RateQSR Promotional Composition – Value

Source: Bureau of Labor Statistics, Credit Suisse

193

Value as core to menu strategyChallenging consumer environment

As the restaurant industry seeks to regain share loss to food at home and reaccelerate depressed

traffic, and amidst a challenging consumer environment with unemployment at nearly 7%, we

expect an increased focus on value in 2021

The gap between food at home & food away from home has narrowed, making grocery relatively

less attractive, and following several years of a heightened food at home/food away from home CPI

inflation gap of ~250bps over the last five years

Unemployment RateFAH/FAFH CPI Gap

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Jan-1

5

May-

15

Sep-1

5

Jan-1

6

May-

16

Sep-1

6

Jan-1

7

May-

17

Sep-1

7

Jan-1

8

May-

18

Sep-1

8

Jan-1

9

May-

19

Sep-1

9

Jan-2

0

May-

20

Sep-2

0

FA

H/F

AF

H C

PI G

ap

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

Jan-1

5

May-

15

Sep-1

5

Jan-1

6

May-

16

Sep-1

6

Jan-1

7

May-

17

Sep-1

7

Jan-1

8

May-

18

Sep-1

8

Jan-1

9

May-

19

Sep-1

9

Jan-2

0

May-

20

Sep-2

0

Unem

plo

yment

Rate

194

Value as core to menu strategyBut franchisees could push back

While we expect an increase in value in 2021, we also note concerns around franchisee reception

to offer heightened deals as they come off of a challenging year, are facing incremental costs

(COVID-related & digital) and they want to protect margins amidst an environment with persistently

challenging labor pressures

McDonald’s franchisees have reportedly been reevaluating value offers planned for 2021 in an effort

to push back against heightened fees & the end of the Happy Meal subsidy, though we suspect

negotiations between management and franchisees will keep the current plan on track

Subway walked back its two-for-$10 Footlong offer this summer after pushback from operators,

who noted the prior $5 Footlong deal largely failed to deliver franchisees a profit (company shifted

promotion to digital-only)

The National Coalition of Associations of 7-Eleven Franchisees (NCASEF) expressed concerns

throughout 2020 regarding the terms of their franchise agreement, particularly their inability to raise

retail prices to offset rising labor costs, which could inhibit their willingness to take on more value

offerings

195

Value as core to menu strategyEveryday value

We believe everyday value is important to effectively communicate value propositions and build

brand equity among consumers

Burger King launched the $1 Your Way menu in late December, offering four items priced at $1

each, including a classic Bacon Cheeseburger, Chicken Jr. sandwich, Value Fries and a Value Soft

Drink

McDonald’s offers the $1 $2 $3 Dollar Menu (D123), giving franchisees flexibility regarding the

items offered at each price point, while maintaining a national and cohesive value menu

– McDonald’s has also been offering periodic promotions through its digital app, including its

recent Throwback Deals

Wendy’s continues to promote its 4 for $4 Menu, and often modifies the items available on the

value menu to generate new news and encourage trial

Domino’s maintains a strong value proposition, with brand equity around its longstanding $5.99 mix

& match deal, as well as its $7.99 carryout deal

KFC offers $20 & $30 Fill Up bucket deals, capitalizing on the shift in occasion to larger family

meals

Taco Bell features a Cravings Value Menu & $5 Cravings Boxes

196

Value as core to menu strategyValue across channels

We expect companies to differentiate value offers across channels to incentivize behaviors in the

most accretive ways

– Restaurants can offer deals exclusively through the mobile app to encourage customers to

increase digital utilization

– Restaurants often exclude delivery from value offers or provide different delivery value offers to

maximize profitability of this channel and avoid unnecessary sales dilution, limiting deals to pickup

& drive-thru transactions (e.g., bundle offers)

We expect companies with more sophisticated analytical and personalization capabilities can do

one-to-one marketing for specific customer cohorts to encourage behavior across different channels

(e.g., if customer only uses delivery, can send offer for mobile order & pay)

– Restaurants will likely look to shift delivery transactions to more margin accretive channels like

pickup (the most margin accretive) and drive-thru


McDonald’s Jack in the Box Burger KingWendy’s

197

Value as core to menu strategyValue across dayparts

We expect restaurants can focus their value strategies on targeted dayparts they are looking to

accelerate momentum, where there is increasing competition or those that respond better to value

We expect companies with more sophisticated analytical and personalization capabilities can do

one-to-one marketing for specific customer cohorts to encourage behavior across dayparts (e.g., if

customer only comes for breakfast, give an offer to try lunch/dinner)

As restaurants look to reaccelerate traffic at breakfast amidst recent challenges, we expect more

value offers targeted at this daypart, noting breakfast is generally a high-traffic, low ticket occasion

and coffee is a primary driver of traffic

– Panera launched the MyPanera+ Coffee subscription (unlimited coffee & tea for $8.99/month)

in February 2020, with the company noting subscribers in test markets increased visits from ~4

to 10+ and food sales increased by ~70% with those customers

– McDonald’s has suggested an increase in local value at breakfast in 2021, with the company

often noting the importance of localized breakfast offers given differences in breakfast

consumption across markets

Leveraging value offers to target non-core dayparts could also be a powerful opportunity, unlocking

capacity at peak

– Starbucks often runs happy hour deals through its app, encouraging customers to visit in the

lower-traffic afternoon

– Dunkin’ often runs the PM Breaks promotion to encourage afternoon traffic

– Taco Bell offers “Happier Hour” deals from 2-5PM for select items

Source: CNBC, Company data, Credit Suisse

198

Value as core to menu strategyManaging discount tools

As technological capabilities improve, companies have more ways to communicate value and

incentivize behaviors, noting more sophisticated ecosystems have capabilities to differentiate across

different customer cohorts to maximize benefits

Loyalty programs are effectively discount tools that reward and/or encourage specific behaviors,

and they become more powerful over time as companies capture and analyze more data, and can

immediately tag new members into prescribed cohorts

– Leveraging value offers to target non-core dayparts could be effective, unlocking capacity at

peak

Starbucks often runs personalized offers to certain customer cohorts to visit at specific

dayparts based on past behavior or to modify current behavior

Chipotle is starting to run more targeted offers to encourage customers to visit at times or on

days they normally do not

– Leveraging value offers to encourage trial of new products

Starbucks sends recommendations to specific customer cohorts to encourage trial of new

products to expand the breadth of what they are willing to purchase

199

Innovation while limiting complexityMenu development across channels

We expect there could be different approaches to menu development across channels as digital

utilization increases and restaurants enhance layouts to optimize their omni-channel strategies

– Restaurants could limit the breadth of menus available for delivery in an attempt to maximize the

quality of food delivered to the end consumer

Chipotle does not deliver fountain drinks

– Restaurants could develop menu items/platforms exclusively available through digital channels

Chipotle is expected to roll out quesadillas exclusively available through digital channels to

limit disruption to its primary “down-the-line” production line

Taco Bell offers select items exclusively through digital channels, such as the Quesarito

Several brands have launched virtual brands that are only available on third-party delivery

platforms

– It’s Just Wings (Brinker), Tender Shack (Bloomin’ Brands), Neighborhood Wings by

Applebee’s (Dine Brands)

200

Innovation while limiting complexityMenu development without adding to the menu

We expect restaurants could leverage existing ingredients to create new marketable meals without

adding complexity to the restaurant

– Restaurants have rolled out bundle meals to address new occasions for family meals as

consumption needs have changed amidst a reduction in consumer traffic, greater shift to

working from home and remote learning

Taco Bell launched the At Home Taco Bar as a DIY at-home taco bar kit

McDonald’s offers “Shareables” bundle meals that operators can select from to offer on their

menu, such as the Cheeseburger Bundle and Big Mac Bundle

Bonefish Grill rolled out bundle meals to address the increase in at-home family dining

occasions

Texas Roadhouse rolled out family packs through its to-go platform

Darden offers family packs across most of its brands, including the addition of fine dining

bundles at Eddie V’s and Capital Grille meant to be prepared at home

– Chipotle offers Lifestyle Bowls and features celebrity/influencer bowls/burritos exclusively

through digital channels, taking existing ingredients and marketing them as a meal, generating

new news without the incremental costs of innovation

– McDonald’s Celebrity Meal promotions offer existing menu items and meals packaged as a new

offering (note: the Travis Scott bundle meal was available exclusively through the mobile app for

part of the promotion & at a discounted rate)

201

Innovation while limiting complexityEnhancing existing platforms

Rather than add a new menu item, restaurants can enhance existing menu items and platforms,

noting the majority of restaurants’ businesses are driven by the core menu – McDonald’s has noted

core menu items make up 70% of its food sales across top markets

– Domino’s revamped its chicken wings platform in July 2020, its first attempt at new menu

innovation in three years

– Wendy’s and Jack in the Box have recently rolled out new chicken sandwiches, KFC is rolling

out a new chicken sandwich by the end of February and Burger King is expected to roll out a

new chicken sandwich in March/April

– McDonald’s is rolling out a new chicken sandwich in February 2021, which will replace its crispy

buttermilk chicken sandwich

– Jack in the Box brought back its spicy chicken strips permanently with operational & quality

enhancements

– McDonald’s has suggested an opportunity to improve the process to cook fresh beef, which

reportedly leads to a 30% reduction in preparation time and strong consumer response

– Burger King completed the nationwide rollout of an enhanced Whopper, free of artificial colors,

flavors and preservatives, as part of a broader plan to remove additives across its menu by the

beginning of 2021

202

Innovation while limiting complexityAdding other ways to play

Restaurants have been creative in adding additional opportunities to address occasions, including

bundle meals not necessarily available at the restaurant, the sale of grocery items as an additional

revenue stream and virtual concepts to capitalize on the growing delivery opportunity without

impacting the core menu

– Shake Shack offers an 8-pack Shackburger kit through Goldbelly that ships throughout the

country

– Texas Roadhouse expanded its to-go platform with the sale of ready-to-grill steaks & pork for

customers to cook at home and has launched the Texas Roadhouse Butcher Shop, expanding

the availability of ready-to-grill steaks which can now be delivered frozen across the country

(includes a shaker of its signature steak seasoning)

– Darden’s fine dining brands, Eddie V’s & Capital Grille, offer family packs with uncooked steaks

that include instructions on how to prepare them as well as prepared sides to be reheated

– Panera and Subway now offer grocery items for delivery and pickup

– Jimmy John’s began selling fresh-baked bread during the height of the pandemic in March

203

Looking for impactful menu innovationAddressing relevant consumer trends

We expect new menu innovation will be focused on addressing relevant consumer trends and

tastes, whether that be enhancing existing menu items, adding extensions to existing platforms or

introducing new menu items and platforms to improve competitive positioning

Chicken appears to be growing at an outsized rate, with McDonald’s highlighting chicken as a key

focus for the company (chicken is nearly 2x the size of beef globally) and impressive strength of

chicken brands like Chick-fil-A and Popeyes in recent years

Restaurants appear to be adding more better-for-you items and platforms to increase their breadth

of consumers and occasions, such as plant-based items & menu options compliant with lifestyle

diets

– Starbucks has highlighted an increased focus on plant-based platforms, including the

introduction of plant-based protein breakfast sandwiches, expansion of plant-based dairy

options, as well as new menu products featuring plant-based dairy

– Chipotle rolled out cauliflower rice in early January 2021, and introduced new variations of its

Lifestyle Bowls, compliant with most major lifestyle diets

– Shake Shack is testing a new veggie burger in select markets

– Dunkin’ recently launched a new Southwest Veggie Power Breakfast Sandwich with

MorningStar Farm’s Black Bean Patty

– Subway launched Protein Bowls in late December

– Pollo Loco now has lower calorie & carb versions of its Pollo Fit Bowls

– Taco Bell is partnering with Beyond Meat to test a new plant-based protein menu item

204

Sustainability

Sustainability is more than just a buzz wordExpectations are evolving

Companies are increasing efforts around sustainability as customer expectations evolve and

emerging companies in restaurants and adjacent sectors build brands with sustainable business

practices at the forefront

ESG also appears to be a top investment theme for 2021 among several financial sources, and

companies are developing formal procedures, policies and goals around ESG practices and

increasingly reporting current states and progress against targets

Efforts range from investing in more eco-friendly packaging materials, enhancing transparency

around food standards/procedures and supplier standards/procedures, to committing to long-term

sustainability goals

Currently, many of our companies publish annual sustainability reports outlining current practices

and goals/targets going forward; companies are also partnering with organizations to collectively

develop products and contribute ideas to continue to improve standards and ESG practices

205

SustainabilitySourcing

Sourcing is often associated with sustainability, as it aligns with the increasing consumer demand for

greater transparency

We believe more sustainable ingredient sourcing (antibiotic free, more humane supply chains, etc.)

will become table stakes, and all brands will be held to higher standards as expectations evolve,

making it necessary for brands to invest in their infrastructures and supply chains near-term (goals

are generally long-term in nature)

– Starbucks has stated goals of sourcing 100% of its coffee and tea ethically (99%+ in FY19)

– McDonald’s set a goal to source a portion of beef from suppliers participating in sustainability

programs aligned with the Global Roundtable of Sustainable Beef Principles and Criteria in 10 of

its top beef sourcing countries globally by the end of 2020

– Taco Bell has committed to reduce antibiotics in its N.A. beef supply chain by 25% by 2025

– Burger King is aiming for its US menu to be 100% free of colors, flavors & preservatives from

artificial sources by early 2021 (from 85% in September)

– Jack in the Box has a goal to source 100% cage-free eggs by 2025 (from 77% in September)

Many fast casual brands have differentiated their offerings and gained loyal followings by committing

to sustainably sourced ingredients and supply chains

– Chipotle was an early leader in using sustainability as a brand differentiator, with a commitment

to its “Food with Integrity” philosophy

– Shake Shack has garnered strong brand affinity with its mission to “Stand for Something Good,”

which permeates across its ingredients, hiring practices and community involvement

206

Restaurants

SustainabilitySourcing

Consumer expectations for sustainably & ethically sourced products flow through the supply chain,

and distributors have joined restaurant brands in establishing guardrails for procurement practices

Sysco has established responsible guidelines surrounding four key commodities, committing to:

– Beef: pilot at least two projects by 2022 that will result in positive impacts on its supply chain

– Paper: source all Sysco Brand paper towels, napkins, bath & facial tissues from Forest

Stewardship Council or Sustainable Forestry certified sources or equivalent standards by 2025

– Soy: implement sustainability criteria into future Sysco Brand commodity soybean oil events by

2025 & identify opportunities to decrease the environmental impact of soybean production

– Coffee: source 75% of Sysco Brand Coffee from certified sources by 2025

– Seafood: source 100% of its top 15 wild-caught Sysco Portico Brand seafood species groups

from certified sources, improve the traceability of certain seafood products and prohibit the sale

of endangered species for seafood products globally by 2025

– Sysco is also targeting a transition to 100% cage-free eggs by 2026 (from 17% currently)

US Foods holds its products to a Serve Good standard, with guidelines surrounding agricultural

practices, sustainable seafood, animal care, responsible disposables & waste reduction

Performance Food Group seals products grown within 250 miles of customers’ local warehouses as

Qualified Grown Local and aims to source 100% cage free eggs by 2026

207

Food Distributors

SustainabilityPackaging

Packaging is another consumer facing sustainability initiative, and can also be used as a marketing

message to communicate companies’ commitments to sustainable practices

– Increasingly important as more occasions have shifted off-premise

McDonald’s & Starbucks partnered with Closed Loop Partners as part of the NextGen Consortium

(Wendy’s & Yum! Brands also joined), aiming to address single-use packaging waste globally

Starbucks has a goal to develop 100% compostable & recyclable hot cups by 2022

McDonald’s, Burger King & Tim Hortons announced partnerships with TerraCycle’s circular

packaging service, Loop, to pilot reusable containers in select markets beginning in 2021

Starbucks’ recyclable, strawless lids are the new standard for iced beverages in the US & Canada, a

step toward its commitment to eliminate 1BN plastic straws per year globally

Dunkin’ began testing biodegradable straws in the US in September, made with PHA, and achieved

its goal to replace polystyrene cups

McDonald’s has committed to source 100% of guest packaging from renewable, recyclable or

certified sources by 2025 and recycle 100% of guest packaging by 2025

Tim Hortons established several packaging initiatives including new napkins made with recycled fiber,

fully recyclable paper-based wrappers for sandwiches & bagels and the elimination of double-cupping

Chipotle has set a goal to reduce the amount of plastic in its cutlery by 20% by the end of 2020, and

is open to exploring plastic alternatives

Domino’s launched a new feature on recycling.dominos.com, allowing customers the ability to look

up their zip code for their neighborhood’s status on pizza box recycling

208

Restaurants

SustainabilityPackaging

Sysco has set a 2030 goal to ensure all plastic material for packages and consumables comes from

fossil-free sources or recycled fossil raw material

Sysco launched the EarthPlus brand, offering branded recyclable food packaging made from corn

meant to support sustainability goals

US Foods maintains responsible disposable policies as part of its Serve Good platform, with 260+

products classified as either responsibly sourced or compostable as verified by a third party

209

Food Distributors

SustainabilityPlant-Based Products

Plant-based protein has seen notable growth over the last 12-24 months, positioned as a more

environmentally-friendly alternative relative to traditional meat products

Despite differing views regarding the health benefits of plant-based meat offerings in the market, we

believe the perception of a more sustainable offering has helped drive the growing trend

Beyond Meat and Impossible Foods have released studies comparing plant-based burgers to

traditional beef burgers, highlighting meaningfully lower environmental impacts

210

Source: Beyond Meat, Impossible Foods, University of Michigan, Credit Suisse estimates

Impossible Burger vs US Beef Burger Environmental ImpactBeyond Burger vs US Beef Burger Environmental Impact

0%

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Emissions

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Beyond Burger Beef Burger

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Impossible Burger Beef Burger~90% reduction in greenhouse

gas emissions necessary for

production

SustainabilityPlant-Based Products

Sysco launched Sysco Simply brand in FY19, emphasizing vegan, vegetarian, flexitarian & plant-

based protein products, with products including Sysco Simply branded plant-based protein, sprouted

grain breads and vegan cornettos

– Sysco also offers manufacturer brands, such as Beyond Meat and Impossible Foods

In November 2020, PFGC announced the launch of its Green Origin brand, a proprietary line of

plant-based protein products made exclusively by Greenleaf Foods, SPC (owner of plant-based

brands Lightlife and Field Roast)

US Foods offers several plant-based protein products through its proprietary brands Molly’s Kitchen

(plant-based burger patty, meatless crumbles, meatless breaded boneless wings) and higher-quality

Chef’s Line (black bean burger, 3-grain veggie burger)

211

Food Distributors

SustainabilityEnergy

212

Many companies are implementing policies and developing partnerships in support of more

sustainable energy sources and are incorporating energy-friendly practices in new concept designs

Starbucks is leading the retail sector in sustainable energy sourcing as the top purchaser of

renewable electricity and set a multi-decade aspiration to be a resource-positive company

– As part of its 2030 goals, Starbucks is targeting a 50% reduction in carbon emissions in direct

operations & its supply chain (as well as a 50% reduction in waste sent to landfills & 50% of

water withdrawal to be conserved or replenished)

– In June, Starbucks agreed to purchase a three-project renewable energy portfolio from LevelTen

Energy that will power more than 3,000 stores in the US with renewable energy by 2021

– Starbucks is working to source 100% renewable energy globally in its stores & supply chain

McDonald’s has also increased its investments in renewable energy

– In December, McDonald’s announced two power purchase agreements (PPA) with Apex Clean

Energy to reduce carbon emissions

– In July, McDonald’s opened a new restaurant at Disney World in Florida that will serve as its

global flagship for learnings to reduce energy & water use, with the eco-friendly design featuring

solar panels, and creating enough energy to cover all of its annual energy needs on a net basis

Chipotle plans to increase the amount of renewable energy it sources and fully measure & report its

Scope 3 emissions by 2025

Restaurants

SustainabilityEnergy

213

Sysco plans to announce new emissions reduction goals in late FY21 to replace its existing goals to

power 20% of its tractor fleet with alternative fuels and source 20% of electricity from alternative

sources

Sysco has also partnered with Advanced Clean Transportation (ACT) Fleet Forum, a consortium of

trucking companies looking to share best practices on reducing their carbon footprints through the

adoption of renewable energy technologies

US Foods has reduced the energy intensity of its broadline business (kilowatt hours per case

shipped) by 12%+ since 2015

US Foods also has six facilities with solar array installations which generate 13MM kilowatt hours of

electricity each year, equivalent to:

– The amount of carbon sequestered by ~12K acres of US forests in one year

– The greenhouse gas emissions avoided by 3K+ tons of waste recycled instead of landfilled

– Co2 emissions from 1K+ homes’ energy use for one year

Food Distributors

SustainabilityWaste

According to ReFED, US restaurants generate 11.4BN tons of food waste annually, costing

restaurants $25BN+ (full-service $16BN, limited-service $9BN+)

– Implementing sustainability measures can drive cost savings, with the study noting better

inventory management & tracking/analyzing waste as the most accretive (research from the

study suggests every $1 invested in food waste reduction can = $8 of savings)

– As margins continue to be pressured from higher labor costs, less benign commodities & added

tech investments, restaurants will need to look for ways to find savings elsewhere in the P&L

Emerging startup companies are offering tech-driven solutions to analyze, reduce food waste and

ease the process of donating (Rubicon Global, Recycle Track Systems, Copia, Foodr)

214

Restaurants

SustainabilityWaste

As part of Starbucks’ goal to become a resource-positive company, the company is targeting a 50%

reduction in waste sent to landfills by 2030; Starbucks has a goal of rescuing 100% of food

available to donate within US company-operated stores by 2020 as part of an initiative launched in

2016 with Feeding America (though milk accounts for 36% of total food waste)

Chipotle set goals to ensure 100% of restaurants are participating in a landfill diversion program by

2020 (92% in 2019), establish a recycling program at 95% of restaurants by 2020 (91% in 2019),

set up a composting program at 25% of restaurants by 2020 (27% in 2019) reduce its landfill-

bound waste to 15% of total waste by 2025 (19% in 2019) and divert 50% of its waste from

landfills by the end of 2020 (47% in 2019)

– Chipotle also assigned Harvest Program partners to all of its 2019 restaurant openings, enabling

food donations of excess product

McDonald’s has taken steps to turn its used cooking oil into biofuel, and even uses it to fuel its own

delivery trucks in some markets (Switzerland, France, Netherlands & UK)

McDonald’s has also partnered with Ford to recycle coffee chaff (husk of a coffee bean) to mold

into headlamp housings

Papa John’s has used its surplus food to donate 2.9MM meals through its Papa John’s Harvest

Program since 2010

– In 2019, Papa John’s began a pilot with Goodr, a charitable food donation supplier, diverting

6.2K+ pounds of waste from landfills, and scaled up the partnership throughout 2020

Darden has a partnership with the Harvest Program to donate unused food on a daily basis

215

Restaurants

SustainabilityWaste

Sysco has a 2025 goal to divert 90% of waste, including food, from landfills (in FY20, diversion

rate was 69% and in FY18, diversion rate was 65%)

US Food Group’s Serve Good products must meet strict packaging standards that are designed to

reduce waste and help minimize the company’s ecological footprint, with each Serve Good product

required to come with a claim of responsible sourcing or contribution to waste reduction

Performance Food Group has partnered with Feeding America and community foodbanks to reduce

food-related waste

216

Food Distributors

SustainabilityTransportation

In October, Sysco announced a test of an all-electric Freightliner truck set to run through January

2021, with data collected from local & regional trips out of a San Francisco terminal to help inform

future vehicle designs

– Sysco also participates in the Freightliner Electric Vehicle Council, working to identify & address

inhibitors to large-scale adoption of commercial battery electric vehicles

US Foods has reduced gallons of fuel used per case by ~11% since 2015 and miles driven by

~10MM since 2017 through technology solutions that provide drivers with real-time traffic data,

adoption of more efficient tires & lighter-weight oil to improve fuel economy and the integration of

new compressed natural gas vehicles into the fleet

– Compressed natural gas trucks emit 21-29% fewer greenhouse gas emissions than comparable

gas or diesel fuel vehicles

217

Food Distributors

218

Plant-Based

Expect more plant-based options in 2021Building on consumer trends & sustainability

We expect restaurants to increasingly focus on offering plant-based alternatives across the menu as

they explore ways to capitalize on consumer lifestyle trends and greater sustainability practices

– This expands beyond plant-based animal protein substitutes, with expectations for more

vegetable-forward items and non-dairy alternatives

– We expect restaurants to continue to expand their portfolios of plant-based products, though

strategies will differ depending on relative brand positioning and customer demographics

We don’t see “new-age” plant-based protein as impactful in 2021 and going forward as it was in

2019 amidst early tests, excitement with the Beyond Meat May 2019 IPO and increasing supply of

plant-based options; we also don’t expect all companies will look to offer plant-based meat

substitutes in 2021 as 1) restaurants prioritize other initiatives (e.g., chicken sandwiches, breakfast,

technology) and 2) currently available products may not align with restaurants’ menus (e.g., GMOs,

too much processing)

– Our conversations with QSR restaurant operators suggest stronger demand for plant-based

options in urban markets, so strategies could also differ across different markets

219

Plant-based protein gains momentum across channelsGame changer vs table stakes

Plant-based products are making their way onto menus and into grocery aisles at scale as more

consumers explore lifestyle diets and companies look to expand their breadth of customers and

occasions

While the “new-age” plant-based protein largely began in the grocery aisle (Beyond Meat), the trend

has expanded to restaurants looking to resonate with new customer segments & occasions

220

Impossible Foods Grocery OutletsBeyond Meat Foodservice Outlets

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20

Beyo

nd M

eat

Foodse

rvic

e O

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ts

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4,000

6,000

8,000

10,000

12,000

14,000

16,000

Marc

h

April

May

June

July

August

Septe

mber

Oct

ober

Nove

mber

Dece

mber

Imposs

ible

Foods

Gro

cery

Outle

ts


Note: Reflects US & Canada foodservice outlets from 4Q18-4Q19 and US foodservice outlets only from 1Q20-3Q20.

Commoditization of plant-based proteinSupply reflecting expectations for long-term trend

Plant-based protein is not a new phenomenon – veggie-based patties have existed for years – but

rather emerging companies like Beyond Meat and Impossible Foods elevated the game with “new-

age” plant-based protein, expanding their reach to consumers looking for a high quality substitute

for meat, rather than just appealing to consumers looking for an alternative to animal-based protein

– This has led to an increase in the addressable market for plant-based proteins, prompting

incumbents to develop products meant to appeal to meat eaters

Over the last couple of years, two of the largest producers of plant-based protein products that

mimic meat, Beyond Meat & Impossible Foods, have demonstrated tremendous growth and

attracted consumer mindshare

– Many restaurant companies have partnered with Beyond & Impossible, leveraging their brand

names to attract incremental consumers and consumer trust

As restaurants increasingly view plant-based protein as a long-term trend, and not just a short-term

fad, we expect they will also be increasingly open to exploring partnerships with suppliers and not

just leverage the brand names of Beyond & Impossible

221

Competition intensifying as supply rampsReflecting expectations for long-term trend

Beyond Meat & Impossible Foods are two of largest producers of plant-based protein products

(mimic meat), though incumbents are also launching new brands to better compete with the

emerging companies that have gained considerable market share in retail, foodservice & mindshare

– Retail market share leader, Kellogg, launched Incogmeato by Morningstar Farms in early 2020

(burger patties, Chik’n tenders & Chik’n nuggets)

– Nestlé launched the Awesome Burger & Awesome Grounds by Sweet Earth Foods in September

2019

– Hormel introduced a Happy Little Plants product line in September 2019, which includes a

ground beef substitute, with plans to add sausage, bratwurst & burger products

– Tyson Foods created the Raised & Rooted brand in early 2020, with options including plant-based

chicken nugget and burger substitutes

– Gardein, owned by Conagra Brands, expanded its product offering in July 2019 to include

breakfast & entrée bowls, skillet meals, Italian sausage substitutes and more chicken alternatives

Food distributors have also ramped up efforts around plant-based proteins

– Sysco offers its Sysco Simply branded plant-based protein line, as well as manufacturer brands,

such as Beyond Meat and Impossible Foods

– Performance Food Group launched the Green Origin brand in November, a proprietary line of

plant-based protein products made exclusively by Greenleaf Foods (owns Lightlife & Field Roast)

– US Foods offers several plant-based protein products through its proprietary brands Molly’s

Kitchen and Chef’s Line

222

Plant-based protein2021 considerations

Incrementality – likely to decrease given:

– Reduced Exclusivity – as more restaurants offer the products, the incremental benefit from

launching plant-based protein on the menu could be lower

– Substitution – plant-based protein to take market share from traditional proteins, making it less

incremental over time

– Increased supply in all channels – more competitors among existing large scale distributors in

retail channels, with repeat purchases the focus

Leveraging brand name – unclear whether plant-based innovation contribution is as impactful

without the brand names (Beyond & Impossible)

Costs – likely to decrease as new suppliers enter the market

Launch of other plant-based products (chicken, fish) – opportunity unclear (KFC has conducted a

few tests of Beyond Fried Chicken and appears to have plans to launch more broadly; though

perceptions of benefits to health/environment potentially lower)

Drivers of plant-based protein demand – health; environment

223

Increasing presence of plant-based protein in restaurantsExpanding breadth of consumers & occasions

Many large QSRs have tested, launched or discussed the addition of plant-based protein on menus

– Burger King was an early adopter with plant-based protein with the launch of the Impossible Whopper in August 2019, noting meaningful sales contribution and new customers & occasions

– Dunkin’ was among the first brands to introduce plant-based sausage in the breakfast segment with the rollout of the Beyond Sausage Sandwich in November 2019; Dunkin’ noted outsized

adoption among younger cohorts, females and on the coast, and has generated high

attachment, trial and repeat purchase

– McDonald’s recently unveiled a new McPlant platform, though has not indicated near-term plans for a launch of plant-based protein products; the company previously ran a six-month trial

of the P.L.T. (stands for Plant, Lettuce, Tomato) burger in partnership with Beyond, though the

test was ended in April 2020, with no obvious plans for a larger partnership

– Starbucks introduced the Impossible Breakfast Sandwich in the US in June 2020

– Tim Hortons launched Beyond Meat Sausage & Burgers in Canada, though they were removed from the menu following lackluster results

– Jack in the Box offered its Unchicken sandwich at select locations from 10/15-12/12 featuring Tyson’s Raised & Rooted brand

– KFC has conducted a few tests with Beyond Meat, including in Southern California in July 2020, in Nashville and Charlotte in February 2020 and in a one-day test in Atlanta in August 2019

– Pizza Hut, Carl’s Jr., Hardee’s, A&W, Del Taco, Subway and others have also launched plant-based menu items

224

Timeline of plant-based protein tests & platforms2019

225

Source: Media reports, Company data, Credit Suisse estimates

7/18: A&W begins

offering Beyond Meat Burger in

Canada

1/19: Carl's Jr. launches Beyond

Famous Star Burger

2/19: Qdoba testing Impossible

Foods meat products in select

locations

4/19: Burger King

testing Impossible Whopper

4/19: Del Taco launches Beyond

Tacos nationwide

4/19: Qdoba announces national

rollout of Impossible Foods products

5/19: Tim Hortons launches Beyond Meat Sausage & Burger in Canada

7/19: Dunkin'

testing Beyond Sausage Sandwich

in NYC

8/19: Burger King

launches Impossible Whopper

8/19: Subway

testing Beyond Meatball Marinara

sub

8/19: Wendy's notes it is exploring

options for plant-based protein

8/19: KFC conducts one-day test of Beyond Fried

Chicken in Atlanta

8/19: Carl's Jr.

expands Beyond Meat partnership, launching Beyond

Famous Star Burger

9/19: Domino's

notes it is looking at different types of

plant-based proteins

9/19: McDonald's testing Beyond

Meat Burger (PLT) in Canada

10/19: Pizza Hut

testing Incogmeato pizza in Phoenix

10/19: Hardee's testing Beyond

Meat sausage and

burger

11/19: Dunkin'

accelerates rollout of Beyond Sausage

Sandwich

11/19: Wendy's notes there could

be some news regarding the

company & plant-

based protein

11/19: Jack in the Box says it is

testing plant-based

items

11/19: KFC

conducts one-day test of Lightlife

(Greenleaf Foods

brand) plant-based products in Canada

12/19: A&W

testing Greenleaf's plant-based

chicken nuggets in Canada

12/19: Jack in the Box notes it will get

into the plant-based arena

12/19: Carl’s Jr. and Hardee’s launch all-day

Beyond Meat menu

12/19: Capriotti’s

testing Impossible Cheese Steak

12/18: Del Taco testing Beyond

Tacos

Timeline of plant-based protein tests & platforms2020

226

Source: Media reports, Company data, Credit Suisse estimates

2/20: KFC tests Beyond Fried Chicken

6/20: Yum China

introduces Beyond Burgers across the

portfolio

4/20: McDonald's ends test of Beyond

Meat Burger (PLT) in Canada

7/20: KFC tests Beyond

Meat chicken nuggets

8/20: KFC adds Lightlife (Greenleaf

Foods brand) plant-based chicken

sandwich to menu in

Canada

6/20: Burger King launches Impossible

Breakfast Sandwiches nationwide

3/20: El Pollo Loco launches its own

plant-based chicken alternative products

8/20: Dunkin' rolls

out oat milk across US

1/20: Ruby Tuesday launches plant-based

Sweet Earth Awesome Burger

4/20: KFC tests

plant-based chicken nuggets in China

7/20: Starbucks launches Impossible

Breakfast Sandwich in

US

9/20: Starbucks adds oat milk and almond

milk beverages to its menu in seven

markets across Asia

1/20: McDonald's expands test of

Beyond Meat Burger

(PLT) in Canada

2/20: Wendy's launches plant-based "The Plantiful" burger

in Canada

9/20: TGI Fridays adds several Beyond

Meat plant-based protein menu items

10/20: Jack in the Box tests Raised &

Rooted plant-based Unchicken sandwich

9/20: Papa Murphy's launches new plant-

based pepperoni-style topping in partnership

with Hormel Foods

4/20: Starbucks debuts Beyond Meat

products in China

10/20: Starbucks tests Plant Powered

Breakfast Sandwich at one location in Washington

11/20: McDonald's unveils its plant-based

platform, McPlant

11/20: Pizza Hut launches Beyond

Meat pizzas

1/21: Dunkin’ launches Southwest

Veggie Power

Breakfast Sandwich in partnership with

MorningStar

Increasing presence of dairy alternatives in restaurantsExpanding breadth of consumers & occasions

Many brands are also expanding menu options with dairy-free alternatives

– Starbucks is expanding its lineup of dairy alternatives and plant-based drinks with the rollout of oatmilk across in the US in Spring 2021

Starbucks has also highlighted plans to increasingly promote plant-based beverages,

featuring Honey Almondmilk Cold Brew as part of its winter menu, and teasing a new

Shaken Iced Espresso launching Spring 2021 (likely to build awareness and trial of its

oatmilk rollout)

– Dunkin’ has expanded its offering of alternative milk substitutes, including almond milk and oat milk (rolled out across the system in summer 2020)

– Baskin-Robbins introduced vegan dairy-fee ice cream

227

Other ways to play with plantsConsistent with brand positioning

We expect companies will pursue other plant-forward initiatives that align with brand positioning

Chipotle

In early January, Chipotle rolled out cauliflower rice nationwide as an alternative to rice, noting one in

three new menu requests has been cauliflower rice

We note the brand has previously indicated it has no intentions to add plant-based meat

alternatives, suggesting current products are too processed

Shake Shack

Shake Shack is currently testing an iteration of a veggie burger in ~30 restaurants, featuring real

vegetables in a patty developed by Shake Shack

The brand has previously indicated it has no plans to add Beyond or Impossible to its menu in the

near future

Taco Bell

Taco Bell continues to focus on featuring its existing vegetarian menu options, which represent

nearly 10% of the menu, including the return of potatoes to the menu in March

Taco Bell recently announced it is partnering with Beyond Meat to create an innovative new plant-

based protein that it will test in the next year

228

229

Labor

Labor continues to remain a headwindMinimum wage, regulations & uncertain labor market

Labor continues to be one of the most significant challenges for operators, driven by regulatory

minimum wage increases and heightened regulatory requirements, with uncertainty regarding the

state of the labor market also a potential headwind

Despite elevated unemployment, restaurant operators have suggested the labor market for qualified

employees is still challenging, noting other adjacent sectors have absorbed restaurant employees,

there has been heightened disruption from employee exposure to COVID-19 and potentially some

employee hesitancy to return to work amidst COVID-19 concerns, as well as an impact from

incremental unemployment benefits

As Democrats will now control all three branches of government, we expect policy changes to have

implications on the labor market

– The incoming Biden administration has voiced support for an increase in the federal minimum

wage to $15 and the elimination of the tip credit, consistent with proposals in the Raise the

Wage Act passed by the Democrat-led House in July 2019

– Some operators have suggested potential tailwinds from looser immigration policies, noting the

incoming Biden administration has indicated immigration reform is a top priority

We would expect restaurants to respond with increased menu prices, a reduction in staff/hours, an

increase in technology, more restaurant closures and potentially less appetite for unit growth

Restaurants are implementing 1) technology to optimize labor efficiencies, 2) simplification initiatives

to enhance operations and 3) increased benefit programs to attract and retain employees, noting

high costs of hiring and training, as well as implications for customer service and throughput

230

Minimum WageContinues to add pressure to margins

26 states have planned minimum wage increases for 2021, relative to 26 states in 2020, 23 in

2019 and 21 in 2018

– We estimate the average minimum wage (not population weighted) will increase ~3.5% in 2021

following 4%+ in 2020, 3%+ in 2019 and ~2.5% in 2018

An increasing number of cities & states have also enacted or have plans to increase minimum

wages to $15 per hour over time, more than double the federal minimum wage ($7.25), which is in

addition to advocates for a federal increase to $15 per hour

231

Source: Economic Policy Institute, Bureau of Labor Statistics, Credit Suisse estimates

Average Minimum Wage & YOY %# States/Districts – Minimum Wage Increases

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

$7.80

$8.00

$8.20

$8.40

$8.60

$8.80

$9.00

$9.20

$9.40

$9.60

$9.80

$10.00

2017 2018 2019 2020 2021

YO

Y %

Ave

rage M

inim

um

Wage

Average Minimum Wage YOY %

2221

23

26 26

10

12

14

16

18

20

22

24

26

28

2017 2018 2019 2020 2021

# S

tate

/Dis

tric

ts -

Min

Wage Incr

ease

s

Minimum WageCompanies facing most pressure

Companies with higher company ownership mixes will face more direct pressure on margins &

flowthrough

– But all companies are affected given impact on franchisee profitability, sentiment and unit growth

232

Source: Economic Policy Institute, Bureau of Labor Statistics, Company data, Credit Suisse estimates

2020 vs 2021 Weighted Average Minimum by State Exposure2021 Weighted Average Minimum by State Exposure & Franchise %

0%

2%

4%

6%

8%

10%

12%

14%

JACK SHAK SBUX CMG MCD DPZ QSR YUM WEN PZZA

Weig

hte

d A

vg M

in W

age Y

OY

%

2020 2021

JACK

SHAK

SBUXCMG

MCDQSR

DPZ

YUM

WENPZZA

$8.60

$9.10

$9.60

$10.10

$10.60

$11.10

$11.60

0% 20% 40% 60% 80% 100%

202

1 W

eig

hte

d A

vg M

in W

age b

y S

tate

% Franchised

RegulationsFair Workweek legislation adds challenges

While regulations and legislation varies across cities and states, we expect stricter requirements will

be added over time – with the most apparent being the expansion of Fair Workweek legislation

Fair Workweek regulations aim to reduce the unpredictability of schedules by requiring restaurants

to schedule employees two weeks in advance, compensate for last minute schedule changes and

give sufficient rest time between shifts

Most of the predictive scheduling laws specifically apply to retail and fast food companies of a

certain size

Jurisdictions impacted: San Francisco, CA, San José, CA, New York City, NY, Seattle, WA,

Emeryville, CA, Philadelphia, PA, Chicago, IL, Washington, DC, & Oregon (comprehensive); New

Hampshire, Vermont (right-to-request statutes)

Other cities/states are looking to enact similar predictive scheduling laws, including Los Angeles,

CA, Sacramento, CA & Boston, MA

In a March 2020 study conducted by workforce management software platform Harri among

operators representing 5,300 locations & 45,000 employees regarding predictive scheduling laws:

– 37% of operators saw labor costs rise by 3-9%

– 41% of operators reduced employee hours

– 65% of operators do not have sufficient technology to manage compliance

– In response to scheduling legislation, 12% of operators eliminated jobs, 37% crossed trained

employees and 41% reduced employee hours

233

Source: Harri, Credit Suisse

Marching to a $15 minimum wageThe fight continues

A $15 minimum wage remains at the forefront of economic debates, noting the Democratic-led

House passed the Raise the Wage Act in July 2019 to increase the minimum wage to $15 and the

incoming Biden administration has voiced support regarding raising the minimum wage to $15

(which was included as part of the proposed $1.9TN “American Rescue Plan”)

Eight states have passed laws to increase their statutory minimum wages to $15/hour over time,

including more traditionally progressive states like New York & California, Democratic-leaning

Illinois, New Jersey, Massachusetts, Maryland & Connecticut, and a politically split Florida

– In November 2020, Florida passed an amendment to the state minimum wage to increase it to

$15/hour by 2026

A $15 federal minimum wage would more than double the current $7.25 minimum wage, noting 30

states have state minimum wages above the current federal level, while 20 have state minimum

wages (or have not adopted a state minimum wage) equivalent to the federal minimum wage

The Fight for $15 movement attracted widespread attention in 2012 in response to a strike by QSR

employees in NYC advocating for higher wages, better working conditions & the right to form a

union without retaliation from management, and has since been followed by many other strikes

across the country

234

The Good: Fight for $15Improving living wage

The Fight for $15 is a progressive movement advocating for lawmakers to increase the federal

minimum wage to $15/hour, and has garnered greater support from the Democratic party, noting

the Raise the Wage Act was passed in 2019, which would gradually raise the wage to $15/hour

Proponents of the increase highlight an increase in wages would help stimulate the economy as

workers have additional income to spend and improve pay inequality

Based on a 2019 analysis by the Economic Policy Institute (EPI), the gradual increase in the federal

minimum wage to $15/hour would:

– Increase pay for nearly 40MM workers, more than 25% of the US workforce, including 2/3 of

the working poor in America

– Increase pay by an average of $3,000 per year per worker

– Generate $120BN in higher wages for workers

235

Source: Economic Policy Institute, Credit Suisse

Opponents: Fight for $15Costs outweigh the benefits

Opponents argue that the costs outweigh the benefits, noting the increase in minimum wage would

lead to a reduction in employee hours to offset the costs & slowdown in job growth

Those against the increase also argue that the minimum wage hike would disproportionately weigh

on small & midsize businesses operating at lower margins, and thus would require an increase in

prices that could impact their competitive positioning relative to larger companies operating with

better economies of scale and better pricing power

A 2019 analysis by the Congressional Budget Office (CBO) assessing the impact of a $10, $12 or

$15 federal minimum wage communicated uncertainty regarding the impact, noting earnings for

most low-wage workers would increase, though others would lose their jobs as a result

Critics point to the “one size fits all” approach as an inappropriate policy given differences in the cost

of living across the US and ability for businesses to afford the increases

The National Restaurant Association has voiced opposition to the Raise the Wage Act, noting

“mandating a $15 per hour starting wage across the country fails to recognize the simple economic

reality that not all communities are the same. What might be right for California or New York would

have stifling impacts to restaurants and other small businesses in areas where workers do not face

the cost of living they do in major cities”

236

Source: Congressional Budget Office, National Restaurant Association, Credit Suisse

Closing the gap to a $15 minimum wageBig implications

237

% Increase – 2021 State Minimum Wage to $15/hour2021 State Minimum Wage

Source: Economic Policy Institute, Bureau of Labor Statistics, Credit Suisse estimates

3

6

12

9

20

22%

9%

15% 18%

35%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

5

10

15

20

25

0-1

0%

10-2

5%

25-5

0%

50-1

00%

100

%+

0-1

0%

10-2

5%

25-5

0%

50-1

00%

100

%+

# of States % of Restaurants

% o

f R

est

aura

nts

# o

f S

tate

s

% Increase - 2021 State Minimum Wage to $15/hour

In 2021, 30 states (representing ~65% of restaurants) will have minimum wages above the federal

level, and 20 states have state minimum wages (or have not adopted a state minimum wage)

equivalent to the federal $7.25

To close the gap to $15/hour, 41 states representing nearly 70% of restaurants would experience

minimum wage increases of at least 25%, with 15% of restaurants to see an increase of 25-50%,

18% to see an increase of 50-100% and 35% of restaurants to see an increase of 100%+

20

30

35%

65%

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30

35

$7.25 Minimum

Wage

State Miminum

Wage Above

Federal

$7.25 Minimum

Wage

State Miminum

Wage Above

Federal

# of States % of Restaurants

% o

f R

est

aura

nts

# o

f S

tate

s

Closing the gap to a $15 minimum wageImplications for QSR/fast casual coverage

238

% US System Exposure in High Wage Rate States% Increase – 2021 Average Minimum Wage to $15/hour

Source: Economic Policy Institute, Bureau of Labor Statistics, Company data, Credit Suisse estimates

Based on current US system exposure by state, limited service restaurants across our coverage

would experience a 50% increase on average if the federal minimum wage was increased to $15

– JACK & SHAK are least exposed given their concentration in higher wage states; ~40% of

JACK’s store base is in California; SHAK is concentrated in some of the largest cities with

already high minimum wage costs, such as New York and California

– PZZA & WEN are most exposed given their concentration in lower wage rate states

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

JACK SHAK SBUX CMG MCD QSR DPZ YUM WEN PZZA

%In

crease

20

21

Min

imum

Wage t

o $

15

/hour

0%

10%

20%

30%

40%

50%

60%

70%

JACK SHAK SBUX CMG MCD QSR DPZ YUM WEN PZZA

% S

yste

m E

xposu

re

California New York Arizona Illinois

Washington Massachusetts Oregon New Jersey

Eliminating the tip creditUnlikely to gain support from restaurant stakeholders

The incoming Biden administration has voiced support regarding the elimination of the tip credit,

which allows full service restaurants to pay a sub minimum wage to employees that earn tips,

provided that they earn at least minimum wage

– As part of the Raise the Wage Act, tipped minimum wage would gradually increase over several

years until it reached the minimum wage for non-tipped employees

Darden has suggested the elimination of the tip credit is attempting to solve a problem that doesn’t

exist, as neither guest nor tipped employee would benefit from the change, noting all tipped

employees are making at least the minimum wage, if not even higher

– For reference, the average Olive Garden server makes $16-17 per hour & Capital Grille

employee makes over $40 per hour

The National Restaurant Association has voiced opposition to the elimination of the tip credit, noting

“the tip credit allows tipped-employees to earn far more than the minimum wage, while helping to

reduce labor costs for restaurants and others that operate on thin profit margins”

While the Economic Policy Institute released a study suggesting one in six restaurant workers live

below the official poverty line and are more likely to be poor, others suggest inherent flaws in this

type of data/analysis, suspecting employees may not declare all tips and restaurants might pay off

the books

239

Eliminating the tip creditUnlikely to gain support from restaurant stakeholders

Union Square Hospitality Group’s (USHG) Danny Meyer implemented a no tipping policy in many of

his NYC full service restaurants in 2015, raising menu prices by 20-25% and increasing wages for

front & back of house employees

– The policy was reportedly met with mixed reviews from employees, as front of house employees

earned less than they were making with tips, leading to an increase in turnover

We suspect restaurants without the allure of USHG would face even greater backlash

– In July 2020, USHG reversed the policy, indicating “we’ve come to believe that it’s the inability to

share tips that is the problem, not the tips themselves”

Other notable restaurateurs (David Chang, Andrew Tarlow & Gabriel Stulman) also implemented no

tipping policies, but they eventually reversed course, noting turnover and tension

Jot Condie, President & CEO of the California Restaurant Association, wrote a letter to the New

York State Department of Labor in May 2018, refuting New York’s claims that California restaurants

were “thriving” specifically because of no tipped minimum wage, noting California restaurants were

actually trying to figure out how to stay in business as the minimum wage continues to increase,

highlighting restaurant closures and reduced work hours (note: California does not have a tipped

minimum wage)

Given the outsized impact of COVID-19 restrictions on the full service restaurant industry and no

apparent benefit to full service stakeholders (customers, employees, restaurants), we do not believe

eliminating the tip credit would gain widespread support from restaurant stakeholders

240

Labor challenges underscore need to investIn technology & people

Back of house and consumer facing technology to ease labor headwinds

– Automate scheduling tools, labor deployment software, inventory management

Increasingly important to help mitigate added burden from more predictive scheduling

required (especially as Fair Workweek legislation expands)

– Increase digital utilization, including mobile order & pay and kiosks, to reduce transaction time

(ordering & processing) and improve labor allocation

Restaurants note digital orders are most margin accretive – limits wear & tear, higher average

check, can better manage labor/capacity/throughput

Expanded benefits to attract and retain employees

– Mental health assistance programs, tuition assistance, benefit coverage, resource groups,

internal promotion paths, bonus opportunities

– Restaurants are also investing in employee facing technology to reduce administrative and

repetitive tasks and improve the overall employee value proposition (e.g., voice inventory

management, digital labor scheduling tools)

241

Labor challenges underscore need to investSelect examples of companies investing

Starbucks

People (already offers among the best benefits for its partners in the industry) – increased wages for

hourly employees by at least 10% in mid-December, one of the most significant investments in its

partners in the company’s history; offers full tuition for Arizona State University’s online program (to

participate, employees must work a minimum of 20 hours/week & eligible day one of employment)

Technology – as part of the Deep Brew initiative, the company is leveraging artificial intelligence to

optimize labor scheduling and inventory management

Chipotle

People – began testing unlimited paid time off for select employees in March & enhanced its Paid

Parental Leave program to provide 12 weeks of paid leave for birth moms & four weeks for new

dads; enhanced Debt-Free Degrees program, which covers 100% of tuition costs up front, to

include Paul Quinn College, one of the oldest Historically Black Colleges & Universities in the

country; offers tuition assistance (hourly crew members eligible after one year and salaried & hourly

managers eligible day one of employment)

Technology – digital ordering channels reduce labor required; added digital elements to secondary

production lines to enhance productivity

242

Labor challenges underscore need to investSelect examples of companies investing

Domino’s

Technology – rolled out GPS driver tracker technology, which generates in-store labor efficiencies

and better manages delivery drivers (drivers can stay in vehicle when returning for another delivery

order); implementation of smart make-line tools

McDonald’s

People – enhanced its Archways to Opportunity program, an educational initiative for employees, to

include an Archways to Careers app designed to help employees develop & explore future career

opportunities (whether at McDonald’s or elsewhere); in 2018, committed to increase funding for the

tuition program by $150MM over five years (eligible after 90 days of employment)

Technology – acquired Apprente for voice technology, which should offer labor savings through use

of AI and reduced labor required at the drive-thru

Yum! Brands

People – Taco Bell offers tuition discounts through Guild Education & tuition assistance; Pizza Hut

offers tuition assistance and discounts (after 60 days of service); KFC offers the REACH

Educational Grant Program to hourly employees (after six months of service); YUM acquired

Heartstyles, a leadership development platform; YUM committed to invest $100MM over five years

by establishing the Unlocking Opportunity Initiative, with a focus on equity & inclusion, education

and entrepreneurship

243

244

Margin Outlook

Reassessing spending needsIdentifying efficiencies & investment opportunities

245

Unprecedented challenges have presented unprecedented opportunities for companies to reassess

their spending needs and investment priorities

– Companies have identified cost savings opportunities through reorganizations, portfolio

optimization (e.g., closures of underperforming stores), enhanced productivity, menu

simplification, reductions in marketing spend, reduced travel & other areas of the business

– Companies have also reassessed go forward strategies, noting greater investment in technology

as companies recognize the importance of holistic technological infrastructures to expand

competitive moats

We also believe scale is becoming increasingly important as companies ramp up digital investments

Darden, The Cheesecake Factory & Bloomin’ Brands have all identified cost savings opportunities

with expectations for sustainably higher margins going forward

McDonald’s, Yum! Brands & Wendy’s have suggested incremental digital investments are likely as

they build out technology and data analytics teams

Heavily franchised QSRs generally operate at the highest level of efficiencies as they are naturally

less capital intensive, while casual dining companies generally have higher G&A metrics as they are

primarily company-operated business models, are smaller than QSR peers (less scale) and are

larger boxes more susceptible to wear and tear given a higher dine-in mix

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

JACK CMG DPZ QSR PZZA SHAK YUM MCD WEN

Rest

auara

nt

Marg

in

FY19 Actual FY20E FY21E FY22E FY23E

Mixed margin outlook for QSR/fast casual companiesLean models & investment opportunities

Following refranchising and cost savings efforts enacted over the last several years, most heavily

franchised QSRs are already running lean business models, with sales leverage likely the primary

driver of future margin improvement, especially with incremental investments in technology

Consensus models restaurant margin improvement relative to FY19 levels for CMG, PZZA, MCD &

WEN, and restaurant margin contraction for SHAK, JACK, YUM, DPZ & QSR

Consensus models 500-600bps of operating margin improvement for CMG & PZZA, ~350bps for

WEN, 100-200bps for QSR, DPZ, SBUX & MCD and contraction for YUM, SHAK & JACK vs FY19

246

Source: Consensus Metrix, Company data, Credit Suisse estimates

Operating MarginsRestaurant Margins


-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

MCD QSR YUM JACK WEN DPZ SBUX CMG PZZA SHAK

Opera

ting M

arg

in


Casual dining companies suggest improved marginsDriven by efficiencies & productivity gains

Casual diners have indicated efficiencies & productivity gains achieved throughout the pandemic

should support sustainably higher margins post-COVID, largely through labor and G&A – consensus

models margin improvement for DRI, TXRH & BLMN, & lower margins for CAKE in FY23 vs FY19

DRI expects its run rate margins to improve by ~150bps and has noted it can achieve pre-COVID

EBITDA at ~90% of prior sales levels (consensus models ~170bps of improvement by FY23)

CAKE has noted it can return to pre-COVID margins at 90-95% of prior sales and expects run rate

margins to be sustainably higher going forward (consensus models margins down relative to FY19)

247


Operating MarginsRestaurant Margins


21.7%

17.3% 15.7%

14.7%

22.6%

17.7%

15.4% 15.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

DRI TXRH CAKE BLMN

Rest

auara

nt

Marg

in


10.0%

7.7%

5.2% 4.8%

11.7%

8.8%

4.9% 5.5%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

DRI TXRH CAKE BLMN

Opera

ting M

arg

in


19.0%

17.8%

12.7%

19.1%

17.6%

12.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

SYY USFD PFGC

Gro

ss M

arg

in


4.5%

3.4%

1.8%

4.9%

3.6%

1.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

SYY USFD PFGC

Opera

ting M

arg

in


Food distributors expect improved margin outlookDriven by efficiencies & productivity gains

SYY, USFD and PFGC have all indicated expectations for improved margin outlooks in a post-

COVID environment, largely driven by efficiencies and productivity gains within G&A

– All three have suggested gross margins are largely stable by customer, though enterprise gross

margins could be impacted temporarily as a result of customer mix shift

SYY identified $350MM of cost savings in FY21, with the majority to flow to the bottom line, noting

additional cost savings opportunities in FY22

USFD identified $180MM of fixed cost savings, with the majority to flow to the bottom line

248


Operating MarginsGross Margins

Food Distributors

G&A Benchmarking Analysis

249

What’s in G&A? General & administrative expense is typically comprised of expenses that support the development and operations of restaurants but fall outside of the restaurants’ four walls. These

include: executive compensation and benefits, regional management compensation, travel costs, IT

systems, legal and professional fees, corporate office expense and other related corporate costs.

Some companies include advertising & marketing expenses in some cases ("selling" expense in

SG&A), though the allocation of these costs vary by company

Benchmarking methodology & metrics: We calculated two comparative metrics: G&A per average store and G&A as a % of system sales. Each company’s G&A (last fiscal year) has been

adjusted for non-recurring items & marketing/advertising expenses (if applicable). Our analysis also

takes into account varying levels of franchise ownership across the industry (franchise models are

naturally less capital intensive)

DENNDIN

EAT

BLMN

RRGB RUTHDRI

CBRL

CHUYTXRH

QSRYUM

DPZJACKWEN

PZZA WINGSBUX

MCD

TACO

PBPB LOCO

NDLS

CMGFRGI

SHAK

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

0% 20% 40% 60% 80% 100%

G&

A p

er

Sys

tem

Sto

re

% Franchised Mix

G&A per System StoreLower for heavily franchised & global companies

250


On average, restaurant chains spend ~$140K per store in G&A, though spend varies widely based

on business models, with heavily franchised chains spending ~$30K per store on average, while

company-operated chains spend ~$210K on average

Heavily franchised restaurant companies have the lowest G&A spend per store

Note: (1) Red diamonds represent companies in our coverage; (2) Excludes CAKE & PLAY as outliers.

Companies with higher company ownership generally have higher G&A spend per store

Note: Reflects FY19 numbers.

DENN DIN

EAT

BLMN

RRGB

RUTH

DRICBRL

CHUY

TXRH

BJRI

CAKE

PLAY

QSR

YUM

DPZ

JACKWEN

PZZA

WINGSBUX

MCD

TACO

PBPB

LOCO

NDLS

CMG

FRGI SHAK

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0% 20% 40% 60% 80% 100%

G&

A a

s %

of

Sys

tem

Sale

s

% Franchised Mix

G&A as a % of System SalesLower for heavily franchised & global companies

251


On average, restaurant chains spend ~4.5% of system sales on G&A, though spend varies widely

based on business models, with heavily franchised chains spending ~2.5% of system sales on

average and company-operated chains spend ~6% on average

Note: Red diamonds represent companies in our coverage.

Heavily franchised restaurant companies have the lowest G&A as a percentage of system sales

Companies with higher company ownership generally have higher G&A as a % of system sales


G&A BenchmarkingQSR & Fast Casual Restaurants

252


G&A as % of System Sales

G&A per System Store



0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

PB

PB

ND

LS

FR

GI

CM

G

SH

AK

TA

CO

PZ

ZA

SB

UX

LO

CO

WIN

G

DP

Z

MC

D

WE

N

YU

M

JA

CK

QS

R

G&

A a

s %

of

Sys

tem

Sale

s

$0K

$50K

$100K

$150K

$200K

$250K

SH

AK

FR

GI

CM

G

ND

LS

LO

CO

PB

PB

TA

CO

MC

D

SB

UX

WIN

G

PZ

ZA

WE

N

JA

CK

DP

Z

YU

M

QS

R

G&

A p

er

Sys

tem

Sto

re

Company G&A as % of System Sales

Potbelly (PBPB) 8.0%

Noodles (NDLS) 7.8%

Fiesta Restaurant Group (FRGI) 7.5%

Chipotle (CMG) 7.3%

Shake Shack (SHAK) 7.0%

Del Taco (TACO) 5.1%

Papa John's (PZZA) 5.0%

Starbucks (SBUX) 4.4%

El Pollo Loco (LOCO) 4.2%

Wingstop (WING) 3.7%

Domino's (DPZ) 2.4%

McDonald's (MCD) 2.1%

Wendy's (WEN) 1.9%

Yum! Brands 1.7%

Jack in the Box (JACK) 1.6%

Restaurant Brands International (QSR) 1.1%

Company G&A per System Store

Shake Shack (SHAK) $226,749

Fiesta Restaurant Group (FRGI) $159,162

Chipotle (CMG) $154,526

Noodles (NDLS) $90,910

El Pollo Loco (LOCO) $77,303

Potbelly (PBPB) $76,160

Del Taco (TACO) $73,619

McDonald's (MCD) $55,508

Starbucks (SBUX) $55,093

Wingstop (WING) $40,191

Papa John's (PZZA) $33,687

Wendy's (WEN) $29,911

Jack in the Box (JACK) $25,572

Domino's (DPZ) $20,222

Yum! Brands $18,278

Restaurant Brands International (QSR) $13,623


G&A BenchmarkingCasual Dining Restaurants

253






0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

RR

GB

CA

KE

BLM

N

CH

UY

BJR

I

PL

AY

CB

RL

DR

I

TX

RH

RU

TH

EA

T

DE

NN

DIN

G&

A a

s %

of

Sys

tem

Sale

s

$0K

$100K

$200K

$300K

$400K

$500K

$600K

CA

KE

PL

AY

BJR

I

TX

RH

CH

UY

CB

RL

DR

I

RU

TH

RR

GB

BLM

N

EA

T

DIN

DE

NN

G&

A p

er

Sys

tem

Sto

re

Company G&A as % of System Sales

Red Robin (RRGB) 7.1%

The Cheesecake Factory (CAKE) 6.5%

Bloomin' Brands (BLMN) 5.6%

Chuy's (CHUY) 5.6%

BJ's Restaurants (BJRI) 5.4%

Dave & Buster's (PLAY) 5.1%

Cracker Barrel (CBRL) 5.0%

Darden (DRI) 4.8%

Texas Roadhouse (TXRH) 4.6%

Ruth's Hospitality (RUTH) 4.2%

Brinker International (EAT) 3.9%

Denny's (DENN) 2.3%

Dine Brands (DIN) 2.2%

Company G&A per System Store

The Cheesecake Factory (CAKE) $548,592

Dave & Buster's (PLAY) $510,801

BJ's Restaurants (BJRI) $300,673

Texas Roadhouse (TXRH) $244,499

Chuy's (CHUY) $236,810

Cracker Barrel (CBRL) $229,124

Darden (DRI) $224,778

Ruth's Hospitality (RUTH) $216,237

Red Robin (RRGB) $200,860

Bloomin' Brands (BLMN) $187,398

Brinker International (EAT) $89,657

Dine Brands (DIN) $44,877

Denny's (DENN) $40,527


254

Portfolio Optimization

Improving the health of the systemProactive closures

Restaurants are using recent challenges as an opportunity to clean up their portfolios with limited

investor pushback, closing stores that were likely unprofitable even before the pandemic

– McDonald’s announced plans to close 200 US stores in 2020, with over half to be lower volume Walmart locations, and 325 US stores in 2021, the majority of which are lower volume

Walmart stores

– Starbucks plans to accelerate the closure of ~500 US and ~300 Canadian company-operated stores, primarily in dense metro markets, a strategy the company was already pursuing given the

highest cost of operating in urban markets

– Restaurant Brands International announced a heightened level of closures in 2020 (“closing several hundred more restaurants than in a typical year”) globally in an effort to improve the

profitability of franchisees & the system, with the 2020 global restaurant count to be similar to

2019 (relative to 1,300+ net opens in 2017-2019)

– Yum! Brands announced a heightened level of closures in 2020 (and likely 2021), particularly related to Pizza Hut, with expectations to have a 2020 global restaurant count similar to 2019

(relative to an average of 1,500-2,000 net opens in 2017-2019)

– Domino’s noted international markets are reassessing their portfolios, acknowledging the potential for additional closures following the closure of ~105 unprofitable stores in India

255

Improving the health of the systemProactive closures

Restaurants are using recent challenges as an opportunity to clean up their portfolios with limited

investor pushback, closing stores that were likely unprofitable even before the pandemic

– Dunkin’ Brands announced plans to close ~800 lower volume US locations in 2020 (including ~450 Speedway units) and an additional 350 international locations across its Dunkin’ and

Baskin-Robbins brands in 2H20

– Dine Brands indicated it was evaluating underperforming domestic IHOP locations, with plans to close up to 100 restaurants through mid-2021, noting these were weaker stores even prior to

the pandemic

– Potbelly announced plans to permanently close 25-30 locations, noting the cumulative TTM EBITDA pre-pandemic was negative, and thus the closures would be profit dollar and margin

accretive

256

Building for future trendsNew prototypes

Restaurants are reevaluating new prototypes and modifications to their existing restaurants, as well

as accelerating prior strategies, to best position the system to enhance new unit economics and

capitalize on consumer trends toward convenience, personalization & an omni-channel experience

– Starbucks is accelerating the transformation of its US store portfolio to increase convenience-led formats with the expansion of Starbucks Pickup stores in dense markets and convenience-

led enhancements such as curbside, drive-thru and walkup windows in suburban areas

– Chipotle expects ~70% of its 2021 new unit class to be Chipotlane units (with ~10% of the asset base to include Chipotlanes by the end of 2021), noting better sales, margins & returns,

and is also testing additional digital-only prototypes with limited dining rooms better suited for

urban markets

Chipotle has highlighted new prototypes have supported an increase in its total unit count

potential in the US to ~6,000 units (2,700+ currently)

– Shake Shack is accelerating its digital strategy with the “Shack Track” platform, which includes the incorporation of drive-up windows, curbside pickup and walk-up windows in new & existing

restaurants to ease the digital ordering & pickup experience; Shake Shack is opening its first

drive-thru in 2021, with plans for 5-8 by the end of 2022

Shake Shack has highlighted that new formats are supporting an increase in the addressable

market potential (current long-term target 450 US company-operated restaurants)

257

Building for future trendsNew prototypes

Restaurants are reevaluating new prototypes and modifications to their existing restaurants, as well

as accelerating prior strategies, to best position the system to enhance new unit economics and

capitalize on consumer trends toward convenience, personalization & an omni-channel experience

– Yum! Brands has unveiled new restaurant prototypes prioritizing the digital experience, including Taco Bell’s new “Go Mobile” concept (smaller unit incorporating dual drive-thru lanes, curbside

pickup & bellhop to facilitate mobile orders), KFC’s next generation prototype (cubbies for digital

orders, self-service kiosks, dedicated parking spots for off-premise orders, drive-thru lane for

mobile orders) & plans to open more Habit units with drive-thrus

– Restaurant Brands International is accelerating the rollout of digital menu boards to Burger King & Tim Hortons restaurants, introduced the Burger King of the Future prototype (curbside

delivery, pick up lockers, multiple drive-thru lanes, suspended kitchen & dining room) and

unveiled an elevated new Popeyes restaurant design

– Jack in the Box has alluded to designs of new restaurant prototypes to accelerate its unit growth strategy and improve new unit economics, which we expect will be smaller in size and

incorporate elements to facilitate digital orders

258

Not too big, not too small, just rightFranchisee composition

With the spotlight on franchisee economics amidst recent challenges, we believe companies will

look to assess the composition of their franchise bases to balance the benefit of larger franchisees

with scale, greater access to capital and generally a growth-minded outlook, with the risk of

concentrating the system, noting large franchisees generally take on greater leverage to support

their growth

– NPC International, the largest Pizza Hut & Wendy’s franchisee, filed for bankruptcy in July 2020

While NPC received a stalking horse bid from Flynn Restaurant Group to acquire substantially

all of its ~1,300 restaurants, Wendy’s noted concerns as it only allows any one franchisee to

operate up to 400 restaurants and does not allow competing restaurants in the same portfolio

(Flynn Restaurant Group operates Applebee’s, Panera, Taco Bell and Arby’s restaurants) –

the organizations have since agreed that Flynn will acquire approximately half of NPC’s

Wendy’s units, with the other half to be acquired by existing franchisees

Several restaurants prohibit their franchisees from operating additional concepts and/or concepts

that could be considered direct competitors to ensure focus and limit conflicts of interest, as well as

limit the number of restaurants they can own/operate

– For example, Wendy’s prohibits franchisees from operating competing brands and limits

franchisees to operating up to 400 restaurants and Taco Bell generally limits organic unit growth

of up to 225-250 restaurants per franchisee

– Other franchisees, such as Domino’s and McDonald’s, often restrict franchisees from operating

other businesses and competing brands

259

260

Unit Growth

261

Capitalizing on unit growth opportunitiesOutlook for more attractive real estate market

Since the beginning of the pandemic, many restaurant companies have indicated expectations for

more attractive real estate opportunities given heightened restaurant & retail closures

– But commentary suggests there has been limited changes in price thus far as landlords & tenants

continue to work through price discovery in an uncertain environment, and while there is

availability of real estate, companies have similarly highlighted A sites are still very competitive

Retail vacancy has increased to ~5% (from ~4-4.5% pre-COVID), though average rent has been

fairly flat

3Q20 Average Retail RentRetail Vacancy

Source: JLL, Credit Suisse

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

General

Retail

Neighborhood

Center

Mall Power

Center

Strip

Center

Other

3Q

20 A

vera

ge R

ent

YO

Y %

% of Retail

Square Footage53% 26% 8% 7% 6% 1%

4.1%

4.2%

4.3%

4.4%

4.5%

4.6%

4.7%

4.8%

4.9%

5.0%

5.1%

1Q19 2Q19 3Q19 4Q19 3Q20

Reta

il V

aca

ncy

262

US restaurant growth has moderated in recent years, with large chains gaining share

Restaurant industry growth has averaged ~0.5% over the last 15 years (pre-COVID), with limited

service restaurants (QSR & fast casual) outpacing full service restaurants and overall growth

decelerating; Technomic estimates unit growth declined ~11% in 2020, including down ~7.5%

among limited service restaurants and down ~15% among full service restaurants

Large chains are gaining share (primarily limited service), with the largest 500 restaurant chains

(representing 33% of total units) exhibiting unit growth of ~2% over the last 15 years, though growth

has decelerated, with 2019’s unit growth of 0.4% the lowest in 15 years

Top 500 Restaurants Unit GrowthRestaurant Industry Unit Growth

Source: Technomic, Company data, Credit Suisse estimates

25%

26%

27%

28%

29%

30%

31%

32%

33%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Top

500 a

s %

of

Indu

stry

Uni

ts

Top

500 C

hain

s U

nit

Gro

wth

Top 500 Chains Unit Growth Top 500 as % of Industry Units

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Res

taur

ant

Indu

stry

Uni

t G

row

th

Total Restaurants Limited Service Restaurants Full Service Restaurants

263

Limited service restaurants have demonstrated decelerating unit growth

Limited service restaurant unit growth has averaged ~1.2% over the last 15 years, though unit

growth decelerated to half the rate over the last two years (2018 & 2019) and an estimated down

~7.5% in 2020 (per Technomic)

Large chains (~57% of limited service units) have demonstrated stronger unit growth trends,

averaging ~1.9% over the last 15 years, though unit growth has also decelerated over the last

couple of years to ~0.7%

Limited Service Unit GrowthLimited Service Unit Growth



-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Lim

ited S

erv

ice U

nit

Gro

wth

Large Chains Independents

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

2011

201

2

201

3

201

4

201

5

201

6

201

7

201

8

2019

202

0E

Lim

ited S

erv

ice U

nit

Gro

wth

264

Mixed unit growth across cuisine segmentsSmaller categories outpacing penetrated segments

The cuisine segments that are the smallest by units are outpacing unit growth among the cuisine

segments that have the largest number of units, and thus are the most significantly penetrated

– The coffee, Mexican and chicken cuisine segments are growing units at twice the rate of the

larger sandwich, pizza and burger segments

In the larger, more penetrated segments, the leaders have been net unit closers, including Subway,

Pizza Hut (largest by units) & McDonald’s, while chains in smaller segments are opening units at a

faster rate than their respective segments, including Starbucks, Taco Bell and Chick-fil-A

5-year Unit CAGR2019 Units by Segment



0K

10K

20K

30K

40K

50K

60K

70K


Units

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%


5-y

r U

nit

CA

GR

265

Assessing market segment dynamicsRoom for growth vs market share battle

Burgers are the largest and most penetrated category, representing ~$88BN in sales

– Large chains (~35 chains) comprise ~97% of segment sales, with the largest five chains making

up nearly 80% of segment sales

Pizza’s $44BN segment is highly fragmented, with the largest five chains making up <50% of

segment sales, highlighting room for market share gains among the large chains

Coffee, chicken & Mexican restaurant segments are relatively small and attractive categories,

reflecting mid to high-single-digit sales growth

5-year Sales CAGR by SegmentMarket Share by Segment



2.9%

4.2%

7.5%

8.1%

2.0%

6.2%

2.9%

3.7%

7.9% 8.3%

1.8%

5.9%


Total Segment Large Chains

$69BN

$20BN

$32BN$23BN $18BN $19BN

$85BN

$26BN

$33BN

$30BN$24BN $22BN

$88BN

$44BN

$36BN$32BN $32BN

$26BN


Independents

Large Chains

Top 5

266

Unit growth highest among less penetrated segmentsCoffee, Mexican & Chicken

The burger segment has nearly 49K units, with ~90% of units concentrated with the larger chains

– The burger segment is already very penetrated and concentrated, making unit growth likely more

difficult than other cuisine segments

The pizza segment is one of the largest by units with ~62K outlets & the most fragmented, though

unit growth has been relatively low – expansion appears to be largely a market share battle

Coffee, Mexican restaurants and chicken segments are the smallest by units and growing the fastest

5-year Unit CAGR by SegmentUnits by Segment



32.8K

22.1K

32.8K26.2K

11.4K 10.4K

38.2K

29.8K

44.3K

27.6K

13.6K 15.5K

63.0K 62.1K

48.8K

39.7K

25.8K

19.4K


Independents

Large Chains

Top 5

-0.3%

0.5%0.7%

3.6%

2.1%

2.8%

-0.6%

1.2%0.8%

4.5%

3.3% 3.2%


Total Segment Large Chains

267

Full service supply contractsAs unit growth has turned negative

Unit growth among full service restaurants has averaged -0.4% over the last 15 years, with unit

growth notably negative throughout the recession and over the last two years, averaging

approximately flat over the last five (pre-COVID) & an estimated -15% in 2020 (per Technomic)

Large chains (~8% of full service units) have demonstrated stronger unit growth trends, averaging

~1% over the last 15 years, though unit growth has also been negative over the last few years

Full Service Unit GrowthFull Service Unit Growth


-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Ful

l S

ervi

ce U

nit

Gro

wth



-18.0%

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0E

Full

Serv

ice U

nit

Gro

wth

268

Unit growth largely negative across cuisine segmentsLikely suggesting saturation & heightened competition

Unit growth has been flat to negative across nearly every cuisine over the last five years, suggesting

all cuisine segments have been facing saturation and increasing competition from high quality limited

service restaurants offering a compelling value proposition (particularly for varied menu)

Steak is one of the smallest cuisine segments in full service and demonstrating the strongest unit

growth trends, likely driven by less saturation and less competition given the nature of the category

and difficulty replicating the cuisine outside of full service dining

5-yr Unit CAGR2019 Units by Segment


-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Steak Asian Sports

Bar

Mexican Family

Style

Varied

Menu

Italian/

Pizza

Seafood

5-y

r U

nit

CAG

R

7K 1K 9K 1K 3K 3K 3K 1K

97K

51K 34K

32K 29K 27K8K 8K

105K

52K

43K

32K 32K 30K

11K 9K

0K

20K

40K

60K

80K

100K

120K

Varied

Menu

Asian Family

Style

Mexican Italian/

Pizza

Sports

Bar

Steak Seafood

2019 U

nits



269

Large chains not immune to segment challengesThough large chain sales growth largely outpaces independents In 2019, seven of eight cuisine categories demonstrated positive sales growth, though only one

(steak) cuisine category exhibited positive unit growth

The top chain gained or maintained market share in six of the eight cuisine categories, though large

chains largely underperformed the categories

In 2019, unit growth was positive in only one cuisine category (steak), led by the top chain, and large

steak chains outpaced the total steak category; all other cuisines demonstrated negative unit growth,

with just Italian/Pizza showing some signs of positive unit growth from the top chain (Olive Garden)

2019 Unit Growth – Top Chain, Large Chains & Subsegment by Cuisine2019 Sales Growth – Top Chain, Large Chains & Subsegment by Cuisine


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Ste

ak

Italia

n/P

izza

Mexi

can

Asia

n

Seafo

od

Varied M

enu

Fam

ily S

tyle

Sport

s B

ar

2019 S

ales

G

row

th

Top Chain Large Chains Total Segment

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Ste

ak

Italia

n/P

izza

Mexi

can

Asia

n

Seafo

od

Varied M

enu

Fam

ily S

tyle

Sport

s B

ar

2019 U

nit

Gro

wth

Top Chain Large Chains Total Segment


270

Concentration in select US statesCould weigh on growth potential

Restaurants with greater geographic concentration face higher expansion risks in new markets given

lower brand awareness and new market inefficiencies

– Several restaurant companies have noted challenges in expanding into new markets given the

time it takes to generate awareness and build a loyal customer base

Jack in the Box and Shake Shack have the highest US concentration risk, with >70% of their US

portfolios concentrated in 10 states (vs ~60% average across our QSR/fast casual coverage)

Casual dining concentration is largely similar across brands, with 50-60% of units in 10 markets

Source: Franchise Disclosure Documents, Company data, Credit Suisse estimates

Full Service Restaurant US Unit ExposureLimited Service Restaurant US Unit Exposure

37%

30%

19%

9%

17%

18%

11%

12%

10%

13%

54%

56%

36%

25%

37%

30%

28%

25%

27%

25%

66%

66%

47%

38%

46%

40%

39%

35%

36%

36%

85%

79%

63%

62%

61%

58%

56%

55%

53%

51%

Chuy's (CHUY)

BJ's (BJRI)



Brinker (EAT)

Bloomin' (BLMN)

Darden (DRI)

Red Robin (RRGB)

Dine Brands (DIN)


% of US Units

Top Market Top 3 Markets Top 5 Markets Top 10 Markets

42%

19%

17%

20%

10%

9%

9%

10%

11%

9%

77%

38%

32%

33%

25%

24%

23%

26%

28%

24%

87%

51%

45%

43%

36%

36%

33%

35%

36%

34%

95%

71%

65%

60%

57%

55%

53%

52%

52%

52%

Jack in the Box (JACK)

Shake Shack (SHAK)

Chipotle (CMG)

Starbucks (SBUX)

Papa John's (PZZA)

Restaurant Brands International (QSR)

Wendy's (WEN)

Domino's (DPZ)

Yum! Brands (YUM)

McDonald's (MCD)

% of US Units

Top Market Top 3 Markets Top 5 Markets Top 10 Markets

271

Lack of international presenceCould weigh on growth potential

Many large global QSRs have significant international exposure and are generating the majority of

their unit growth in international markets

Casual dining companies have limited international exposure; units in international markets are

generally operated by franchisees (vs US company operated) with minimal sales & profit contribution

Jack in the Box, Chipotle & most casual dining companies have almost zero international presence

McDonald’s, Domino’s, Yum! Brands, Restaurant Brands International & Starbucks have 50%+ of

units in international markets, with international a meaningful contributor to the unit growth algorithm


International as % of System Units – Full Service RestaurantsInternational as % of System Units – Limited Service Restaurants

22%

17%

8%

7%

5%

3%

2%

0%

0%

0%

Brinker (EAT)

Bloomin' (BLMN)


Dine Brands (DIN)


Red Robin (RRGB)

Darden (DRI)


BJ's (BJRI)

Chuy's (CHUY)

International as % of Units

64%

64%

64%

61%

52%

39%

33%

14%

1%

0%

McDonald's (MCD)

Yum! Brands (YUM)

Domino's (DPZ)

Restaurant Brands International (QSR)

Starbucks (SBUX)

Papa John's (PZZA)

Shake Shack (SHAK)

Wendy's (WEN)

Chipotle (CMG)

Jack in the Box (JACK)

International as % of Units

272

Consensus expects QSR/fast casual global unit growth to ramp up in 2021

Consensus expectations imply limited service unit growth across our coverage of ~1% in FY20, with

an acceleration in FY21 and return to prior unit growth levels of 4%+ in FY22

Estimates imply unit growth remains below historical levels over the next two years among the fastest

growing chains (SBUX, YUM, QSR, DPZ), while unit growth accelerates for chains that have

demonstrated a slower pace of growth in recent years (MCD, WEN, JACK, PZZA)

Consensus Unit Growth Expectations – Limited Service RestaurantsConsensus Unit Growth Expectations – Limited Service Restaurants

Source: Consensus Metrix, Company data, Credit Suisse


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

FY17 FY18 FY19 FY20E FY21E FY22E

Unit

Gro

wth

-10%

0%

10%

20%

30%

40%

50%

SHAK CMG DPZ SBUX QSR PZZA YUM MCD WEN JACK

Conse

nsu

s U

nit

Gro

wth

FY20E FY21E FY22E

273

Long-term unit growth expectations

While most restaurant companies have removed long-term guidance, we note consensus

expectations imply long-term unit growth targets will likely be reinstated and that they will return to

unit growth algorithms


5-yr Unit CAGR FY20E FY21E FY22E FY23E Long-Term Unit Growth Targets

McDonald's 1.3% 0.9% 1.9% 2.2% 2.6%

Restaurant Brands International 5.2% 0.1% 4.1% 5.0% 5.4% 40K units over 8-10 years (implies 4-5% 8-10 yr CAGR)

Yum! Brands 4.1% -0.5% 3.0% 3.8% 4.0% ~4% per year

Wendy's 0.8% 0.6% 1.9% 2.4% 2.1% ~3% per year

Jack in the Box -0.1% -0.1% 0.5% 1.1% 1.4% Low-single-digit unit growth

Domino's 7.9% 3.0% 5.9% 6.2% 6.4% 6-8% per year; 25K units by 2025 (implies ~7.5% 5-yr CAGR)

Domestic 3.9% 3.6% 4.6% 4.6% 4.4% ~8K by 2025 (implies 4.5-5% 5-yr CAGR)

International 10.7% 2.7% 6.6% 7.2% 7.5% ~17K by 2025 (implies 8.5-9% 5-yr CAGR)

Papa John's 3.0% -0.1% 3.8% 4.5% 3.3%

Starbucks 7.9% 4.5% 3.4% 6.1% 6.1% ~6% per year; ~55K units by 2030 (implies ~5.5% 10-yr CAGR)

US 4.7% 1.9% 0.7% 2.9% 3.2% ~3% per year

China 24.7% 14.1% 12.4% 12.6% 12.6% low teens per year

Chipotle 8.0% 5.1% 6.9% 6.9% 7.4% ~6K US unit potential

Shake Shack 34.3% 12.0% 17.9% 16.8% 16.7%

Domestic Company 39.4% 11.7% 20.3% 18.3% 19.7% 450 US company-operated unit potential

Consensus Estimates


274

Consensus expectations imply accelerating casual dining unit growth over the next few years

Consensus expectations imply full service unit growth of -1.4% in 2020, flat unit growth in 2021 and

1.4% in FY22

– Estimates imply growth accelerates to nearly 3x the level over the last few years

Estimates imply accelerating unit growth across nearly every public casual dining restaurant company

Consensus Unit Growth Expectations – Full Service RestaurantsConsensus Unit Growth Expectations – Full Service Restaurants



-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

FY17 FY18 FY19 FY20E FY21E FY22E

Unit

Gro

wth

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

TXRH CAKE BJRI CHUY DRI BLMN EAT RRGB CBRL DIN

Conse

nsu

s U

nit

Gro

wth

FY20E FY21E FY22E

275

Long-term unit growth expectations

Several restaurant companies have set long-term unit growth targets implying growth in-line or

accelerating from recent history



5-yr Unit CAGR FY20E FY21E FY22E FY23E Long-Term Unit Growth Targets

Darden 1.8% 1.1% 2.1% 2.5% 2.7% 2-3% revenue contribution per year

Olive Garden 0.7% 0.2% 1.3% 1.3% 1.3%

LongHorn 2.1% 1.6% 2.3% 2.6% 2.6%

Bloomin' -0.5% -0.7% 0.6% 1.1% 0.9%

Outback US -0.8% -2.5% -0.1% 0.1% -0.6%

Carrabba's -1.5% -2.2% -0.9% 0.0% -1.4%

Brinker 0.6% -0.1% -0.4% 0.6% 0.9% ~1% per year

Chili's 0.5% -0.1% -0.4% 0.6% 0.9% 12-15 units per year

Maggiano's 2.9% 0.0% 0.0% 1.9% 0.0% ~4 units per year

Dine Brands -0.2% -4.3% -2.0% 0.6%

Applebee's -2.2% -4.4% -2.7% -0.4%

IHOP 2.4% -4.2% -1.3% 2.0%

The Cheesecake Factory 3.2% 1.0% 4.1% 5.5% 6.5% ~6-7% per year

Cheesecake Factory 3.1% 0.0% 1.0% 1.4% 1.9% ~3% per year

Texas Roadhouse 6.7% 3.7% 5.3% 5.5% 5.7% 25-30 per year; 700-800+ potential US Texas Roadhouse units

Cracker Barrel 1.1% -5.5% 0.5% 0.6% 0.7%

BJ's 5.9% 0.5% 1.9% 3.8% 3.6%

Chuy's 11.1% -3.0% 3.1% 6.0% 7.5% 20%+ per year

Red Robin 1.6% -2.2% -0.6% 0.4% 0.2%

Consensus Estimates

276

M&A

Active restaurant deal spaceM&A in public & private markets

The restaurants deal space has been active over the last couple of years:

– Well-funded firms have recognized the synergies owning multiple brands and a larger base of

restaurants

– Access to cheap capital

– Greater consolidation among franchisees

– Increase in shareholder activism

– Potentially a safe-haven for long-term capital with restaurants largely insulated from seismic

changes in retail and restaurants is a well understood/easy to forecast growth sector

There has also been an increase in investments in restaurant technology platforms supported by

evolving consumer expectations, changes in adjacent sectors and necessary investments to unlock

efficiencies amidst a challenging backdrop with cost pressures unlikely to subside

Drivers of restaurant M&A:

– Expand market share

– Enter new markets & channels

– Build scale

– Diversify revenue streams

– Access to talent

– Vertical integration

277

Select M&A Restaurant Deals

278

Source: Company data, Media reports, Pitchbook, Credit Suisse estimates

Date Acquirer Target Deal Size ($MM) LTM EV/EBITDA

QSR/Fast Casual

2020 Inspire Brands Dunkin' Brands $11,300 24.5x

2020 FAT Brands Johnny Rockets $25 3.2x

2020 Engage Brands Boston Market

2020 Chopt Dos Toros

2019 Yum! Brands The Habit Restaurants $388 11.6x

2019 BDT Capital Whataburger

2019 Inspire Brands Jimmy John's

2018 Durational Capital / The Jordan Company Bojangles' $715 9.9x

2018 Roark Capital/Inspire Brands Sonic Drive-In $2,300 15.7x

2018 CAVA Group Zoe's Kitchen $300 16.4x

2018 The Coca-Cola Company Costa $5,100 16.4x

2018 Butterfly Equity Modern Market

2018 Spice Private Equity Bravo Brio $100 3.8x

2017 Apollo Global Management, LLC Qdoba $305.0 5.9x

2017 JAB Panera $7,500 18.3x

2017 QSR Popeyes $1,800 20.8x

2016 JAB Krispy Kreme $1,340 18.3x

2014 Burger King Worldwide Inc./QSR Tim Hortons $11,900 14.6x

2014 JAB Einstein Noah Restaurant Group Inc $465 9.9x

2013 Roark Capital CKE Restaurants, Inc. $1,640 - $1,750

2012 JAB Caribou Coffee Company $311 11.5x

2012 Starbucks Teavana $620 17.3x

2012 JAB Peets Coffee & Tea, Inc. $949 21.0x

2011 Roark Capital/Inspire Brands Arby's Restaurants - Sub of Wendy's $430 9.0x

2010 3G Capital Burger King Holdings, Inc. $4,000 9.0x

2010 Mill Road Capital Rubio's Restaurant $83 6.3x

2010 Apollo Global Management CKE Restaurants, Inc. $1,005 6.0x

Casual Dining

2019 Allegro Merger Corporation TGI Fridays $380 8.0x

2019 ICV Partners Diversified Restaurant Holdings $130 8.0x

2019 Landry's, Inc. Del Frisco's Steakhouse & Grille

2019 Cheesecake Factory Fox Restaurant Concepts $353

2019 L Catterton Del Frisco's Restaurant Group, Inc. $650 24.3x

2019 Nord Bay Capital and TryArtisan Capital Advisors Hooters of America, LLC

2018 TriArtisan Capital Partners and Paulson & Co. P.F. Chang's Inc. $700

2018 J.H. Whitney Capital Partners Firebirds Wood Fired Grill

2018 Del Frisco's Barteca $362 17.6x

2018 Rhône Capital Fogo de Chão $560 10.2x

2018 Roark Capital/Arby's Restaurant Group Buffalo Wild Wings $2,900 10.3x

2017 NRD Capital Ruby Tuesday $335 7.9x

2017 Darden Cheddar's $780 10.4x

2017 Golden Gate Capital Bob Evans Farms $610 15.4x

2014 Sentinel Capital Partners TGI Fridays $800

2014 Golden Gate Private Equity Red Lobster/Darden $2,100 9.0x

2014 Apollo Global Management CEC Entertainment $1,300 7.7x

2012 Darden Yard House $585 14.2x

2012 Centerbridge Partners PF Chang's $1,124 8.6x

2011 Golden Gate Capital California Pizza Kitchen (CPK) $470 6.6x

Select 2020 Restaurant Bankruptcies

279


Chain Parent Company 2019 Sales 2019 Units

QSR/Fast CasualRubio's Mill Road Capital LP $232MM 197

Le Pain Quotidien PQ New York $192MM 94

Cosi Cosi Inc. $60MM 55

By Chloe ESquared Hospitality $38MM 14

Twisted Root Burger Co. TRB Franchising, LLC $36MM 17

Garbanzo Mediterranean Fresh Garbanzo Fresh Mediterranean Franchising LLC $23MM 26

Vapiano Vapiano International LLC $18MM 6

Casual Dining

Ruby Tuesday NRD Capital Management $731MM 451

California Pizza Kitchen Golden Gate Capital $621MM 199

Logan's Roadhouse CraftWorks Holdings LLC $496MM 204

Chuck E. Cheese's CEC Entertainment Inc. $382MM 537

Krystal Company Fortress Investment Group $344MM 318

Village Inn American Blue-Ribbon Holdings LLC $313MM 183

Bar Louie Sun Capital Partners Inc. $284MM 128

Old Chicago Pizza & Taproom CraftWorks Holdings LLC $276MM 109

Sizzler Sizzler USA Acquisitions Inc. $259MM 122

Brio Tuscan Grille FoodFirst Global Restaurants $217MM 57

Souplantation & Sweet Tomatoes Garden Fresh Restaurants $212MM 97

Friendly’s Sun Capital Partners $210MM 160

Houlihan's Houlihan's Restaurants Inc. $143MM 45

Bravo! Cucina Italiana FoodFirst Global Restaurants $122MM 44

Granite City Food & Brewery Granite City Food & Brewery Ltd. $102MM 25

Rock Bottom Restaurant & Brewery CraftWorks Holdings LLC $98MM 25

Gordon Biersch Brewery Restaurant CraftWorks Holdings LLC $93MM 31

Il Mulino Il Mulino USA, LLC $91MM 16

K&W Cafeterias K&W Cafeterias, Inc. $86MM 28

TooJay's Original Gourmet Deli TooJay's Management Corporation $81MM 30

HopCat BarFly Ventures $67MM 17

Peter Piper Pizza CEC Entertainment Inc. $65MM 101

Bakers Square American Blue-Ribbon Holdings LLC $63MM 31

Fig & Olive $62MM 9

Matchbox Matchbox Food Group $42MM 13

Blue Star Donuts Blue Star Donuts LLC $9MM 11

Private Equity PlayersRestaurants

280

Roark JAB Golden Gate Capital TriArtisan Capital Partners LLC and Paulson & Co.

CKE Restaurants Peet's Coffee & Tea Bob Evans Farms P.F. Chang's

Corner Bakery Café Stumptown Coffee Roasters Red Lobster TGI Friday's

Culver's Mighty Leaf California Pizza Kitchen

Jim 'N Nick's Bar-B-Q Intelligentsia Coffee

Miller's Ale House Pret A Manager Sentinel Capital Partners Durational Capital

Naf Naf Grill Panera Bread Captain D's Bojangles

Einstein Bros Bagels Newk's Eatery

Inspire Brands Noah's NY Bagels Fazoli's

Dunkin' Bruegger's Bagels

Baskin-Robbins Caribou Coffee Brentwood Associates Mill Road Capital

Arby's Krispy Kreme Blaze Pizza Rubio's

Jimmy Johns Au Bon Pain Chicken Salad Chick

Buffalo Wild Wings Insomnia Cookies Veggie Grill

R Taco Espresso House

Sonic Manhattan Bagels

Focus Brands NRD Capital Apollo J.H. Whitney Capital Partners

Auntie Anne's Ruby Tuesday Qdoba Firebirds Wood Fired Grill

Carvel Fuzzy's Taco Shop Formerly owned CKE Restaurants

Cinnabon The Captain's Boil

JAMBA Frisch's Big Boy

McAlister's Deli

Moe's Southwest Grill Spice Private Equity 3G Capital Rhône Capital

Schlotzsky's Bravo Brio Formerly owned BK (big shareholder in RBI) Fogo de Chão

Seattle's Best Coffee Leon

Rimini Street

Cheesecake Factory (Investment) Foodfirst

The Cheesecake Factory The Craftory

Flower Child

North Italia

Argonne Capital Group Sun Capital Partners

IHOP (largest franchisee with 300+) Friendly's

Applebee's (large franchisee with ~120 locations) Johnny Rockets

On The Border Smokey Bones

Sonny's BBQ

previous investment in Krystal

previous investment in Stevi B's Pizza Buffet

Private Equity

Synergies from technology as factor supportive of increased deal activity

We believe technology is an increasingly important strategic rationale in M&A transactions

– Restaurants can generate synergies across a larger base as they build infrastructures with

analytics capabilities to leverage data to influence behavior and optimize operations

– Multi-concept restaurant groups appear to be restructuring and reprioritizing resources to build a

common architecture at the corporate level that has a last mile unique adaptation across each

brand in the portfolio

McDonald’s, Restaurant Brands International, Yum! Brands & others have reallocated

resources at the corporate level to most efficiently & effectively develop digital assets

Inspire Brands acquired Dunkin’ Brands, citing the addition of Dunkin’s 15MM loyalty

program members as a key benefit of the transaction

281

Restaurant portfolios to support scaleStrengthening consolidated infrastructures

Scale is becoming increasingly important as:

– Restaurants recognize the need to invest in holistic technological ecosystems and the benefit of

digital strategies is derived from their abilities to effectively capture and leverage customer data

to inform strategic decisions

– Companies with strong development infrastructures offer smaller brands unmatched access to

well-capitalized global franchisees and expertise in franchising, purchasing & other capabilities

In March 2020, Yum! Brands closed the acquisition of The Habit Restaurants, noting the brand’s

huge runway for growth and new access to YUM’s unmatched scale and strengths in franchising,

purchasing and brand-building

In December 2020, Inspire Brands completed the acquisition of Dunkin’ Brands, noting Dunkin’

would strengthen Inspire through their scaled international platform and robust consumer packaged

goods licensing infrastructure, as well as add more than 15MM loyalty members for a total of 25MM

loyalty members across the combined portfolio

In December 2020, Centre Lane Partners, parent company of Saladworks, acquired Garbanzo

Mediterranean Fresh & Frutta Bowls to form a new holding company, Woworks, noting the benefits

of scale and shared resources

282

Franchisee consolidationLeverage scale with growth mindset

Over the last several years, we have seen an uptick in franchisee consolidation as franchisors seek

out well-capitalized franchisees with a growth mindset and an ability to make necessary investments

and franchisees benefit from greater scale

Recent challenges with large franchisee groups have put a spotlight on potential risks of franchisee

consolidation, as large franchisees tend to have higher levels of leverage

– NPC International, the largest franchisee in the US, filed for bankruptcy in July 2020 with

$900MM of debt on its books

In November 2020, NPC International entered into a stalking horse purchasing agreement

with Flynn Restaurant Group, and in January 2021, NPC, Flynn Restaurant Group and

Wendy’s entered into an agreement in which Flynn would purchase NPC’s 925+ Pizza Hut

units and about half of NPC’s ~393 Wendy’s restaurants, combining the two largest

franchisees in the US for a restaurant portfolio of 2,350+ restaurants

Flynn Restaurant Group initially agreed to acquire all of NPC’s Pizza Hut and Wendy’s

restaurants, though Wendy’s appeared to be reluctant of the acquisition, citing caution

regarding having franchisees that are too large as a risk to the system (as well as potential

conflicts operating competing brands)

– Franchisees were eligible to receive PPP loans in the first stimulus package up to $10MM, and

based on relative AUVs and labor margins, such would cover systems as large as ~100-150

units on average

For franchisees above ~100-150 units, they were only eligible to receive a portion of needs

283

Increasing popularity of SPACsBlank check companies boom

We have seen an increasing prevalence of special purpose acquisition corporations (SPAC) across

the market amidst a high level of available capital and an appetite for new growth companies

– SPAC mergers offer an alternative to a traditional IPO, in which SPACs raise money from

investors in an IPO with an intention to later find a business to acquire, generally within a two-

year period, and reflect high confidence in the sponsor & management

In October 2020, Tastemaker Acquisition Corp. filed an S-1 seeking to raise up to $230MM, and

an intention to acquire companies with an expected enterprise-level value of $400MM to $1BN;

management includes co-CEOs David Pace (Chairman at Red Robin) & Andrew Pforzheimer (co-

founder & former CEO of Barcelona & Bartaco brands), President Greg Golkin (managing partner at

Kitchen Fund) & CFO Chris Bradley (managing director of Mistral Equity Partners, PE firm that

owns El Pollo Loco & Jamba)

In August 2020, Fast Acquisition Corp. filed an S-1 seeking to raise up to $230MM, and an

intention to acquire companies with an expected enterprise-level value of at least $600MM;

management includes co-CEOs Sandy Beall (founder of Ruby Tuesday) & Doug Jacob (co-founder

of Toro, co-founded hybrid venture fund & branding agency &vest) and Chairman Kevin Reddy

(former Chairman & CEO of Noodles, Chairman of &pizza and Qdoba)

In August 2020, Starboard Value Acquisition Corp. filed an S-1 seeking to raise $300MM;

management includes Chairman Jeff Smith (CEO & CIO of Starboard Value LP, Chairman of Papa

John’s) & CEO MJ McNulty and an experienced bench of industry advisors

284

Potential M&A TargetPapa John’s (PZZA)

PZZA has been discussed as a potential acquisition target for years, and at a market cap of ~$3BN

& debt/preferred stock of ~$450MM, a deal would likely be attainable for a large number of buyers

– In July 2018, media reports suggested Wendy’s and Papa John’s had been in preliminary deal

talks regarding a potential merger; in September 2018, media reports suggested PZZA was

soliciting bids for a potential buyout; in January 2019, media reports suggested Restaurant

Brands International could purchase the pizza chain

Potential Scenarios include:

Restaurant Brands International – complementary fit (pizza segment, heavily franchised, global

presence); RBI could leverage PZZA’s digital infrastructure and has experience with integrating

brands & operating distribution centers; PZZA could benefit from scale and international network

Yum! Brands – Papa John’s has significant overlap with Pizza Hut, so not an obvious complement to

YUM’s portfolio; PZZA’s franchised mix is below YUM’s target & PZZA operates distribution centers

Wendy’s – media reports (July 2018) suggested WEN & PZZA were in preliminary talks regarding a

merger, but talks cooled

Roark Capital/Inspire Brands – seeking to grow its portfolio of restaurant brands & PZZA could be

complementary with limited overlap to existing brands; small market cap aligns with current portfolio

John Schnatter – founder and former CEO; previous reports indicated Schnatter was seeking to

partner with PE firms as a takeover (has reduced his stake to <5% from ~30%)

Private Equity – Given PZZA’s relatively small market cap, makes deal attainable for a number of

well capitalized buyers

285

Potential M&A TargetJack in the Box (JACK)

JACK announced it was exploring a range of strategic and financing alternatives, including a sale of

the company, in December 2018

– At a market cap of ~$2.2BN and with ~$1.2BN of debt, JACK is relatively small and likely

attainable for a number of potential buyers


Yum! Brands – JACK has overlap with Habit Burger as a burger concept concentrated in CA

(60%+ of Habit locations in CA & 40%+ of JACK locations in CA); ~95% franchised mix would be

appropriate for YUM; JACK could benefit from YUM’s scale and development expertise

Restaurant Brands International – JACK has significant overlap with Burger King, so not an obvious

complement to RBI’s portfolio; ~95% franchised, but geographically concentrated and lacks

international presence; JACK could benefit from RBI’s scale and development expertise

Roark Capital/Inspire Brands – seeking to grow its portfolio of restaurant brands; Sonic and Jack in

the Box have competitive overlap, but could generate synergies from competing brands and there

are differences between the two geographically concentrated burger concepts

Apollo – purchased Qdoba in a deal closed March 2018; working relationship through transition and

possible JACK could tap Apollo, though we note reports in November 2019 suggested Apollo was

considering selling Qdoba

Private Equity – given JACK’s relatively small market cap, makes a deal attainable for a number of

well capitalized buyers

286

Potential M&A TargetShake Shack (SHAK)

At a ~$3.9BN market cap, SHAK is relatively small & attainable for a number of potential buyers,

noting SHAK would benefit from the scale of a larger portfolio company; significant growth

potential, high brand affinity and global presence makes it attractive for growth-minded investors


Roark Capital/Inspire Brands – seeking to grow its portfolio of restaurant brands; some competitive

overlap in the burger category with Sonic and CKE Restaurants, but could generate synergies from

competing brands and there are differences among geographical exposure and positioning

Private Equity – SHAK’s relatively small market cap makes a deal attainable for a number of well

capitalized buyers, and its strong growth outlook makes it an attractive target

Restaurant Brands International – some competitive overlap with Burger King, so not an obvious

complement to RBI’s portfolio, though positioning differs; SHAK’s primarily company-operated

growth strategy is unlikely to be a strategic fit for the nearly 100% franchised RBI; SHAK could

benefit from RBI’s scale and development expertise

Yum! Brands – significant competitive overlap with the recently acquired The Habit Burger; SHAK’s

primarily company-operated growth strategy is unlikely to be a strategic fit for the nearly 100%

franchised YUM (note: YUM planning to refranchise Habit); SHAK could benefit from YUM’s scale

and development expertise

287

Potential M&A AcquirerRestaurant Brands International (QSR)

RBI has a history of M&A and has indicated it will be opportunistic with acquisitions

– At ~5.5x levered currently and the company delevers ~0.5x per year naturally, RBI likely has

room to lever up (has gone up to ~7x in the past)

– RBI seeks brands with a long history and significant runway for long-term global growth

Potential Targets include:

Papa John’s – complementary fit (pizza segment, heavily franchised, global presence); RBI could

leverage PZZA’s digital/delivery infrastructure and has experience with integrating brands and

operating commissaries/distribution centers; PZZA could benefit from RBI’s scale, international

network and development expertise

Domino’s – press reports have cited DPZ as a potential target of RBI, as DPZ’s international master

franchisees and industry-leading digital/delivery capabilities could be complementary; but DPZ has

high leverage, trades at a rich valuation and there are no obvious G&A opportunities

Little Caesars – third largest pizza chain in the US with ~$4BN in system sales, 4,200+ units in the

US and ~1,000+ locations internationally

Wingstop – WING is ~98% franchised and at a ~$4.3BN market cap, could be attainable; WING’s

chicken-based menu overlaps with Popeyes, so may not be as complementary

Taco Bell – Taco Bell is crown jewel of YUM’s portfolio and likely a brand that RBI would want to be

part of its portfolio

288

Potential M&A AcquirerYum! Brands (YUM)

YUM has indicated it would be open to making a strategic acquisition and has not ruled out the

acquisition of another brand as part of its long-term growth strategy; YUM recently acquired The

Habit Burger in early 2020, though it’s possible the company would be interested in another deal

Potential Targets include:

Jack in the Box – JACK’s ~95% franchised mix and ~$2.2BN market cap could make it attainable;

JACK’s burger positioning and CA concentration likely overlaps with Habit, so may not be as

complementary

Wendy’s – WEN’s 95% franchised business model could be attractive to YUM & YUM’s global

presence could help the brand accelerate international development, though burger overlap with

Habit is likely to be viewed as competitive (we note Wendy’s does not like franchisees operating

competing brands)

Wingstop – WING is ~98% franchised and at a ~$4.3BN market cap, could be attainable; WING’s

chicken-based menu somewhat overlaps with KFC, so may not be as complementary

Papa John’s – PZZA has significant competitive overlap with Pizza Hut, so may not be as

complementary

Little Caesars – third largest pizza chain in the US with ~$4BN in system sales, 4,200+ units in the

US and ~1,000+ locations internationally, though competitive overlap with Pizza Hut likely makes it

less complementary

289

Food distributors use M&A as opportunity for growthExpand scale, access, geographies & customers

The foodservice industry is highly fragmented, with ~15,000 suppliers, and customers that maintain

diversified supply chains

The foodservice industry appears to be well positioned for consolidation, with benefits of scale

contributing to better pricing power and cross-selling opportunities

Over the last 12-18 months, PFGC & USFD have made significant acquisitions that have

contributed meaningfully to case growth and SYY has suggested M&A will be a bigger part of the

strategy going forward

– That said, we note valuations could be difficult to ascertain in the current environment, weighing

on visibility regarding appropriate valuations, which could impede motivations for deals

– We also note food distributors have highlighted strong organic market share opportunities in the

current environment and they may not be as active in the deal space

290

Select M&A Food Distributor Deals

291

Source: Company data, Media reports, Pitchbook, Credit Suisse estimates

Date Acquirer TargetEV

($MM)

EV/Sales

(LTM)

EV/EBITDA

(LTM)

EBITDA

Margin

Mar-20 US Foods Smart Foodserv ice $970 0.88x 11.4x 7.7%

Dec-19 PFGC Reinhart $1,700 0.28x 10.6x 2.6%

Apr-19 PFGC Eby-Brown

Jul-18 US Foods SGA $1,800 0.56x 12.5x 3.8%

Feb-16 Sysco Brakes $3,100 0.62x 12.0x 5.6%

Dec-13 Sysco US Foods $8,200 0.37x 9.9x 3.8%

Jan-08 The Blackstone Group/Wellspring Performance Food Group $1,340 0.21x 10.9x 2.0%

Jun-07 Bain Capital Brakes Bros $1,300 0.78x 12.0x 6.5%

Jun-07 The Blackstone Group Vistar $400 0.14x 8.8x 1.6%

May-07 Allianz Capital Partners Selecta Group $754 1.44x 8.3x 17.3%

May-07 CD&R and KKR US Foodserv ice $7,100 0.40x 15.1x 2.4%

Jan-07 GS, T.H. Lee, CCMP, JPM, Warburg Aramark $8,500 0.74x 9.2x 8.1%

Apr-06 Macquerie-led Consortium Compass Group $3,280 1.00x 10.9x 9.3%

Feb-05 Chiquita Brands International Fresh Express (Performance Foods) $453 1.00x 11.3x 9.1%

Nov-04 Terra Firma Capital Partners AutobahnTank & Rast GmbH $1,425 5.34x 8.5x 62.8%

May-04 Charterhouse Capital Partners Autobar Ltd $962 0.44x NA NA

Jun-02 Del Monte Certain Heinz Businesses $2,795 1.55x NA NA

Jun-02 Clayton, Dubilier & Rice Brake Bros $571 0.41x 8.1x 5.1%

Dec-01 Compass Group PLC Seiyo Food Systems Inc $644 0.66x NA NA

Sep-01 Ahold Alliant Exchange $2,200 0.33x 12.6x 2.6%

Apr-01 Sodexho Alliance SA Sogeres (Albert Abela Corp) $475 0.68x NA NA

Feb-01 Compass Group Plc (UK) Selecta Group $752 1.56x 9.2x 17.0%

Feb-01 Compass Group Plc (UK) Morrison Management Specialists $624 1.32x 17.9x 7.4%

Jan-01 Sodexho Alliance Sodexho Marriott Serv ices $1,761 0.39x 6.3x 6.2%

Aug-00 Ahold PYA Monarch $1,570 0.56x 14.2x 3.9%

Mar-00 Ahold US Foodserv ice $3,621 0.55x 12.6x 4.4%

Sep-99 Supervalu Richfood Holdings $1,524 0.40x 7.3x 5.5%

Sep-99 Advent Elior $1,050 0.65x 7.7x 8.4%

Jul-99 Autogrill Host Marriott Serv ices $966 0.70x 7.7x 9.1%

Apr-99 Sair Group Dobbs Int. Serv ices $780 0.91x 7.7x 11.8%

Jun-97 JP Foodserv ice Rykoff-Sexton $1,436 0.41x 11.2x 2.8%

May-97 AmeriServe Food Distribution PepsiCo Food Systems $830 0.24x NA NA

Feb-97 InvestCorp Welcome Break $765 1.43x 13.4x 10.7%

Potential M&A TargetsLargest private distributors (small deals also likely)

292

Company Primary Segment 2019 Sales ($MM)

Unfi Specialty Distribution Services Retail-Focused $21,837

C&S Wholesale Grocers Inc. Retail-Focused $17,800

Core-Mark Holding Company Inc. Retail-Focused $15,114

Wakefern Food Corp. Retail-Focused $13,600

Gordon Food Service Inc. Broadline $11,000

Associated Wholesale Grocers Retail-Focused $9,666

Restaurant Depot Cash & Carry $9,615

Martin-Brower Co. LLC, The Systems $8,840

Dot Foods Inc. Specialty $8,200

Bunz l Distribution North America Inc. Retail-Focused $7,025

Golden State Foods Corporation Systems $6,830

KeHE Distributors, LLC Retail-Focused $5,015

Ben E. Keith Foods Broadline $4,057

SpartanNash Food Distribution Retail-Focused $3,983

Shamrock Foods Co. Broadline $3,900

H.T. Hackney Retail-Focused $3,860

Imperial Dade Supplies/Equipment $3,040

Cheney Bros. Inc. Broadline $2,623

Imperial Trading Company Retail-Focused $2,525

Bozzuto's Inc. Retail-Focused $2,175


293

Brand Engagement

More than just a restaurantEnhancing engagement

As more transactions move out of the restaurants’ four walls, alternative service providers pose risk

of democratization, methods of content consumption change and customers have access to more

options than ever before, brand engagement becomes increasingly important

– Restaurants are tasked with creating a more personalized experience for customers and

expanding the traditional definition of a lifestyle brand

– Voice technology poses an added layer of threat, as we envision a day where we can order

saying “Alexa, order me a burger,” potentially shifting power to the service providers to select the

restaurants (or through ghost kitchens)

Brands across sectors are using social media as a platform to develop brand personalities to

effectively resonate with customers, enhancing connections outside of in-store transactions – we

see this as the most efficient and applicable way to increase brand engagement

Brands also are using their customers as ambassadors through limited-time merchandise launches,

including Dunkin’s periodic drops through its pop-up shop and Chipotle’s online shop that donates

proceeds to organizations helping to make farming & fashion more sustainable

– Merchandise on both sites often sell out, underscoring the power of these brands and customers

that want to be part of their “tribes”

294

More than just a restaurantCommunity engagement

Restaurant companies are making investments in their employees and communities as a way to give

back, improve retention and meet customer demands for greater contribution

McDonald’s launched the #HereforRMHC challenge, agreeing to donate $100 in the name of each customer that posted to social media by 12/31 making a Ronald McDonald House Charities

heart symbol as part of a $100MM five-year commitment

Starbucks has committed $100MM to create the Starbucks Community Resilience Fund, which will focus on advancing racial equity & environmental resilience, and to open 100 Community Stores

by 2025 targeting economically distressed communities

Chipotle partnered with The Farmlink Project, setting a goal to donate 10MM meals to food banks during the 2020 holiday season by engaging its supply network, employee & guests to contribute

and allowing customers to round up bills with its real change feature

Yum! Brands established the Unlocking Opportunity Initiative, committing $100MM over five years to fight inequality, with a focus on equity & inclusion, education and entrepreneurship

Domino’s announced a commitment to raise $100MM over 10 years for St. Jude Children’s Research Hospital, the largest contribution in St. Jude’s history

Wendy’s runs promotions to benefit the Dave Thomas Foundation for Adoption (DTFA), including its annual Frosty Key Tag program and partnership with Coca-Cola & Dr Pepper to raise funds and

awareness to support youth adoption efforts

Panda Express pledged $20MM to establish the Panda Cares Center of Hope to support the Children’s Hospital Los Angeles

295

The value of the brandTrust takes years to build & seconds to break

Near-term, we believe virtual brands could be a compelling initiative to drive incremental sales

volume, especially in an environment with limited on-premise dining capacity and heightened delivery

demand – but we believe it is near-term in nature

– We also see risk in the lack of transparency offered by virtual brands as they are often listed

without referencing the source concept and most have no public website or listing outside of the

third-party platforms

Long-term, we believe directing investments and focus toward core brands with a physical presence

will create more value, allowing restaurants to establish relationships with customers agnostic of

channel

– Creating a curated delivery-only menu could serve the same purpose of a virtual brand while also

building customer awareness and loyalty

– We do not see long-term staying power for most virtual brands, as they can disappear as easily

as they were created and are too heavily reliant on marketplace platforms or a feed search

– That said, we don’t dismiss the possibility for restaurants to successfully build an all-digital brand

with zero retail presence and appeal to younger cohorts as we have seen in adjacent sectors,

though we note the inherent reliance on third-party platforms is a challenge

Should restaurants allocate resources to develop and execute a brand that is complementary

to existing operations, it can contribute to long-term value creation – but the underlying

implication is that the value comes from the brand, and success is predicated on the same

drivers that would make a brand with a physical footprint successful

296

Brand building effortsSocial media as a strategy, not just a tool

Social media offers a cost effective opportunity to engage with customers, communicate brand

messaging/value, build loyalty and solicit organic feedback and demand

Some brands are using social media as a platform to develop brand personalities to effectively

resonate with customers, enhancing connections outside of in-store transactions – we see this as

the most efficient and applicable way to increase brand engagement

Brands with less effective social media strategies often have limited engagement and/or the social

media platforms are used as a public customer service tool, which could actually be a negative for

the brand as prospective customers see comments are largely negative feedback on specific orders

297

Source: Instagram, Credit Suisse

Chipotle social media posts are primarily brand building in

nature, and customers often engage with the brand in a

positive manner

Domino’s social media posts are nearly entirely food

pictures and comments, with comments generally

customer complaints*note: the level of engagement is also lower,

with fewer comments than

Chipotle despite having ~70% more followers


Chipotle’s marketing strategy has a clear brand building component, as the company has developed

an engaging, humorous personality targeted at younger consumers

– The brand’s social media team frequently responds to customer comments, and customer

comments often reference the social media team by name

Chipotle collaborates with social media influencers and celebrities that are organic Chipotle fans

across different channels to reach a wide addressable audience

– Chipotle appeared to send press boxes (or large press bags) to influencers with the launch of its

Holiday Goods winter merchandise collection in December 2020

– Chipotle teamed up with digital-star David Dobrik in 2019, the first celebrity to have his order, the

Dobrik Burrito, featured as an official menu item, and the company has since collaborated with a

variety of sports stars and influencers

In August 2020, Chipotle teamed up with Tony Hawk to offer his go-to Chipotle order, with the

launch culminated in a two-hour live stream from Chipotle’s Twitch page

In December 2020, Chipotle added a Miley Cyrus-inspired “Guac is extra but so is Miley

burrito” to its app/website, with the organic collaboration established after Chipotle posted a

TikTok video agreeing to create a Miley Cyrus burrito if she commented (which she did)

In January 2021, Chipotle partnered with Shawn Mendes to launch “Wonder Grants”

supporting young innovators in sustainability; Chipotle is featuring the Shawn Mendes Bowl

through its app/website, with $1 for every bowl purchased to be donated to The Shawn

Mendes Foundation, the first time the brand has launched a philanthropic entrée on the menu

298

Company HighlightWendy’s

Wendy’s has one of the strongest and more relaxed social media strategies in restaurants, often by

mocking other brands, humorously responding to customers (which incites greater brand

engagement) and posting memes curated to Wendy’s; it appears the brand has given its social

media team significant freedom, allowing the brand to quickly respond to other brands and engage

with followers

As a result, the brand generates a higher level of engagement than many of its burger peers

299

Source: Twitter, Instagram, Company data, Credit Suisse

7.6MM

4.7MM

3.7MM

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McDonald's Wendy's Burger King Sonic Jack in the Box

Twitter Instagram

13,835

5,852

7,346

3,526

2,240

McDonald's Wendy's Burger King Sonic Jack in the Box

Wendy’s Twitter Twitter & Instagram Followers US Units (2019)

Wendy’s executes a strong social media strategy, with a clear brand personality and strong engagement among customers

Wendy’s punches above its weight class on social media, with its Twitter following nearly in-line with McDonald’s

This is particularly clear when looking at the company’s US units, with less than 50% of the units of the McDonald’s US system and ~80% of the units of

the Burger King US system

Shake Shack has amassed strong brand affinity, supported by the company’s focus on culture, fine

dining foundation and localized strategy, contributing to the brand’s appeal across global markets

– Shake Shack features local ingredients and menu items and partners with local charities in each

community; we also believe the company’s NYC affiliation and relatively young history contribute

to the brand’s aspirational appeal

Each Shack is uniquely designed in its community, noting the company often works with local artists

and others to build awareness, and in some cases, help design the restaurants

Shake Shack has a unique and robust network, enabling collaborations with well-known chefs,

popular local vendors and other relevant consumer brands – this also allows Shake Shack to better

position itself as relatively small and local in the mindset of consumers

300

Source: Shake Shack, Credit Suisse

Company HighlightShake Shack

Shake Shack often collaborates with local chefs and vendors to further entrench itself in the communities in which it operates

In December, Shake Shack partnered with specialty food purveyor Regalis Foods to offer a Truffle Menu at its NYC & LA Shacks for a limited time

On 10/15, Shake Shack teamed up with West Village

restaurateur Gabriel Stulman to offer the Bar Sardine Burger (now on Fairfax menu) at its Madison Square Park location, with all money raised from the collaboration donated to ROAR, Relief Opportunity for All Restaurants

On 8/27, Shake Shack partnered with UWS Pizzeria Mama’s

Too! & offered The Mama’s Too! Burger at its Madison Square Park location

301

Company Summaries

302


Bloomin’ Brands (BLMN)Neutral, $21 TPExecutive Summary Key Charts

• Credit Suisse View: We have been impressed with the resiliency of sales at BLMN, supported by strong execution against a multi-channel and omni-channel strategy. The company has exuded confidence in its ability to maintain productivity gains and efficiencies realized, supporting sustainably higher enterprise margins as the environment

normalizes. Sentiment on the name has been more cautious given the company’s high leverage, exposure to Brazil and less consistent performance pre-COVID. We like BLMN’s focus on off-premise and digital, with greater confidence in the health of the portfolio and balance sheet, as well as its ability to sustainably improve margins, is likely needed to further improve sentiment and lead us to be more constructive on shares.

• Off-Premise to Help Offset Losses: Investments in the off-premise and digital infrastructure over the last several years has well positioned BLMN to take advantage of the

accelerated customer adoption to off-premise. Our sales recovery estimates embed expectations for Outback & Carrabba’s to recover ~95% of FY19 AUVs in FY21 and up ~2-3% in FY22 relative to FY19.

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Current Price $21.46NTM EV/EBITDA 8.1xNTM P/E 19.3x52-wk Range $4.83-$23.46

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Bloomin’ Brands (BLMN)Neutral, $21 TPValuation & Risks Valuation History• Our $21 TP is based on:

— P/E of ~11x our NTM EPS in 12 months

— EV/EBITDA of ~6x (~9x including operating leases) our NTM EBITDA in 12 months

• BLMN’s 5-year average multiples: ~12.5-13x NTM P/E &

~7x NTM EV/EBITDA

• Key risks: consumer spending, COVID-19 pandemic, inflation, competition

5-yr Historical P/E

5-yr Historical EV/EBITDA

Credit Suisse Estimates vs Consensus2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

Outback US SSS 2.0% -9.5% -32.9% -10.4% -5.0% -13.0% 13.1% 7.1%

Consensus -8.0% -15.0% 15.5% 4.4%

Global Units 1,473 1,472 1,460 1,464 1,464 1,464 1,468 1,474

YOY % -1.0% -0.6% -0.5% -0.5% -0.6% -0.6% 0.3% 0.4%

Consensus 1,473 1,462 1,462 1,471 1,487

YOY % -0.7% -0.7% 0.6% 1.1%

Revenue ($MM) $4,139 $1,008 $578 $771 $903 $3,262 $3,825 $4,094

YOY % 0.3% -10.6% -43.4% -20.3% -11.6% -21.2% 17.3% 7.0%

Consensus ($MM) $4,139 $883 $3,241 $3,789 $3,969

YOY % 0.3% -13.6% -21.7% 16.9% 4.8%

Operating Margin 4.8% 2.7% -13.7% -1.3% 2.4% -1.2% 4.5% 5.6%

Consensus 2.3% -1.3% 4.3% 5.4%

EPS $1.54 $0.14 ($0.74) ($0.12) $0.07 ($0.65) $1.21 $1.89

YOY % 3.1% 55.8%

Consensus $1.54 $0.05 ($0.67) $1.08 $1.73

YOY % 60.2%

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304


The Cheesecake Factory (CAKE)Neutral, $44 TPExecutive Summary Key Charts

• Credit Suisse View: CAKE has demonstrated better-than-expected resilience, with strong off-premise execution (maintaining ~90% of off-premise sales even as restaurants reopen indoor dining), benefit from outdoor dining and overall high demand among consumers. CAKE is confident in its ability to achieve a run rate restaurant margin at or above pre-COVID levels with annualized AUVs of 90-95%. CAKE expects to return to its 6-7% unit

growth algorithm in 2022, though we are cautious on unit growth given scarce site selection for Cheesecake Factory restaurants & execution risk for new concepts. CAKE’s mall-based exposure remains an overhang on the stock.

• Sales Recovery: We view CAKE as one of the best positioned casual diners in the shift to off-premise given its broad menu, demonstrated ability to execute complex operations & profitability largely at parity with on-premise

given the higher incidence of desserts. Our sales recovery estimates embed expectations for CAKE to recover ~95% of 2019 AUVs in 2021 and AUVs to be up ~2% in 2022 vs 2019, assuming CAKE regains ~95% of prior on-

premise & ~70% of peak off-premise sales in 2022.• Return to Earnings Power: AUV recovery is the primary

driver of margin expansion, with likely opportunity for productivity gains to support the return to CAKE’s long-term 11-12% EPS growth algorithm. We model FY22 earnings power approximately in-line with FY19.

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The Cheesecake Factory (CAKE)Neutral, $44 TPValuation & Risks Valuation History• Our $44 TP is based on:


— EV/EBITDA of ~10x (~10.5x including operating leases) our NTM EBITDA in 12 months

• CAKE’s 5-year average multiples: 17.5-18x NTM P/E & ~9x

NTM EV/EBITDA

• Key risks: consumer spending, COVID-19 pandemic, inflation, competition, mall exposure

5-yr Historical P/E


Credit Suisse Estimates vs Consensus

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Cheesecake SSS 0.8% -12.9% -56.9% -23.3% -8.6% -20.7% 38.3% 7.3%

Consensus -11.7% -25.8% 35.2% 6.2%

Company Units 292 294 294 294 294 294 305 318

YOY % 34.6% 24.6% 3.5% 2.1% 0.7% 0.7% 3.7% 4.3%

Consensus 292 295 295 307 324

YOY % 1.0% 1.0% 4.1% 5.5%

Revenue ($MM) $2,483 $615 $296 $518 $622 $2,051 $2,652 $3,001

YOY % 6.4% 2.6% -50.9% -11.7% -10.3% -17.4% 29.3% 13.1%

Consensus ($MM) $2,483 $611 $2,040 $2,650 $2,929

YOY % #VALUE! -12.0% -17.8% 29.9% 10.5%

Operating Margin 5.2% 0.3% -23.5% -3.9% 1.4% -3.9% 3.5% 5.2%

Consensus 1.0% -4.0% 3.6% 4.9%

EPS $2.61 $0.04 ($0.87) ($0.33) $0.10 ($1.11) $1.44 $2.59

YOY % 4.3% 79.6%

Consensus $2.61 $0.07 ($1.08) $1.45 $2.24

YOY % 54.5%

306


Chipotle Mexican Grill (CMG)Outperform, $1,700 TPExecutive Summary Key Charts

• Credit Suisse View: CMG has returned to a narrative of growth rather than recovery, with on-trend initiatives that

well position the company to appeal to its target base and outperform peers. Contributions from traffic and average check growth should support mid-single-digit SSS long-

term and generate margin leverage to support an EPS CAGR of at least 25-30% through 2024.

• Confidence in Top-Line Performance: Key drivers of top-line outperformance: 1) digital & delivery initiatives, with CMG well positioned with a younger consumer base, transportable food, and best-in-class operations; 2) new menu innovation; 3) strong social media and marketing strategy; and 4) customer data analytics. Improving new-

unit productivity and new restaurant formats (Chipotlane, digital-only) support an increasing addressable market, with

expectations for mid to high-single-digit unit growth.• Power of the Economic Model: CMG is the only publicly

traded restaurant company in quick serve/fast casual with a 100% company-owned model, offering meaningful upside to numbers ($100K AUV = 100bps restaurant margin). We

are optimistic CMG can return to its long-term AUV/margin framework, with the potential to exceed prior peak AUVs & restaurant margins. New unit returns are already among the

best in restaurants (50-60%) and should continue to improve as AUVs & margins increase, and with the expansion of digital-forward prototypes.

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Current Price $1,405.74NTM EV/EBITDA 38.4xNTM P/E 64.8x52-wk Range $465.21-$1426.30

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Chipotle Mexican Grill (CMG)Outperform, $1,700 TPValuation & Risks Valuation History• Our $1,700 TP is based on:


— EV/EBITDA of ~32x our NTM EBITDA in 12 months

• CMG’s 3-year average multiples: ~50.5x NTM P/E & ~27x NTM EV/EBITDA

• Key risks: headline risk related to food safety incidents, COVID-10 pandemic, consumer spending, inflation


3-yr Historical P/E


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Current Price $1,405.74NTM EV/EBITDA 38.4xNTM P/E 64.8x52-wk Range $465.21-$1426.30

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2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

SSS 11.1% 3.3% -9.8% 8.3% 6.5% 2.5% 12.9% 6.0%

Consensus 6.1% 2.0% 11.0% 5.1%

Units 2,622 2,638 2,669 2,710 2,760 2,760 2,960 3,170

YOY % 5.3% 5.4% 5.8% 6.4% 5.3% 5.3% 7.2% 7.1%

Consensus ####### 2,756 2,756 2,946 3,152

YOY % 5.1% 5.1% 6.9% 7.0%

Revenue ($MM) $5,586 $1,411 $1,365 $1,601 $1,622 $5,999 $7,130 $8,041

YOY % 14.8% 7.8% -4.8% 14.1% 12.6% 7.4% 18.9% 12.8%

Consensus ($MM) ####### $1,607 $5,984 $6,999 $7,831

YOY % 11.6% 7.1% 17.0% 11.9%

Operating Margin 8.9% 5.9% -0.1% 8.9% 8.4% 6.0% 12.3% 14.7%

Consensus 8.9% 8.8% 6.1% 11.5% 13.6%

EPS $14.05 $3.08 $0.40 $3.76 $3.57 $10.83 $23.10 $31.46

YOY % 58.2% -9.4% -89.9% -1.4% 25.1% -23.0% 113.4% 36.2%

Consensus 1406.0% $3.73 $10.98 $21.31 $28.34

YOY % 30.4% -21.9% 94.1% 33.0%

308


Darden Restaurants (DRI)Outperform, $141 TPExecutive Summary Key Charts

• Credit Suisse View: We are bullish on the largest casual dining company, with management’s focus on generating high quality sales and identifying opportunities to enhance productivity supporting our confidence in the recovery & DRI’s ability to capitalize on market share opportunities. We expect near-term sales volatility to be largely overlooked given greater visibility regarding the end of COVID-related restrictions as vaccines roll out broadly across the country.

Over the medium to long-term, we believe the portfolio is structurally well positioned to benefit from industry supply contraction. DRI is confident in its ability to emerge as a more profitable company, noting it can fully recover EBITDA at 90% of prior sales, and should benefit from at least ~150bps of structural margin improvement.

• Operations, Value & Off-Premise as Sales Drivers: We

expect DRI to recover AUVs as dine-in capacity expands and customer behavior normalizes, though the pace and magnitude will differ across brands. We expect Olive Garden & LongHorn average weekly sales to be largely in-

line with FY19 by F2Q22 (CY 4Q21), and up ~4% F3Q22-F2Q23 (CY 2022). For the fine dining and other businesses, we expect F1H22 (CY 2H21) to be down 10-15% and down ~5% in F3Q22-F2Q23 assuming higher-end concepts face a prolonged recovery given changes to business travel & tourism.

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Olive Garden LongHorn Cheddar's Scratch KitchenYard House The Capital Grille Seasons 52Bahama Breeze Eddie V's

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Darden Restaurants (DRI)Outperform, $141 TPValuation & Risks Valuation History• Our $141 TP is based on:



• DRI’s 5-year average multiples: ~18.5x NTM P/E & ~10.5x

NTM EV/EBITDA


5-yr Historical P/E


Credit Suisse Estimates vs Consensus2020 1Q21 2Q21 3Q21E 4Q21E 2021E 2022E 2023E

Olive Garden SSS -8.6% -28.2% -19.9% -31.0% 50.0% -3.8% 30.6% 4.1%

Consensus -32.5% 42.3% -10.0% 28.6% 4.9%

DRI SSS -11.0% -29.0% -20.6% -29.8% 76.1% 4.0% 29.1% 4.3%

Consensus -32.4% 63.0% -5.3% 28.5% 5.4%

Company Units 1,804 1,807 1,818 1,826 1,840 1,840 1,880 1,924

YOY % 1.1% 0.8% 1.1% 0.8% 2.0% 2.0% 2.2% 2.3%

Consensus 1,804 1,828 1,841 1,841 1,887 1,938

YOY % 0.9% 2.1% 2.1% 2.5% 2.7%

Revenue ($MM) $7,807 $1,527 $1,657 $1,651 $2,011 $6,846 $8,909 $9,481

YOY % -8.3% -28.4% -19.4% -29.6% 58.4% -12.3% 30.1% 6.4%

Consensus ($MM) $7,807 $1,585 $1,952 $6,721 $8,773 $9,513

YOY % -32.4% 53.7% -13.9% 30.5% 8.4%

Operating Margin 5.6% 6.4% 7.3% 6.8% 10.7% 8.0% 11.8% 12.3%

Consensus 7.0% 10.1% 7.8% 11.3% 11.7%

EPS $3.17 $0.56 $0.74 $0.66 $1.38 $3.34 $6.86 $7.76

YOY % -45.5% -59.5% -34.1% -65.0% -211.0% 5.4% 105.3% 13.2%

Consensus $3.13 $0.66 $1.25 $3.22 $6.39 $7.39

YOY % -65.3% -200.8% 2.9% 98.4% 15.6%

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310


Domino’s Pizza (DPZ)Outperform, $445 TPExecutive Summary Key Charts

• Credit Suisse View: DPZ is one of the best growth stories in restaurants, with ~7.5% revenue growth, margin expansion

& repurchases driving a double-digit EPS CAGR. • US Outperformance: We are optimistic in DPZ’s ability to

retain sales following 2020’s outsized growth, noting the

company has historically experienced high levels of growth, has gained new customers in 2020 and will look to

reaccelerate carryout. DPZ is the only large chain with a frequency-based loyalty program, offers consistent value messaging, and operates an industry-leading digital ecosystem supporting best-in-class execution. DPZ also has a unique franchisee base, which we view as a competitive advantage, with 95%+ of US franchisees starting as an

hourly employee. Unit economics are very compelling, with an average EBITDA per store of ~$158K, average EBITDA per

franchisee of $1MM+, and a payback period of <3 years.• Delivery Debate: We believe the expansion of third-party

delivery throughout 2020 will accelerate the timeline for rationalization as restaurants inflate delivery menu prices & 3Ps increase fees amidst heightened regulations, consumers

demand better quality as newness declines and companies look to convert delivery customers to more accretive channels. Delivery is a core competency for DPZ developed

over decades, and we are unconvinced 3Ps will be able to approach DPZ’s execution levels, value or economics anytime soon.

Revenue Composition

Unit Composition

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

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18

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19

Rev

enue

C

ompo

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US Stores International Franchise Supply Chain

0

2,000

4,000

6,000

8,000

10,000

12,000

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16,000

18,000

20

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20

10

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US Company US Franchise International Franchise


1/15/2021

311


Domino’s Pizza (DPZ)Outperform, $445 TPValuation & Risks Valuation History• Our $445 TP is based on:



• DPZ’s 3-year average multiples: 28-28.5x NTM P/E & ~21x NTM EV/EBITDA

• Key risks: COVID-19 pandemic, competition, consumer spending, inflation, FX


3-yr Historical P/E


12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

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0

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20

Nov-

20

Jan-

21

EV/E

BIT

DA


15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

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Jul-1

9

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19

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19

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20

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20

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0

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21

P/E



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

Domestic SSS 3.2% 1.6% 16.1% 17.5% 14.9% 13.0% 1.1% 3.5%

Consensus 13.2% 12.2% 1.2% 3.3%

Global Units 17,020 17,089 17,173 17,256 17,493 17,493 18,301 19,409

YOY % 6.9% 6.1% 5.3% 4.4% 2.8% 2.8% 4.6% 6.1%

Consensus 17,020 17,532 17,532 18,538 19,672

YOY % 3.0% 3.0% 5.7% 6.1%

Revenue ($MM) $3,619 $873 $920 $968 $1,405 $4,165 $4,302 $4,624

YOY % 5.4% 4.4% 13.4% 17.9% 22.1% 15.1% 3.3% 7.5%

Consensus ($MM) $3,619 $1,380 $4,141 $4,297 $4,623

YOY % 20.0% 14.4% 3.8% 7.6%


Consensus 17.2% 17.4% 18.1% 18.5%

EPS $9.55 $3.07 $2.99 $2.49 $3.76 $12.30 $13.01 $14.78

YOY % 13.5% 39.8% 36.5% 21.3% 20.1% 28.7% 5.8% 13.6%

Consensus $9.57 $3.84 $12.39 $12.88 $14.80

YOY % 22.7% 29.5% 4.0% 14.9%

312


Jack in the Box (JACK)Underperform, $74 TPExecutive Summary Key Charts

• Credit Suisse View: We’re impressed with JACK’s performance throughout the pandemic, but we believe greater conviction in the unit growth strategy is necessary to close the valuation gap to peers, increased investments are

necessary to enhance the company’s digital strategy and any

signs of SSS deceleration will likely pressure shares. Greater SSS consistency and more conviction in the unit growth strategy would lead us to be more constructive on shares.

• Show Me the Unit Growth: JACK’s unit growth has been largely flat over the last decade, though the company is looking to change the growth trajectory, with confidence supported by a new lower cost prototype, recent hiring of a dedicated franchise sales leader and improved relationships

with franchisees. JACK has suggested opportunity exists for an additional 950-1,100 units in existing markets, as well as expansion into new markets. We view a meaningful

acceleration in unit growth as a show-me story, noting JACK lacks a sophisticated development infrastructure, entrance

into new markets will be difficult given lack of awareness, the QSR burger category is one of the most penetrated and has demonstrated limited unit growth in recent years, JACK margins have continued to contract amidst heightened wage pressure, weighing on returns, and JACK lags burger peers in its digital strategy, which we view as a critical component of

future value creation across the sector.

Unit Composition

Revenue by Source

-

500

1,000

1,500

2,000

2,500

FY

09

FY

10

FY

11

FY

12

FY

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FY

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FY

20

Units

Company-operated Franchise

$0

$200

$400

$600

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$1,000

$1,200

$1,400

$1,600

$1,800

FY

12

FY

13

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FY

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18

FY

19

FY

20

Reve

nue (

$M

M)

Sales Franchise royalty revenue & fees Franchise rental income


1/15/2021

313


Jack in the Box (JACK)Underperform, $74 TPValuation & Risks Valuation History• Our $74 TP is based on:


— EV/EBITDA of ~9.5x (13-13.5x including operating leases) our NTM EBITDA in 12 months

• JACK’s 3-year average multiples: ~17.5x NTM P/E & ~12.5x NTM EV/EBITDA

• Key risks: M&A, SSS acceleration, unit growth acceleration


3-yr Historical P/E



1/15/2021

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

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18

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Mar-

19

May-

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Jul-1

9

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EV/E

BIT

DA


5.0x

7.0x

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13.0x

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17.0x

19.0x

21.0x

23.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

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9

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Jul-2

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20

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20

Jan-

21

P/E


2020 1Q21E 2Q21E 3Q21E 4Q21E 2021E 2022E 2023E

SSS 4.3% 8.3% 12.3% 1.2% -4.2% 4.5% 1.5% 1.5%

Consensus 10.3% 12.1% 1.6% -2.0% 5.7% 1.8% 2.2%

Global Units 2,241 2,241 2,234 2,236 2,238 2,238 2,246 2,254

YOY % -0.1% -0.1% -0.5% -0.4% -0.1% -0.1% 0.4% 0.4%

Consensus 2,241 2,243 2,244 2,248 2,252 2,252 2,276 2,306

YOY % 0.0% -0.1% 0.2% 0.5% 0.5% 1.1% 1.3%

Revenue ($MM) $1,022 $333 $242 $246 $265 $1,085 $1,076 $1,095

YOY % 7.5% 8.2% 11.9% 1.4% 3.7% 6.2% -0.8% 1.7%

Consensus ($MM) $1,022 $336 $244 $250 $273 $1,102 $1,103 $1,139

YOY % 9.2% 12.7% 3.0% 6.8% 7.9% 0.1% 3.3%


Consensus 21.8% 20.5% 22.2% 23.1% 21.9% 21.7% 21.9%

EPS Excl. Gains $4.66 $1.62 $1.19 $1.25 $1.34 $5.41 $5.81 $6.31

YOY % 6.6% 37.7% 137.7% -8.9% -16.6% 16.0% 7.5% 8.6%

Consensus $4.63 $1.68 $1.09 $1.28 $1.53 $5.59 $5.88 $6.58

YOY % 43.6% 118.0% -6.6% -5.0% 20.7% 5.2% 11.9%

314


McDonald’s (MCD)Outperform, $230 TPExecutive Summary Key Charts• Credit Suisse View: Recent asset and technology

investments support a more modernized MCD, and we believe the company is effectively expanding its competitive moat relative to peers. SSS represent the greatest source of upside to shares, with MCD’s slate of on-trend

sales initiatives supporting outperformance. Healthy SSS,

defensive characteristics & transition to ~95% franchised support the current premium valuation. We believe MCD is well positioned to gain share globally given brand strength, operational execution, value leadership and a healthy

franchisee base, with better leveraging of its tech infrastructure to expand the competitive moat.

• US Sales Outperformance to Continue: We believe enhancements to the core menu, culturally relevant marketing & more relaxed social media strategy, better

leveraging of its unmatched scale to develop a more sophisticated digital ecosystem and faster drive-thru service times for the best-in-class operator is a winning strategy

that supports continued market share gains & better profitability. We expect the rollout of the highly anticipated

chicken sandwich in early 2021 & launch of MyMcDonald’s Rewards in 2021 will be meaningful drivers of SSS.

• Digital Supports Future Gains: MCD’s tech investments

suggest a long-term strategy to develop an integrated digital infrastructure. With the acquisition of Dynamic Yield, MCD has unlocked access to innovative tech & talent,

customer data, & incremental revenue channels over time.

Unit Composition

System Sales by Segment

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Sys

tem

Sal

es (

$M

M)

US International Lead Markets

High Growth Markets Foundational Markets & Corporate

International Operated Markets International Developmental Licensed Markets

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

US International Lead Markets

High Growth Markets Foundational Markets & Corporate

International Operated Markets International Developmental Licensed Markets


1/15/2021

315


McDonald’s (MCD)Outperform, $230 TPValuation & Risks Valuation History• Our $230 TP is based on:

— P/E of ~25.5x our NTM EPS in 12 months


• MCD’s 3-year average multiples: 23.5-24x NTM P/E & ~17x NTM EV/EBITDA

• Key risks: competition, consumer spending, COVID-19 pandemic


3-yr Historical P/E



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

US SSS 5.0% 0.1% -8.7% 4.6% 5.5% 0.7% 7.5% 3.0%

Consensus 5.1% 0.3% 6.7% 3.2%

Global Units 38,695 38,984 39,020 39,096 38,991 38,991 39,591 40,586

YOY % 2.2% 2.7% 2.4% 2.1% 0.8% 0.8% 1.5% 2.5%

Consensus 38,695 39,044 39,044 39,760 40,652

YOY % 0.9% 0.9% 1.8% 2.2%

Revenue ($MM) $21,285 $4,714 $3,762 $5,418 $5,441 $19,335 $22,148 $22,971

YOY % 1.2% -6.2% -30.5% -1.5% 1.7% -9.2% 14.5% 3.7%

Consensus ($MM) $21,077 $5,384 $19,269 $21,995 $23,114

YOY % 0.6% -8.6% 14.2% 5.1%


Consensus 38.8% 37.1% 42.6% 43.3%

EPS $7.86 $1.47 $0.66 $2.22 $1.86 $6.21 $8.45 $9.15

YOY % -0.5% -14.4% -67.9% 4.4% -5.7% -21.0% 36.1% 8.3%

Consensus $7.84 $1.79 $6.14 $8.31 $9.05

YOY % -9.1% -21.7% 35.3% 8.9%

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

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19

Nov-

19

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20

Mar-

20

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20

Jul-2

0

Sep-

20

Nov-

20

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21

P/E


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

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20

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20

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20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA


316


Papa John’s International (PZZA)Outperform, $110 TPExecutive Summary Key Charts

• Credit Suisse View: PZZA is one of the biggest beneficiaries from pandemic-related tailwinds, accelerating

turnaround plans by years and meaningfully improving the financial positions of its franchisees, with its increased growth outlook supporting a valuation premium to history &

restaurant peers. We believe PZZA is an underappreciated multi-year growth story with improved unit economics

supporting a compelling unit development opportunity. • Turnaround to Growth: PZZA plans to open a new global

HQ in Atlanta (home of Roark & Arby’s) as part of a broader corporate reorganization & to attract new talent, underscoring the shift in the narrative from turnaround to growth, and following a similar move to Chipotle, which relocated its HQ

to CA, home of Taco Bell. The temporary franchise support program ended in 3Q20 and PZZA recently signed its largest

North America franchise agreement in 20+ years, signaling a step-change in the business. PZZA increased its

development pipeline, and together with the expected refranchising of company units to well-capitalized new franchisees in conjunction with development agreements,

support our conviction in the unit growth outlook.• Maintain Momentum: PZZA has a slate of initiatives to

maintain heightened sales levels, including menu innovation

(recently launched Epic Stuffed Crust), loyalty, marketing and aggregator growth, with support from its expanded customer base as it has attracted new & lapsed customers in 2020.

Unit Composition

System Sales

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

20

11

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12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

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tem

Sal

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Domestic International

-

1,000

2,000

3,000

4,000

5,000

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20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

Company North America Franchise International Franchise


1/15/2021

317


Papa John’s International (PZZA)Outperform, $110 TPValuation & Risks Valuation History• Our $110 TP is based on:



• PZZA’s 3-year average multiples: ~17x NTM EV/EBITDA & ~35x NTM P/E

• Key risks: consumer sentiment challenges, closures, COVID-19 pandemic, competition


5-yr Historical P/E


8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x


EV/E

BIT

DA



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

North America SSS -2.2% 5.3% 28.0% 23.8% 13.1% 18.1% 1.3% 2.5%

Consensus 13.2% 17.7% 1.6% 3.5%

Global Units 5,395 5,378 5,347 5,360 5,385 5,385 5,563 5,782

YOY % 1.7% 0.8% 0.0% 0.3% -0.2% -0.2% 3.3% 3.9%

Consensus 5,395 5,388 5,388 5,593 5,845

YOY % -0.1% -0.1% 3.8% 4.5%

Revenue ($MM) $1,619 $410 $461 $473 $471 $1,814 $1,892 $1,965

YOY % -2.5% 2.9% 15.3% 17.1% 12.8% 12.0% 4.3% 3.9%

Consensus ($MM) $1,619 $465 $1,809 $1,879 $1,970

YOY % 11.4% 11.7% 3.9% 4.9%


Consensus 6.2% 5.5% 7.1% 7.6%

EPS $0.03 $0.15 $0.48 $0.35 $0.53 $1.51 $2.50 $2.73

YOY % -95.6% -19.2% 201.2% -597.6% -314.4% 4466.6% 65.4% 9.2%

Consensus $0.03 $0.44 $1.43 $2.20 $2.58

YOY % -276.0% 4666.7% 53.8% 17.3%

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0x

60.0x


P/E


318


Restaurant Brands International (QSR)Outperform, $69 TPExecutive Summary Key Charts

• Credit Suisse View: RBI is well positioned to generate global market share gains across its portfolio with contribution

from SSS and unit growth. Increased confidence in the Tim Hortons recovery & return to the ~5% unit growth algorithm should support multiple expansion. We believe RBI’s focus on

digital & drive-thru are the right areas of investment to drive SSS & enable broader strategies, RBI has demonstrated its

ability to execute on unit growth, the stock is trading at an absolute & relative discount in a sector trading at elevated levels, and RBI offers among the highest dividend yields in the space (3-3.5%), supporting our Outperform rating.

• Tim Hortons: Tim Hortons underperformance has been an overhang on the stock for several years, though expectations

are low, and any signs of improvement would be viewed positively. We believe recovery will be driven by a combination

of existential factors and company-specific initiatives. Tims Rewards is now positively contributing to SSS, and we

believe TH’s back to basics approach, quality improvements,rollout of digital menu boards and delivery are also key initiatives to support the business going forward.

• Unit Growth Story Intact: We expect RBI to generate global unit growth of 4.5-5% over the next three years, in-line with its recent past. International master franchise joint

venture agreements offer confidence in the achievability of targets, largely driven by global strength at Burger King & whitespace with Popeyes in a growing chicken category.

Units by Segment

EBITDA by Segment

$906 $1,072 $1,136 $1,128 $1,122

$760

$816 $903 $930 $993

$107 $155 $189

$0

$500

$1,000

$1,500

$2,000

$2,500

2015 2016 2017 2018 2019

EB

ITD

A (

$M

M)

Tim Hortons Burger King Popeyes

4.4K 4.6K 4.7K 4.8K 4.9K

15.0K 15.7K 16.8K 17.8K 18.8K

2.9K3.1K

3.3K

22.0K23.1K

24.4K25.7K

27.1K

0.0K

5.0K

10.0K

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30.0K

2015 2016 2017 2018 2019

Glo

bal

Uni

t C

ount

Tim Hortons Burger King Popeyes


1/15/2021

319


Restaurant Brands International (QSR)Outperform, $69 TPValuation & Risks Valuation History• Our $69 TP is based on:

— EV/EBITDA of ~16.5x (~17x including operating leases) our NTM EBITDA in 12 months


• QSR’s 3-year average multiples: ~17x NTM EV/EBITDA & ~22x NTM P/E

• Key risks: COVID-19 pandemic, competition, consumer spending, FX


3-yr Historical P/E



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

BK Global SSS 3.4% -3.7% -13.4% -7.0% -3.0% -6.4% 9.6% 2.2%

Consensus -2.9% -6.7% 8.6% 2.9%

TH Global SSS -1.5% -10.3% -29.3% -12.5% -11.5% -15.1% 14.6% 1.8%

Consensus -10.5% -15.6% 13.0% 3.0%

PLK Global SSS 13.6% 26.2% 24.8% 17.4% 1.7% 17.0% 3.5% 2.0%

Consensus -3.6% 16.0% 3.4% 2.8%

Global Units 27,086 27,112 27,059 27,027 27,082 27,082 28,202 29,587

YOY % 5.2% 5.0% 3.9% 2.7% 0.0% 0.0% 4.1% 4.9%

Consensus 27,086 27,095 27,095 28,207 29,610

YOY % 0.0% 0.0% 4.1% 5.0%

Revenue ($MM) $5,603 $1,225 $1,048 $1,337 $1,381 $4,991 $5,846 $6,113

YOY % 4.6% -3.2% -25.1% -8.3% -6.6% -10.9% 17.1% 4.6%

Consensus ($MM) $5,603 $1,360 $4,972 $5,624 $5,940

YOY % -8.0% -11.3% 13.1% 5.6%


Consensus 37.0% 34.0% 36.8% 37.7%

EPS $2.72 $0.48 $0.33 $0.68 $0.69 $2.19 $3.00 $3.25

YOY % 3.5% -11.4% -53.5% -5.0% -7.4% -19.6% 37.2% 8.3%

Consensus $2.72 $0.67 $2.15 $2.79 $3.09

YOY % -10.7% -21.0% 29.8% 10.8%

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

28.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

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18

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18

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19

Mar-

19

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19

Jul-1

9

Sep-

19

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19

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20

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20

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Jul-2

0

Sep-

20

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20

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21

P/E


9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

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18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

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20

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20

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Jul-2

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20

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21

EV/E

BIT

DA


320


Shake Shack (SHAK)Neutral, $102 TPExecutive Summary Key Charts

• Credit Suisse View: SHAK is facing an outsized near-term risk from the impact of COVID-19 with its exposure to high-

traffic, tourist areas, and a foundation built on community gathering, though this is largely overlooked by long-term investors. SHAK’s new formats & accelerated digital adoption

well position SHAK to increase its addressable market long-term, though at current valuation, we remain Neutral.

• Unit Growth Outlook: SHAK is diversifying its asset base with a range of new formats and additions to the existing system, positioning the company to increase its addressable market and long-term unit potential (current stated goal of 450 company-operated units). SHAK plans to open 35-40company-operated and 15-20 licensed units in 2021, and

45-50 company-operated and 20-25 licensed units in 2022. The majority of new units will feature a Shack Track element,

including curbside pickup, an enhanced interior pickup model, and exterior walk-up or a drive-up window, with SHAK on

track to open its first drive-thru in 2021, and 5-8 slated to open by 2022.

• Margin Outlook Difficult: We expect restaurant margins to

remain below historical levels over the next few years,following ~650bps of margin contract from 2015-2019. Margin recovery is in part predicated by sales recovery. We

see longer-term opportunities for some margin expansion with SSS leverage, higher prices (particularlyy in delivery channel), favorable new unit mix and contribution from digital.

Unit Composition

System Sales Composition

-

50

100

150

200

250

300

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Uni

ts

Domestic Company-Operated Domestic Licensed International Licensed

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2014 2015 2016 2017 2018 2019

Sys

tem

Sal

es (

$M

M)

Domestic Company Domestic & International License


1/15/2021

321


Shake Shack (SHAK)Neutral, $102 TPValuation & Risks Valuation History• Our $102 TP is based on:

— EV/EBITDA of ~34x (~37x including operating leases) our NTM EBITDA in 12 months

— DCF implies ~500 company-operated units by FY26

• SHAKs 3-year average NTM EV/EBITDA multiple: ~30x (range from 17x-51.5x)

• Key risks: unit growth/productivity, consumer spending,

COVID-19 pandemic


3-yr Historical P/E


SSS 1.3% -12.8% -49.0% -31.7% -17.4% -27.8% 35.5% 10.3%

Consensus -19.7% -28.2% 27.7% 7.1%

Global Units 275 287 292 298 311 311 367 438

YOY % 88.1% 88.4% 88.6% 88.8% 89.3% 89.3% 89.9% 90.6%

Consensus 275 308 308 363 425

YOY % 12.0% 12.0% 17.9% 17.1%

Revenue ($MM) $595 $143 $92 $130 $158 $523 $748 $947

YOY % 29.4% 8.0% -39.9% -17.3% 4.0% -12.1% 43.1% 26.5%

Consensus ($MM) $595 $153 $519 $729 $901

YOY % 1.3% -12.7% 40.5% 23.6%

Operating Margin 4.7% -0.5% -26.2% -5.1% -5.0% -7.5% 2.1% 4.2%

Consensus -5.1% -7.6% 1.4% 3.6%

EPS $0.72 $0.02 ($0.45) ($0.11) ($0.13) ($0.68) $0.31 $0.70

YOY % 0.8% -84.0% 129.5%

Consensus $0.72 ($0.14) ($0.68) $0.18 $0.59

YOY % 227.8%

8.0x

18.0x

28.0x

38.0x

48.0x

58.0x

68.0x

Jan-1

8

Mar-

18

May-

18

Jul-1

8

Sep-1

8

Nov-

18

Jan-1

9

Mar-

19

May-

19

Jul-1

9

Sep-1

9

Nov-

19

Jan-2

0

Mar-

20

May-

20

Jul-2

0

Sep-2

0

Nov-

20

Jan-2

1

EV/E

BIT

DA



1/15/2021

0.0x

100.0x

200.0x

300.0x

400.0x

500.0x

600.0x

700.0x

Jan-1

8

Mar-

18

May-

18

Jul-1

8

Sep-1

8

Nov-

18

Jan-1

9

Mar-

19

May-

19

Jul-1

9

Sep-1

9

Nov-

19

Jan-2

0

Mar-

20

May-

20

Jul-2

0

Sep-2

0

Nov-

20

Jan-2

1

P/E


322


Starbucks (SBUX)Outperform, $114 TPExecutive Summary Key Charts

• Credit Suisse View: SBUX is one of the highest quality growth companies in restaurants, with 8-10% revenue growth, margin expansion (operating margin guide 18-19%)

and benefit from repurchases supporting our ~16% EPS growth 3-yr CAGR. SBUX’s more focused growth strategy

(“growth at scale” agenda) and enhanced capital structure support a valuation premium to its history.

• US Business As Primary Focus: SBUX’s long-term

outlook for US SSS of 4-5% is supported by initiativesfocused on digital, beverage innovation (focus on cold) and operations, and enabled by SBUX’s industry-leading digital ecosystem. We believe SBUX has among the most frequent

customer bases in restaurants, supported by the habitual nature of coffee & strong brand affinity. ~25% of SBUX’s 75MM customers are 90-day active rewards members, underscoring the significant opportunity to grow the

membership base from ~19.5MM at the end of 2020.• EPS Growth Story Intact: Guidance for FY22 growth of

>20% and long-term growth of 10-12% (starting in FY23) appears achievable, and likely conservative, with SBUX well positioned to return to beat and raises. Greater sales leverage

in Americas (~65% operating profit) and strategic optionality (e.g., international licensing) represent the greatest sources of upside. SBUX is currently guiding to long-term US &

global SSS of 4-5%, unit growth of ~6%, an operating margin of 18-19% and EPS growth of 10-12%.

Revenue by Segment

Units by Segment

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Reve

nue (

$M

M)

Americas International Channel Development Corporate & Other

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Units

Americas International Corporate & Other


1/15/2021

323


Starbucks (SBUX)Outperform, $114 TPValuation & Risks Valuation History• Our $114 TP is based on:



• SBUX’s 3-year average multiples: ~27x NTM P/E & ~17x NTM EV/EBITDA

• Key risks: competition, consumer spending, COVID-19 pandemic, inflation


5-yr Historical P/E



1/15/2021

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x


EV/E

BIT

DA


10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x


P/E


2020 1Q21E 2Q21E 3Q21E 4Q21E 2021E 2022E 2023E

Americas SSS -12.0% -4.8% 4.9% 75.0% 15.5% 23.3% 6.8% 4.5%

Consensus -4.1% 4.3% 66.4% 17.1% 19.4% 6.0% 4.3%

Global Units 32,660 32,925 33,190 33,465 33,780 33,780 35,805 37,940

YOY % 4.5% 3.6% 3.6% 4.0% 3.4% 3.4% 6.0% 6.0%

Consensus 32,660 32,900 33,149 33,419 33,762 33,764 35,820 37,990

YOY % 3.5% 3.4% 3.9% 3.4% 3.4% 6.1% 6.1%

Revenue ($MM) $23,518 $6,887 $6,705 $7,356 $7,919 $28,867 $31,174 $33,897

YOY % -11.3% -3.0% 11.8% 74.2% 27.7% 22.7% 8.0% 8.7%

Consensus ($MM) $23,518 $6,926 $6,699 $7,004 $7,860 $28,491 $30,711 $33,607

YOY % -2.4% 11.7% 65.9% 26.7% 21.1% 7.8% 9.4%


Consensus 14.0% 15.4% 18.2% 19.3% 16.8% 18.3% 18.6%

EPS $1.15 $0.63 $0.58 $0.81 $0.88 $2.90 $3.53 $4.01

YOY % -59.2% -19.4% 83.1% -275.7% 74.2% 151.4% 21.5% 13.9%

Consensus $1.16 $0.56 $0.60 $0.76 $0.91 $2.82 $3.42 $3.88

YOY % -29.1% 87.5% -265.2% 78.4% 143.1% 21.3% 13.5%

324


Texas Roadhouse (TXRH)Outperform, $90 TPExecutive Summary Key Charts

• Credit Suisse View: Strong operational execution, a compelling value proposition and contribution from off-premise gives us confidence in the sales recovery trajectory. Attractive steakhouse category dynamics, structural casual dining tailwinds & a strong balance sheet well position the company to invest for future market share gains. We expect TXRH to generate revenue & earnings in FY21 above FY19 levels, and a return to its double-digit earnings

algorithm starting in FY22.• Confidence in Sales Recovery: TXRH is one of the

few restaurant companies that has demonstrated consistently positive SSS and traffic over the last five years, outperforming the casual dining industry by an average of ~500bps. Underlying brand strength, and benefits from the company’s concentration in more resilient suburban markets, loyal customer base and booth seating to increase

yields amidst social distancing, gives us confidence in the recovery of on-premise sales. Increased customer awareness & enhanced execution support our expectation for sustainably higher off-premise sales volumes.

• Attractive Unit Growth Potential: Favorable steak category dynamics well position TXRH for continued growth, and supportive of the long-term unit growth target of at least 700-800 domestic Roadhouse restaurants, with recent entrance into smaller markets potentially supporting an even higher long-term unit growth opportunity.

Units & Unit Growth

Revenue

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

300

350

400

450

500

550

600

650

2015 2016 2017 2018 2019

Uni

t G

row

th

Uni

ts

Units Unit Growth

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2015 2016 2017 2018 2019

Rev

enue

($

MM

)


1/15/2021

325


Texas Roadhouse (TXRH)Outperform, $90 TPValuation & Risks Valuation History• Our $90 TP is based on:


— EV/EBITDA of ~14x (~15x including operating leases)our NTM EBITDA in 12 months

• TXRH’s 5-year average multiples: ~26.5x NTM P/E & ~12.5x

NTM EV/EBITDA


5-yr Historical P/E



Company SSS 4.7% -8.4% -32.8% -6.3% -3.1% -11.2% 22.0% 7.9%

Consensus -1.5% -12.1% 18.7% 5.9%

Company Units 514 519 521 526 534 534 564 594

YOY % 4.7% 4.8% 4.6% 4.8% 3.9% 3.9% 5.6% 5.3%

Consensus 514 533 533 561 593

YOY % 3.7% 3.7% 5.3% 5.7%

Revenue ($MM) $2,756 $653 $476 $631 $670 $2,430 $3,002 $3,378

YOY % 12.2% -5.5% -30.9% -3.0% -7.6% -11.8% 23.5% 12.5%

Consensus ($MM) $2,756 $686 $2,446 $2,973 $3,279

YOY % -5.4% -11.2% 21.5% 10.3%


Consensus 6.5% 2.0% 7.5% 8.5%

EPS $2.46 $0.23 ($0.48) $0.42 $0.55 $0.72 $2.85 $3.60

YOY % 12.0% -67.1% -176.9% -19.9% -10.1% -70.9% 296.4% 26.7%

Consensus $2.46 $0.51 $0.68 $2.61 $3.32

YOY % -16.4% -72.4% 283.8% 27.2%

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x


EV/E

BIT

DA


0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

70.0x

80.0x

90.0x


P/E



1/15/2021

326


The Wendy’s Company (WEN)Neutral, $25 TPExecutive Summary Key Charts

• Credit Suisse View: Following WEN’s transformation over

the last several years, its business model reflects an improved and more consistent FCF profile. WEN noted opportunities to expand company margins post-COVID following productivity gains & efficiencies in 2020. While we like the WEN story

and have been impressed with performance, we are cautious

on incremental investments required for breakfast, digital and international expansion, as well as the impact of heightened competition in 2021. We believe we could be underappreciating the contribution from digital initiatives as WEN recently strengthened its digital bench with the hiring of

former Domino’s Chief Information Officer, Kevin Vasconi.

• Solid Outlook, but Heavy Competition: WEN’s historical

focus on traffic-driving initiatives and prudent approach to pricing has supported positive and consistent SSS growth

averaging ~2% over the last five years. Digital mix increased to 6%+ exiting 3Q and into 4Q, with the recent launch of its loyalty program representing an additional lever to drive digital

growth, though such is still in early innings. WEN rolled out its new Classic Chicken Sandwich in late October, noting the new product could be meaningful for the brand that was part of the trio that started the Chicken Wars last year. WEN is also planning to increase its contribution to breakfast marketing in 2021.

Revenue Composition

Unit Composition

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2017 2018 2019

Rev

enue

($

MM

)

Wendy's US Wendy's International Global Real Estate & Development

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2011 2012 2013 2014 2015 2016 2017 2018 2019

Uni

ts

US Franchise US Company International


1/15/2021

327


The Wendy’s Company (WEN)Neutral, $25 TPValuation & Risks Valuation History• Our $25 TP is based on:

— EV/EBITDA of ~16x (~18.5x including operating leases) our NTM EBITDA in 12 months


• WEN’s 3-year average multiples: ~17x NTM EV/EBITDA & ~29.5x NTM P/E

• Key risks: competition, consumer spending, COVID-19 pandemic, breakfast execution


3-yr Historical P/E


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

US SSS 2.9% 0.0% -4.4% 7.0% 6.6% 2.6% 6.6% 1.8%

Consensus 6.3% 2.3% 5.8% 2.4%

Global Units 6,788 6,805 6,806 6,814 6,825 6,825 6,926 7,080

YOY % 1.1% 1.4% 1.3% 1.1% 0.5% 0.5% 1.5% 2.2%

Consensus 6,788 6,830 6,830 6,958 7,122

YOY % 0.6% 0.6% 1.9% 2.4%

Revenue ($MM) $1,709 $405 $402 $452 $477 $1,737 $1,784 $1,831

YOY % 7.5% -0.9% -7.6% 3.3% 11.7% 1.6% 2.7% 2.6%

Consensus ($MM) $1,709 $476 $1,735 $1,792 $1,857

YOY % 11.4% 1.5% 3.3% 3.6%


Consensus 17.1% 16.6% 17.8% 18.9%

EPS $0.59 $0.09 $0.12 $0.19 $0.18 $0.58 $0.74 $0.88

YOY % 0.8% -36.1% -34.7% 0.8% 127.5% -2.3% 28.3% 18.3%

Consensus $0.59 $0.18 $0.57 $0.71 $0.84

YOY % 125.0% -3.4% 24.6% 18.3%

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

P/E


328


Yum! Brands (YUM)Neutral, $103 TPExecutive Summary Key Charts

• Credit Suisse View: YUM’s ~98% franchise business model, diversified global portfolio and low operating leverage

support high visibility into ongoing low-teens earnings growth in a normalized environment. Greater visibility into the timing of a return to the unit growth algorithm is likely necessary to

improve sentiment on the diversified global growth story and further expand its valuation premium to peers.

• Unit growth to represent majority of top line: We expect YUM to return to a normalized growth algorithm in 2022, and model ~6% system sales growth, with ~4% contribution from unit growth and 2-2.5% from SSS. Development agreements tied to refranchising deals, accelerating growth in China, Taco Bell US franchisee appetite for growth and management

development expertise support our expectations for a return to the company’s ~4% long-term unit growth target.

• Shifting from defensive to offensive: As sales start to recover, markets stabilize and uncertainty declines, the

strategy is shifting from defensive to offensive as YUM assesses opportunities to capitalize on attractive real estate amidst what is expected to be heightened consolidation over

the next 6-12 months. YUM’s franchisee base is more consolidated than peers, and larger franchisees tend to have greater access to capital and more growth-focused strategies

(though they often carry greater leverage as a result). YUM has also made investments in its data analytics capabilities to better identify opportunities for new unit growth.

Unit Growth

System Sales Growth

2.7%

3.9%

5.4%

6.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2016 2017 2018 2019

Sys

tem

Sal

es G

row

th

KFC Pizza Hut Taco Bell


1/15/2021

3.6%

3.1%2.9%

3.3%

3.9%4.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014 2015 2016 2017 2018 2019

Glo

bal N

et

Unit

Gro

wth

KFC Pizza Hut Taco Bell Habit

329


Yum! Brands (YUM)Neutral, $103 TPValuation & Risks Valuation History• Our $103 TP is based on:



• YUM’s 3-year average multiples: ~18.5x NTM EV/EBITDA & ~25x NTM P/E

• Key risks: COVID-19 pandemic, competition, consumer spending, FX


3-yr Historical P/E



1/15/2021

2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

KFC SSS 4.2% -8.0% -21.0% -4.0% 0.0% -7.2% 11.8% 2.5%

Consensus -1.5% -8.4% 11.9% 2.9%

Pizza Hut SSS -0.1% -11.0% -9.0% -3.0% 0.0% -5.4% 5.6% 1.0%

Consensus 0.3% -5.5% 6.5% 1.7%

Taco Bell SSS 4.7% 1.0% -8.0% 3.0% 4.0% 0.5% 6.5% 3.0%

Consensus 3.2% -0.2% 5.9% 2.9%

Global Units 50,170 50,511 50,393 50,126 50,129 50,129 51,041 52,978

YOY % 4.3% 4.2% 3.3% 2.0% -0.1% -0.1% 1.8% 3.8%

Consensus 50,170 50,148 50,148 51,612 53,571

YOY % 0.0% 0.0% 2.9% 3.8%

Revenue ($MM) $5,597 $1,263 $1,198 $1,448 $1,780 $5,689 $6,310 $6,636

YOY % -1.6% 0.7% -8.5% 8.1% 5.1% 1.6% 10.9% 5.2%

Consensus ($MM) $5,597 $1,716 $5,625 $6,261 $6,688

YOY % 1.3% 0.5% 11.3% 6.8%


Consensus 30.1% 31.5% 32.4% 32.8%

EPS $3.56 $0.64 $0.82 $1.01 $1.07 $3.54 $4.11 $4.54

YOY % 12.3% -22.8% -11.7% 25.9% 7.5% -0.4% 15.9% 10.6%

Consensus $315.00 $1.01 $3.48 $4.00 $4.51

YOY % -99.7% -98.9% 14.9% 12.8%

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA


10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

P/E


330


Performance Food Group (PFGC)Outperform, $56 TPExecutive Summary Key Charts

• Credit Suisse View: We view PFGC as a compelling growth story well positioned to capture market share in a fragmented

industry. We believe recent challenges offer larger distributors the opportunities to capture new business as restaurants seek suppliers they can trust will have the appropriate scale,

capital and agility to meet needs, as well as accelerate growth of private label offerings. We expect PFGC to deliver

outsized growth in FY22 as it laps ongoing recovery in FY21, and return to its double-digit earnings algorithm in FY22.

• Vistar to recover long-term: While the legacy Vistar segment will likely experience a prolonged period of depressed sales, it is a differentiated asset for PFGC, and PFGC has proven its ability to diversify into new customer

channels, giving us confidence in its ongoing recovery. • Independent restaurants as a key unlock: Independents

represent ~24% of PFGC’s business, with PFGC’s low independent sales and regional presence supporting our

confidence in the significant runway for growth. We believe acquisition of new independent restaurant customers is the most meaningful opportunity for growth, and we estimate it

has relationships with ~25-30% of independents, supporting an ample addressable market even with heightened industry closures. Outsized growth among the most profitable

customer segment should also contribute to margin expansion, driven by dynamic pricing to optimize profitability and increased penetration of private brand offerings.

Total Case Growth

Operating Margin

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%


Opera

ting M

arg

in

0%

1%

2%

3%

4%

5%

6%

7%

8%


Tota

l C

ase

Gro

wth


1/15/2021

331


Performance Food Group (PFGC)Outperform, $56 TPValuation & Risks Valuation History• Our $56 TP is based on:

— EV/EBITDA of ~11.5x our NTM EBITDA in 12 months


• PFGC’s 3-year average multiples: ~11.5x NTM EV/EBITDA & ~21x NTM P/E

• Key risks: COVID-19 pandemic, competition, consumer spending, cost inflation



3-yr Historical P/E

2.0x

7.0x

12.0x

17.0x

22.0x

27.0x

32.0x

37.0x

42.0x

47.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

P/E


2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA



1/15/2021

2020 1Q21 2Q21E 3Q21E 4Q21E 2021E 2022E 2023E

Total Case Growth 7.6% 8.9% 17.1% 0.1% 22.6% 12.4% 11.5% 5.1%

Consensus 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%

Organic Case Growth -10.0% -17.5% -7.9% -0.6% 21.9% -0.6% 10.7% 4.4%

Consensus -12.3% -3.9% 31.2% -1.0% 9.2% 4.3%

Revenue ($MM) $25,086 $7,047 $6,980 $7,082 $7,566 $28,674 $31,780 $33,738

YOY % 27.1% 12.9% 15.0% 1.2% 31.0% 14.3% 10.8% 6.2%

Consensus $25,086 $6,907 $7,022 $7,570 $28,546 $31,095 $32,750

YOY % 13.8% 0.3% 31.1% 13.8% 8.9% 5.3%

Gross Margin 11.5% 11.7% 11.7% 11.5% 12.0% 11.7% 12.0% 12.0%

Consensus ($MM) 11.8% 11.7% 11.8% 11.7% 11.9% 12.0%


Consensus 1.3% 1.2% 1.4% 1.3% 1.7% 1.9%

EBITDA $406 $135 $126 $120 $153 $534 $791 $896

YOY % -14.7% 5.9% -12.0% -8.6% 3922.9% 31.6% 48.2% 13.4%

Consensus $406 $142 $140 $166 $583 $759 $838

YOY % -0.4% 6.4% 4268.2% 43.8% 30.2% 10.3%

EPS $0.70 $0.25 $0.18 $0.14 $0.28 $0.85 $2.28 $2.77

YOY % -67.1% -56.1% -69.0% -75.9% -132.6% 21.4% 168.2% 21.5%

Consensus $0.70 $0.29 $0.26 $0.40 $1.20 $2.16 $2.57

YOY % -50.0% -55.2% -146.5% 71.4% 80.0% 19.0%

332


Sysco (SYY)Outperform, $85 TPExecutive Summary Key Charts• Credit Suisse View: As the largest competitor in US

foodservice distribution, recent challenges present a unique opportunity for the market share leader as customers seek suppliers they can trust will have the appropriate scale, capital & agility to meet needs in a dynamic environment. The

closure of smaller food distributors that lack capital should be

a tailwind to attract new customers into the SYY ecosystem and increase awareness of the breadth & quality of product offerings to expand wallet share. Management is increasingly focused on accelerating SYY’s pace of growth, and new CEO

Kevin Hourican’s experience in supply chain supports our confidence in the execution of cost savings activities. SYY offers the best margin profile relative to peers, and we expect SYY to achieve 5%+ EBIT margins over time.

• US restaurants key area of focus: Restaurants make up

~62% of the US business, and given the US drives ~80% of SYY sales & ~90% of EBITDA, restaurants are a key area of focus for the company & stock. Independents make up

~31% of sales & likely ~2x to profit. We estimate SYY had a presence at 50%+ of independents pre-COVID & an average

wallet share of ~30%. While closures represent a headwind to net new customer acquisition, SYY has indicated its customers have experienced below-average closures, and

consolidation of units should contribute to traffic for existing restaurants. Greater awareness & trial of private brands and investments in technology (price transparency, suggested

sell) should drive wallet share expansion.

US Broadline Case Growth

Operating Margin

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%


US

Bro

adlin

e C

ase

Gro

wth

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%


Opera

ting M

arg

in


1/15/2021

333


Sysco (SYY)Outperform, $85 TPValuation & Risks Valuation History• Our $85 TP is based on:


— P/E of ~21.5-22x our NTM EPS in 12 months

• SYY’s 3-year average multiples: ~13x NTM EV/EBITDA & ~24x NTM P/E




3-yr Historical P/E

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

23.0x

25.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA


5.0x

15.0x

25.0x

35.0x

45.0x

55.0x

65.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

P/E



1/15/2021

2020 1Q21 2Q21E 3Q21E 4Q21E 2021E 2022E 2023E

US Broadline Case Growth -11.2% -25.8% -21.8% -7.8% 55.2% 2.9% 17.9% 3.5%

Consensus -21.7% -11.3% 56.4% -1.2% 17.4% 2.0%

US Broadline Organic Case Growth -8.0% -25.9% -22.0% -8.0% 55.0% 2.7% 17.4% 3.0%

Consensus -22.3% -10.9% 52.5% -2.5% 17.3% 1.0%

Revenue ($MM) $52,893 $11,777 $12,450 $13,336 $14,651 $52,214 $60,235 $62,845

YOY % -12.0% -23.0% -17.1% -2.6% 65.2% -1.3% 15.4% 4.3%

Consensus $52,893 $12,225 $13,014 $13,985 $51,002 $58,596 $61,162

YOY % -18.6% -5.0% 57.7% -3.6% 14.9% 4.4%

Gross Margin 18.7% 18.8% 18.5% 18.7% 19.0% 18.8% 19.0% 19.0%

Consensus ($MM) 18.5% 18.7% 18.9% 18.7% 19.0% 19.1%


Consensus 3.2% 3.3% 4.3% 3.5% 4.6% 4.9%

EBITDA $2,518 $545 $544 $640 $762 $2,491 $3,717 $4,009

YOY % -28.0% -41.3% -33.0% 13.7% 257.2% -1.1% 49.2% 7.9%

Consensus $2,453.8 $576.0 $626.1 $805.9 $2,552.1 $3,481.0 $3,784.3

YOY % -27.5% 14.6% 302.4% 4.0% 36.4% 8.7%

EPS $2.01 $0.34 $0.34 $0.50 $0.65 $1.82 $3.68 $4.14

YOY % -43.4% -65.3% -60.0% 11.1% -324.1% -9.5% 102.2% 12.5%

Consensus $2.01 $0.36 $0.43 $0.67 $1.80 $3.19 $3.74

YOY % -57.6% -4.4% -331.0% -10.4% 77.2% 17.2%

334


US Foods (USFD)Outperform, $40 TPExecutive Summary Key Charts• Credit Suisse View: While USFD’s recovery will likely lag its

closest peers given its higher concentration of independent restaurants & hospitality, we see ample opportunity for USFD to capture new customers in a fragmented industry & benefit from the recovery of its existing customers, noting the

restaurant industry has historically been very resilient. We

expect sales improvements among existing customers and the acquisition of new customers to support a full sales recapture over time, while an ongoing focus to effectively manage costs suggest margin recovery will likely come ahead

of a full sales recovery.

• Independent restaurant growth to drive top & bottom

lines: Independent restaurants represent ~33% of USFD’s sales mix and an estimated ~60% of its EBITDA, with outsized profitability driven by higher sales of private label

offerings (~2x profit relative to manufacturer products) and the nature of non-contract accounts allowing for dynamic pricing to maximize profitability. USFD has leveraged

technology more than others, which is increasingly important as digital adoption accelerates. Over the last three years,

independent case growth averaged 5.5%, outpacing total case growth of 2.1%, & the largest spread relative to peers, supporting our confidence in USFD’s ability to grow market

share with independents as the environment normalizes. Growth among independents and private brand cases will be the primary contributors to narrow the margin gap (and

valuation gap) to SYY.

Case Growth

Operating Margin

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2015 2016 2017 2018 2019

Opera

ting M

arg

in

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Tota

l Case

Gro

wth


1/15/2021

335


US Foods (USFD)Outperform, $40 TPValuation & Risks Valuation History• Our $40 TP is based on:



• USFD’s 3-year average multiples: ~10x NTM EV/EBITDA & ~16.5x NTM P/E




3-yr Historical P/E

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

EV/E

BIT

DA



1/15/2021

2.0x

7.0x

12.0x

17.0x

22.0x

27.0x

32.0x

Jan-

18

Mar-

18

May-

18

Jul-1

8

Sep-

18

Nov-

18

Jan-

19

Mar-

19

May-

19

Jul-1

9

Sep-

19

Nov-

19

Jan-

20

Mar-

20

May-

20

Jul-2

0

Sep-

20

Nov-

20

Jan-

21

P/E


2019 1Q20 2Q20 3Q20 4Q20E 2020E 2021E 2022E

Total Case Growth 4.6% 3.4% -28.0% -8.9% -14.5% -12.0% 16.4% 8.1%

Consensus -13.1% -11.5% 15.5% 7.0%

Organic Case Growth 1.1% -7.3% -40.2% -22.2% -19.0% -22.2% 15.0% 7.6%

Consensus -16.8% -21.6% 14.4% 7.2%

Revenue ($MM) $25,939 $6,339 $4,560 $5,848 $6,345 $23,092 $26,274 $28,846

YOY % 7.3% 5.1% -29.2% -10.5% -8.5% -11.0% 13.8% 9.8%

Consensus $25,939 $6,215 $22,962 $26,459 $28,655

YOY % -10.4% -11.5% 15.2% 8.3%

Gross Margin 17.8% 16.6% 16.0% 16.7% 17.0% 16.6% 17.3% 17.5%

Consensus ($MM) 17.8% 16.8% 16.6% 17.1% 17.2%


Consensus 3.4% 2.1% 1.5% 2.9% 3.3%

EBITDA $1,194 $177 $88 $209 $203 $677 $1,106 $1,449

YOY % 8.2% -23.7% -72.5% -31.9% -39.3% -43.3% 63.3% 31.0%

Consensus ####### $225 $699 $1,118 $1,308

YOY % -33.0% -41.5% 60.1% 17.0%

EPS $2.39 $0.15 ($0.25) $0.15 $0.15 $0.20 $1.55 $2.59

YOY % 13.8% -64.1% -77.7% -77.7% -91.5% 663.1% 67.6%

Consensus $2.38 $0.21 $0.26 $1.57 $2.23

YOY % -68.2% -89.1% 503.8% 42.0%

Valuation, Methodology and Risks

Target Price and Rating Valuation Methodology and Risks: (12 months) for Bloomin' Brands (BLMN.OQ)

Method: Our $21 target price and Neutral rating is based on ~11x our NTM EPS in 12 months, implying ~6x our NTM EBITDA in 12 months, a discount to its 5-year averages given uncertainty in the outlook, high Brazil exposure and high leverage.

Risk: Key risks to our $21 target price and Neutral rating include: consumer spending, health epidemic, food & labor cost inflation and competition. Restaurant occasions are consumer discretionary purchases, and a challenging economic environment, as well as the potential for prolonged changes in consumer behavior could weigh on sales recovery efforts. The impact of a health epidemic could result in reduced consumer mobility, government mandates that limit dining room capacity or prohibit on-premise dining. Heightened food & labor cost inflation would weigh on margins. BLMN operates in a highly competitive restaurant environment.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Chipotle Mexican Grill, Inc. (CMG.N)

Method: Our $1,700 target price and Outperform rating is based on ~32x our NTM EBITDA in 12 months & ~54x our NTM EPS in 12 months.

Risk: Key risks to our Outperform rating $1,700 price target include: food safety headlines, competition and food safety. Chipotle's headline risk is still elevated as multiple food safety incidents have emerged over the last few years, with brand perceptions which are likely still sensitive. In recent years, there has been an emergence of smaller competitors delivering on attributes that have differentiated Chipotle for many years, offering high quality food at reasonable prices, many of which are similarly mission-driven and locally sourced.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Darden Restaurants (DRI.N)

Method: Our $141 target price and Outperform rating is based on ~19x our NTM EPS in 12 months, implying ~12x our NTM EBITDA in 12 months.

Risk: Key risks to our $141 target price and Outperform rating include: consumer spending, health epidemic, food and labor cost inflation and competition. Restaurant occasions are consumer discretionary purchases, and a challenging economic environment, as well as the potential for prolonged changes in consumer behavior could weigh on sales recovery efforts. The impact of a health epidemic could result in reduced consumer mobility, government mandates that limit dining room capacity or prohibit on-premise dining. Heightened food and labor cost inflation would weigh on margins. DRI operates in a highly competitive restaurant environment

Target Price and Rating Valuation Methodology and Risks: (12 months) for Domino’s Pizza Inc. (DPZ.N)

Method: Our $445 target price and Outperform rating is based on ~31x our NTM EPS in 12 months, implying an EV/EBITDA of ~23x our NTM EBITDA in 12 months.

Risk: Key risks to our $445 target price and Outperform rating include: competition and economic factors. Increasing competitive pressure could weigh on market gains globally. DPZ could experience reduced product demand, longer payment cycles, slow adoption of new technologies and increased price competition if there is an economic downturn or deterioration in economic conditions.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Jack in the Box Inc. (JACK.OQ)

Method: Our $74 target price and Underperform rating for JACK are based on ~9.5x our next 12 months EBITDA in 12 months. JACK's shares trade at a discount to heavily franchised peers given higher operating leverage, lower growth prospects and geographic concentration. Despite the transition to a more heavily franchised business model and divesture of Qdoba, there has been limited multiple expansion. We believe risk to long-term targets could weigh on the multiple. We rate JACK Underperform as we expect it to appreciate less than its peers.

Risk: Risks to our $74 target price and Underperform rating for JACK are M&A, accelerating SSS, competition, changing customer preferences, economic exposure, commodity exposure, labor market, cybersecurity and activist stockholders.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Just Eat Takeaway (JETJ.L)

Method: We value Just Eat Takeaway using a DCF in line with the majority of our European Media coverage. Our methodology uses explicit forecasts out to 2029, beyond which we assume growth in perpetuity of +3%, in line with what we use for other leading internet players under our coverage. We use a WACC of 9.55% derived from a cost of equity of 10.4% (ERP of 8.4%, RFR of 0.35%, beta of 1.2) and a cost of debt of 2%. We assume a capital structure of 90% equity and 10% debt. This yields a target price of 12,100p. Our SOTP valuation framework also supports our TP. Owing to the significant upside potential implied by our target price we rate the shares Outperform.

Risk: Risks to our Outperform rating and 12,100p target price include: Competition, whether from direct competitors or delivery-only providers as well as also uncertainty around the level and duration of investment in Delivery Logistics. We would also flag cyclicality, brand risk, cyber security, restaurant pushback to price rises, technological change (e.g. drones/robots) and shifting consumer preferences. The potential acuqisition of Grubhub brings about operational and execution risk.

Target Price and Rating Valuation Methodology and Risks: (12 months) for McDonald’s Corporation (MCD.N)

Method: Our $230 target price and Outperform rating is based on ~17x our NTM EBITDA in 12 months, implying a P/E of ~25.5x our NTM EPS in 12 months.

Risk: Key risks to our $230 price target price and Outperform rating for MCD include: competition, US macro environment and FX volatility. MCD operates in a highly competitive restaurant environment. Increased product and price competition could adversely affect revenue and profits

Decreases in consumer discretionary spending or decline in consumer food-away-from-home spending could negatively impact financial results. MCD is exposed to foreign currency volatility in all of its international markets, which could adversely affect MCD’s business, results of operations, financial conditions and cash flow.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Papa John’s International, Inc. (PZZA.OQ)

Method: Our $110 target price and Outperform rating is based on ~19.5x our NTM EBITDA in 12 months.

Risk: Key risks to our $110 target price and Outperform rating include: competition; consumer sentiment; selloff from block sale. Competition and company-specific challenges could continue to weigh on sales and profitability.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Performance Food Group Company (PFGC.N)

Method: Our $56 target price and Outperform rating is based on ~11.5x our NTM EBITDA in 12 months, in-line with its three-year average.

Risk: Risks to our $56 target price and Outperform rating for Performance Food Group include an extended period of the COVID-19 pandemic in the US that prolongs closures of food-away-from-home channels, notably restaurants, offices, and theaters, greater-than-anticipated pressures on supply chain, intensified competition, and deterioration in the macro environment and consumer spending.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Restaurant Brands International Inc (QSR.N)

Method: Our $69 target price and Outperform rating are based on ~16.5x our NTM EBITDA in 12 months, implying a P/E multiple of ~21x our NTM EPS in 12 months.

Risk: Key risks to our $69 target price and Outperform rating include: competition and economic conditions. QSR operates in a highly competitive industry. If QSR is unable to maintain its competitive position, it could experience lower product demand, downward pricing pressure, lower margins, decreased market share, reduced franchisee profitability and difficulty attracting qualified franchisees. Unfavorable economic pressures could reduce sales, profitability and operating results for QSR and its franchisees.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Shake Shack (SHAK.N)

Method: Our $102 target price and Neutral rating is based on ~34x our NTM EBITDA in 12 months given near-term uncertainty and limited visibility into a return to normalized sales levels and resumption of new unit growth. Our $102 target price is supported by our DCF model, which implies SHAK reaches ~700 company and ~300 licensed units over the next 10 years.

Risk: Key risks to our $102 target price and Neutral rating include: US macro environment, net unit productivity and success in new markets. SHAK’s average restaurant sales could decline during economic downturns or periods of uncertainty caused by higher unemployment, increased taxes, lower home prices or other economic factors. New stores could be less successful or achieve lower restaurant margins. SHAK might be required to make additional investments in new markets and new markets may differ in terms of consumer taste, discretionary income and competitive conditions.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Shakey's Pizza Asia Ventures, Inc. (PIZZA.PS)

Method: We derive our P9.8/share share target price for Shakey's Pizza Asia Ventures, Inc. using a weighted average cost of capital of 8.4% and a long-term nominal growth rate of 4%. This assumes a cost of equity of 12.7% and a cost of debt of 4%. Fair valuation of puts it at a forward P/E (price-to-earnings) of 20x. Our OUTPERFORM rating for PIZZA reflects our positive view on the fundamentals of consumption growth in the Philippines and execution ability of the company.

Risk: Risks to our P9.8/share target price and OUTPERFORM rating for PIZZA include downward EPS revisions and lower-than-expected ROIC. Downside risks to our view include price increases in imported raw materials, such as cheese and chicken, and short supply of locally-sourced raw materials. Other risks include tough competition and execution risk on store expansion strategy.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Starbucks Corporation (SBUX.OQ)

Method: Our $114 target price and Outperform rating are based on ~32x our NTM EPS in 12 months, implying an EV/EBITDA multiple of ~20x our NTM EBITDA in 12 months.

Risk: Key risks to our $114 target price and Outperform rating include: competition, food safety, health epidemics and fluctuations in the value of foreign currencies. SBUX operates in a highly competitive restaurant environment. Food safety events, whether or not involving SBUX, could result in negative publicity, may reduce demand for Starbucks’ food, and could result in a decrease in guest traffic and sales. Fluctuations in the value of foreign currencies where SBUX operates or sources its products could adversely affect its revenues and profits.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Sysco Corporation (SYY.N)

Method: Our $85 target price and Outperform rating are based on ~13x our NTM EBITDA in 12 months, implying ~21.5x our NTM EPS in 12 months.

Risk: Risks to our $85 target price and Outperform rating include an extended period of the COVID-19 pandemic in the US that prolongs closures of food-away-from-home channels, greater-than-anticipated pressures on supply chain, and deterioration in the macro environment and consumer spending.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Texas Roadhouse (TXRH.OQ)

Method: Our $90 target price and Outperform rating is based on ~25x our NTM EPS in 12 months, implying ~14x our NTM EBITDA in 12 months.

Risk: Key risks to our $90 target price and Outperform rating include: consumer spending, health epidemic, food & labor cost inflation and competition. Restaurant occasions are consumer discretionary purchases, and a challenging economic environment, as well as the potential for prolonged changes in consumer behavior could weigh on sales recovery efforts. The impact of a health epidemic could result in reduced consumer mobility, government mandates that limit dining room capacity or prohibit on-premise dining. Heightened food & labor cost inflation would weigh on margins. TXRH operates in a highly competitive restaurant environment.

Target Price and Rating Valuation Methodology and Risks: (12 months) for The Cheesecake Factory (CAKE.OQ)

Method: Our $44 target price and Neutral rating is based on ~17x our NTM EPS in 12 months & ~10x our NTM EBITDA in 12 months, a discount to its 5-year averages given uncertainty in the outlook.

Risk: Key risks to our $44 target price and Neutral rating include: consumer spending, health epidemic, food & labor cost inflation, competition and mall exposure. A challenging economic environment & potential for changes in consumer behavior could weigh on sales recovery efforts. The impact of a health epidemic could result in reduced consumer mobility or mandates that limit dining room capacity/ prohibit on-premise dining. Heightened food & labor cost inflation would weigh on margins. CAKE operates in a highly competitive restaurant environment. ~80% of CAKE’s stores are located at/near malls, and traffic could be negatively impacted.

Target Price and Rating Valuation Methodology and Risks: (12 months) for The Wendy’s Company (WEN.OQ)

Method: Our $25 target price and Neutral rating for WEN are based on ~16x our estimated next 12 months EBITDA in 12 months. We rate WEN Neutral as we expect it to perform inline with its peers.

Risk: Risks to our $25 target price and Neutral rating for WEN are competition and consumer spending. WEN operates in a highly competitive restaurant environment. Increased product and price competition could adversely affect revenue and profits. The QSR industry is often affected by changes in consumer tastes and consumer discretionary spending. Decreases in consumer discretionary spending or decline in consumer food-away-from-home spending could negatively impact revenues, results of operations, business and financial condition.

Target Price and Rating Valuation Methodology and Risks: (12 months) for US Foods Holding Corp. (USFD.N)

Method: Our $40 target price and Outperform rating are based on ~10x our NTM EBITDA in 12 months, implying ~15.5x our NTM EPS in 12 months, in-line with three-year average multiples.

Risk: Risks to our Outperform rating and $40 target price include an extended period of the COVID-19 pandemic in the US, greater-than-anticipated operating expense deleverage and pressures on supply chain, missteps in integration efforts, and deterioration in the macro environment and consumer spending in the post-COVID recovery.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Yum! Brands, Inc. (YUM.N)

Method: Our $103 target price and Neutral rating are based on ~18x our NTM EBITDA in 12 months, implying a P/E multiple of ~23.5x our NTM EPS in 12 months.

Risk: Risks to our $103 target price and Neutral rating for YUM are competition, consumer spending and FX volatility. YUM operates in a highly competitive restaurant environment. Increased product and price competition could adversely affect revenue and profits. Due to YUM’s international exposure, its financial results could be adversely impacted by foreign currency volatility. Decreases in consumer discretionary spending or decline in consumer food-away-from-home spending could negatively impact revenues, results of operations, business and financial condition.

Companies Mentioned (Price as of 18-Jan-2021)

BJs Restaurants (BJRI.OQ, $46.91) Bloomin' Brands (BLMN.OQ, $21.46, NEUTRAL[V], TP $21.0) Brinker International Inc. (EAT.N, $59.18) Carrols Restaura (TAST.OQ, $6.88) Chipotle Mexican Grill, Inc. (CMG.N, $1405.74, OUTPERFORM, TP $1700.0) Chuys (CHUY.OQ, $33.17) Cracker Barrel (CBRL.OQ, $141.06) Darden Restaurants (DRI.N, $121.08, OUTPERFORM, TP $141.0) Dave & Buster’s (PLAY.OQ, $33.66) Dine Brands (DIN.N, $70.48) Domino’s Pizza Inc. (DPZ.N, $375.23, OUTPERFORM, TP $445.0) DoorDash (DASH.N, $187.15) El Pollo Loco (LOCO.OQ, $19.6) Jack in the Box Inc. (JACK.OQ, $99.55, UNDERPERFORM, TP $74.0) Just Eat Takeaway (JETJ.L, 7814.0p) McDonald’s Corporation (MCD.N, $209.91, OUTPERFORM, TP $230.0) Noodles & Company (NDLS.OQ, $8.82) Papa John’s International, Inc. (PZZA.OQ, $95.2, OUTPERFORM, TP $110.0) Performance Food Group Company (PFGC.N, $51.18, OUTPERFORM[V], TP $56.0) Potbelly (PBPB.OQ, $4.9) Red Robin Gourmt (RRGB.OQ, $24.89) Restaurant Brands International Inc (QSR.N, $62.91, OUTPERFORM, TP $69.0) Ruths (RUTH.OQ, $18.82) Shake Shack (SHAK.N, $111.26, NEUTRAL[V], TP $102.0) Shakey's Pizza Asia Ventures, Inc. (PIZZA.PS, P7.56) Starbucks Corporation (SBUX.OQ, $102.33, OUTPERFORM, TP $114.0) Sysco Corporation (SYY.N, $75.57, OUTPERFORM, TP $85.0) Texas Roadhouse (TXRH.OQ, $80.62, OUTPERFORM, TP $90.0) The Cheesecake Factory (CAKE.OQ, $41.22, NEUTRAL[V], TP $44.0) The Wendy’s Company (WEN.OQ, $21.65, NEUTRAL, TP $25.0) US Foods Holding Corp. (USFD.N, $35.66, OUTPERFORM[V], TP $40.0) Uber (UBER.N, $55.52) Wingstop (WING.OQ, $144.95) Yum! Brands, Inc. (YUM.N, $106.62, NEUTRAL, TP $103.0)

Disclosure Appendix

Analyst Certification

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Bloomin' Brands (BLMN.OQ)

BLMN.OQ Closing Price Target Price

Date (US$) (US$) Rating

23-Jan-18 21.83 20.00 N

23-Feb-18 24.11 23.00

14-Mar-18 23.62 NC

09-Jul-20 9.69 12.00 N *

25-Oct-20 16.26 17.00

* Asterisk signifies initiation or assumption of coverage.

Effective July 3, 2016, NC denotes termination of coverage.

N EU T RA L

N O T CO V ERED

3-Year Price and Rating History for Chipotle Mexican Grill, Inc. (CMG.N)

CMG.N Closing Price Target Price


23-Jan-18 328.71 330.00 N

07-Feb-18 272.21 275.00

19-Feb-18 305.63 290.00

14-Mar-18 319.66 NC

25-Jun-19 733.22 870.00 O *

24-Jul-19 777.96 880.00

23-Oct-19 788.19 930.00

05-Feb-20 854.01 1010.00

13-Apr-20 744.08 900.00

22-Apr-20 882.26 940.00

09-Jul-20 1115.58 1150.00

23-Jul-20 1121.03 1250.00

16-Oct-20 1339.68 1500.00



N EU T RA L

N O T CO V ERED

O U T PERFO RM

3-Year Price and Rating History for Darden Restaurants (DRI.N)

DRI.N Closing Price Target Price


14-Mar-18 94.21 NC

09-Jul-20 71.34 95.00 O *

25-Sep-20 97.17 112.00

21-Dec-20 116.92 136.00



N O T CO V ERED

O U T PERFO RM

3-Year Price and Rating History for Domino’s Pizza Inc. (DPZ.N)

DPZ.N Closing Price Target Price


23-Jan-18 219.57 235.00 O

21-Feb-18 230.53 245.00

14-Mar-18 226.66 NC

25-Jun-19 277.14 320.00 O *

16-Jul-19 246.54 300.00

21-Feb-20 371.96 390.00

31-Mar-20 324.07 380.00

23-Apr-20 369.64 400.00

03-Jun-20 390.14 415.00

17-Jul-20 390.22 445.00



O U T PERFO RM

N O T CO V ERED

3-Year Price and Rating History for Jack in the Box Inc. (JACK.OQ)

JACK.OQ Closing Price Target Price


25-Jun-19 80.34 75.00 U *

08-Aug-19 86.97 78.00

13-Apr-20 43.29 45.00

14-May-20 65.47 54.00

09-Jul-20 74.37 55.00

07-Aug-20 82.04 64.00

20-Nov-20 91.24 74.00

* Asterisk signifies initiation or assumption of coverage. UN D ERPERFO RM

3-Year Price and Rating History for McDonald’s Corporation (MCD.N)

MCD.N Closing Price Target Price


23-Jan-18 176.81 191.00 O

06-Mar-18 151.20 175.00

14-Mar-18 158.24 NC

25-Jun-19 205.71 230.00 O *

29-Jul-19 214.98 236.00

23-Oct-19 199.21 230.00

13-Apr-20 180.12 200.00

17-Jun-20 190.79 210.00

29-Jul-20 196.21 214.00

10-Nov-20 213.32 230.00



O U T PERFO RM

N O T CO V ERED

3-Year Price and Rating History for Papa John’s International, Inc. (PZZA.OQ)

PZZA.OQ Closing Price Target Price


25-Jun-19 42.80 45.00 N *

05-Sep-19 49.44 56.00 O

07-Nov-19 62.58 66.00

27-Feb-20 58.18 71.00

06-May-20 76.90 84.00

01-Jun-20 79.64 90.00

07-Aug-20 98.11 110.00

* Asterisk signifies initiation or assumption of coverage. N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Performance Food Group Company (PFGC.N)

PFGC.N Closing Price Target Price


17-Apr-18 31.20 36.00 O *

09-May-18 35.70 39.00

06-Feb-19 37.88 42.00

01-Jul-19 39.70 R

31-Dec-19 51.48 NR

06-Jan-20 52.36 58.00 O

05-Feb-20 52.60 60.00

31-Mar-20 24.72 46.00

15-Apr-20 24.00 R

16-Apr-20 21.85 46.00 O

20-Apr-20 24.13 39.00

05-Aug-20 30.96 39.00 *

21-Sep-20 35.01 47.00

05-Nov-20 37.50 49.00


O U T PERFO RM

REST RICT ED

N O T RA T ED

3-Year Price and Rating History for Shake Shack (SHAK.N)

SHAK.N Closing Price Target Price


25-Jun-19 66.80 77.00 O *

05-Aug-19 73.34 83.00

24-Feb-20 73.57 76.00

03-Apr-20 33.19 40.00 N

05-May-20 49.22 48.00

31-Jul-20 48.55 52.00

30-Oct-20 67.52 64.00

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Starbucks Corporation (SBUX.OQ)

SBUX.OQ Closing Price Target Price


18-Jan-18 61.09 57.00 N

14-Mar-18 58.83 NC

25-Jun-19 84.25 92.00 O *

26-Jul-19 99.11 105.00

05-Mar-20 76.19 95.00

13-Apr-20 71.76 82.00

30-Oct-20 86.96 92.00

10-Dec-20 105.39 113.00



N EU T RA L

N O T CO V ERED

O U T PERFO RM

3-Year Price and Rating History for Sysco Corporation (SYY.N)

SYY.N Closing Price Target Price


17-Apr-18 62.50 68.00 O *

07-May-18 63.48 70.00

13-Aug-18 72.75 80.00

05-Nov-18 64.56 75.00

06-May-19 72.95 79.00

31-May-19 68.82 76.00

12-Aug-19 72.19 79.00

04-Nov-19 80.81 89.00

03-Feb-20 76.68 84.00

31-Mar-20 45.63 67.00

05-May-20 50.54 63.00

25-Jun-20 55.00 65.00

05-Aug-20 54.99 65.00 *

21-Sep-20 64.05 76.00

04-Nov-20 60.74 80.00


O UT PERFO RM

3-Year Price and Rating History for Texas Roadhouse (TXRH.OQ)

TXRH.OQ Closing Price Target Price


23-Jan-18 59.19 65.00 O

14-Mar-18 58.49 NC

09-Jul-20 48.57 63.00 O *

04-Aug-20 59.68 67.00

29-Oct-20 71.71 75.00



O U T PERFO RM

N O T CO V ERED

3-Year Price and Rating History for The Cheesecake Factory (CAKE.OQ)

CAKE.OQ Closing Price Target Price


09-Jul-20 20.93 24.00 N *

30-Jul-20 25.44 26.00

02-Nov-20 29.91 32.00


N EUT RAL

3-Year Price and Rating History for The Wendy’s Company (WEN.OQ)

WEN.OQ Closing Price Target Price


23-Jan-18 16.81 16.00 N

14-Mar-18 16.99 NC

25-Jun-19 19.47 20.00 N *

07-Aug-19 19.58 21.00

07-Nov-19 20.98 22.00

27-Mar-20 14.07 18.00

06-May-20 20.21 21.00

09-Jun-20 23.04 24.00

05-Nov-20 22.18 25.00



N EU T RA L

N O T CO V ERED

3-Year Price and Rating History for US Foods Holding Corp. (USFD.N)

USFD.N Closing Price Target Price


17-Apr-18 35.03 40.00 O *

30-Jul-18 33.51 37.00

13-Feb-19 35.50 39.00

07-May-19 38.25 42.00

11-Sep-19 41.09 47.00

06-Mar-20 31.30 R

21-Apr-20 17.39 47.00 O

27-Apr-20 20.32 27.00

05-May-20 18.84 23.00

25-Jun-20 19.85 24.00

05-Aug-20 21.95 24.00 *

21-Sep-20 23.68 31.00

03-Nov-20 23.04 35.00


O U T PERFO RM

REST RICT ED

3-Year Price and Rating History for Yum! Brands, Inc. (YUM.N)

YUM.N Closing Price Target Price


23-Jan-18 85.84 90.00 O

14-Mar-18 82.27 NC

25-Jun-19 110.31 106.00 N *

01-Aug-19 116.94 115.00

31-Oct-19 101.71 111.00

13-Apr-20 77.06 79.00

29-Apr-20 87.46 84.00

11-Jun-20 90.67 95.00

31-Jul-20 91.05 99.00

30-Oct-20 93.33 103.00



O U T PERFO RM

N O T CO V ERED

N EU T RA L

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European (excluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst withi n the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the averag e total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds be tween 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all compan ies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 52% (33% banking clients)

Neutral/Hold* 35% (26% banking clients)

Underperform/Sell* 11% (22% banking clients)

Restricted 1%

Please click here to view the MAR quarterly recommendations and investment services report for fundamental research recommendations.

*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): PFGC.N, QSR.N, SBUX.OQ, PIZZA.PS

Credit Suisse provided investment banking services to the subject company (PFGC.N, QSR.N, SBUX.OQ, PIZZA.PS) within the past 12 months.

Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): PFGC.N

Credit Suisse has managed or co-managed a public offering of securities for the subject company (PFGC.N, PIZZA.PS) within the past 12 months.

Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): PFGC.N, SBUX.OQ

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (YUM.N, DPZ.N, PFGC.N, QSR.N, JETJ.L) within the next 3 months.

Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: PFGC.N

Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): BLMN.OQ, CMG.N, DRI.N, DPZ.N, JACK.OQ, JETJ.L, MCD.N, PZZA.OQ, PFGC.N, QSR.N, SHAK.N, PIZZA.PS, SBUX.OQ, SYY.N, TXRH.OQ, CAKE.OQ, WEN.OQ, USFD.N, YUM.N

A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (PFGC.N, QSR.N, SBUX.OQ, PIZZA.PS) within the past 12 months.

As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (JETJ.L).

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Pursuant to CVM Instruction No. 598/2018, of May 3, 2018, the author(s) of the report hereby certify(ies) that the views expressed in this report solely and exclusively reflect the personal opinions of the author(s) and have been prepared independently, including with respect to Credit Suisse. Part of the author(s)´s compensation is based on various factors, including the total revenues of Credit Suisse, but no part of the compensation has been, is, or will be related to the specific recommendations or views expressed in this report. In addition, Credit Suisse declares that: Credit Suisse has provided, and/or may in the future provide investment banking, brokerage, asset management, commercial banking and other financial services to the subject company/companies or its affiliates, for which they have received or may receive customary fees and commissions, and which constituted or may constitute relevant financial or commercial interests in relation to the subject company/companies or the subject securities.

This research report is authored by:

Credit Suisse Securities (USA) LLC .............................................................................................................................................. Lauren Silberman

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