Restaurant Spending Report

ChangeWave Research: Consumer Restaurant Spending

Restaurant Spending Report

Latest ChangeWave Survey Shows Increased Appetite forRestaurants

Mike Wrobel and Paul Carton

Overview:ChangeWave’sDecember Consumer Spending surveyshowed a strong seasonal pickup in overall U.S. consumer spendingled byan uptick in restaurantspending.

This report looks at results fromNovember (n=1,137) and December (n=2,502) ChangeWave surveys that focused on a wide range of consumer dining habits – including which types of restaurant chains have the most and least momentum going forward. ChangeWave Research is a service of 451 Research.

Restaurant Spending Ticks Up

For the second consecutive month we’re seeingan improvement in restaurantspending going forward. One-in-seven consumers (14%) now say they’ll spend more money at restaurants over the next 90 days – up 2-pts fromthe previous month.

Only 28% say they’ll spend less at restaurants going forward, also a 2-pt improvement. However, the combined 11-pt uptick of the past two surveys is slightly less than the improvement seen in the same two months a year ago (2010).

Frequency of Dining Out.Nearly one quarter of respondents (23%) now say they expect to dine out More Frequently over the next 90 days – a 9-pt increase since August. At the same time, only21% say they’ll dine out Less Frequently – also a 9-pt improvement. We again note, however, that this is still below the levels seen a year ago.

Reasons for Dining Out More Frequently: Among the growing number of consumers who expect to dine out More Frequently over the next 90 days, 46% say it’s due to More Special Events. We note that 4% say it’s because the Economy is Improving – a 2-pt improvement from previously – but that’s 6-pts less than last November.

Top Reasons forInflation Top Reason for Dining Out Less. Among those consumers who plan to dine out Less Frequently over the next 90 days, 32% say it’s because they’re Saving More Money (down 1-pt) and 30%because of Reduced Income (up 10-pts).

Note that the percentage citing a General Increase in Cost of Living (29%) is down 7-pts and General Concerns About the Economy (18%) is down 4-pts.

Consumer Willingness to Spend: The average amount respondents are willing to spend per person when dining out has increased since August. Willingness to spend on Dinner out ($19.75) has reached a new high, Lunch out ($9.95) has also increased and Breakfast out ($6.82) has reached a new 2-year high.

Restaurant Categories

When we asked respondents to tell us which types of restaurants they'll be eating out at more or less often over the next 90 days we found an increase in every category – with Upscale/Fine DiningRestaurants (Change in Net Difference Score = +10) and High End Casual Restaurants (+10) showing the most momentum.

Moderate Casual Restaurants (+7) andQuick Casual/Family Restaurants (+7) have also experienced gains, whileFast FoodRestaurants (+4) show the smallest increase.

Individual Restaurant Chains

We asked respondents which individual restaurant chains they'll be spending more vs. less money at over the next 90 days – and compared the results with findings from previous quarterly surveys. Here are the chains with the most momentum going forward:

Looking first at Upscale/Fine Dining Restaurants, Morton’s Steakhouse (-1) shows a 2-pt uptick from previously.

High End Casual Restaurants: We’re also seeing a bounce back for Outback Steakhouse (+5; up5-pts) and Cheesecake Factory (+3; up 5-pts) going forward – both having experienced sharp declines in our previous survey inAugust.

There are also positive signs for Macaroni Grill – which is up 4-pts from previously and almost back to the level seen last November.

Moderate Casual Restaurants: Chili’s (+5) appears positive, up 3-pts after its recent decline in August. We also note that TGI Friday’s (+3) has jumped 4-pts since their previous low in August.

Quick Casual/Family Restaurants:IHOP (+5; up 3-pts) appears to have recovered from last quarter’s fall – as has Panera Bread (+12; up 4-pts).

Fast FoodRestaurants: We’re seeing a 4-pt improvement for McDonalds (+9) going forward – back to the levels seen in the spring, and 2-pts better than a year ago (Nov 2010).

Wendy’s(+7) is also up 4-pts from since August and 1-pt higher than last year.

Coffee Buying Trends

More than one-in-four respondents (28%) say they typically buy fresh brewed coffee from a coffee shop or restaurant, and 12% of this group says they’ll spend More Money at coffee shops over the next 90 days – a 3-pt increase since August. Another 19% say they’ll spend Less Money – a 6-pt improvement from previously.

Looking at specific coffee shops, Starbucks (0) has made a major comeback – up 10-pts to a new high in a ChangeWave survey.

Meanwhile, McDonald’s (+3) is also staging a recovery in the coffee market - up 6-pts from recent lows and now higher than a year ago (Nov 2010).

Coffee Brewed at Home:Starbucks (27%; up 1-pt) remains the top 'brew at home' coffee brand. Folgers (17%; up 3-pts) and Maxwell House (17%; up4-pts) are tied for second place.

On the downside,Peet’s has fallen 4-ptsin the “brew at home” market since August, whileSeattle's Best (4%) has fallen 3-pts.

Single-Serve & Instant Coffee: Over the past 6 months,we’ve seen a rise inthe percentage of respondents purchasing Single-Serve coffee (20%) such as Pods, T-Discs and K-cups – up 2-pts in the current survey and now tied with the all-time high reached back in Feb 2010.

At the same time, purchases oftraditional Ground or Whole Bean coffee (78%) are up 6-pts– although Instant coffee purchases (16%), such as VIA or Nescafé, have fallen 1-pt.

Brands of Single-Serve & Instant Coffee:Green Mountain (31%) has experienced a huge 8-pt jump among those purchasingSingle Serve/Instant coffee – and is now at its highest levelever in a ChangeWave survey. Moreover, Keurig (28%; owned by Green Mountain) and Newman’s Own (19%; partnered with Green Mountain) have also experienced 8-pt jumps.

While Starbucks K-Cups (brewed in Keurig coffee machines) is up 2-pts, on the downside Nescafé (15%; down 6-pts) and Starbucks VIA (10%; down 4-pts) have both experienced declines since August.

Bottom Line.As the overallconsumer spending environment experiences modest improvement, restaurants are gaining more favor among consumers. While much of this relates to the holiday season, the latest ChangeWave survey shows a more upbeat restaurant spending environment for the New Year.

Higher-end restaurants have recovered the fastest since the previous survey, while Fast Food is improving more slowly.

Two companies stand out from the rest of the competition in the coffee market:

Starbucks has not only recovered from their previous survey downturn, but they’ve reached an all-time high in the latest ChangeWave survey.

In the brew-at-home coffee market, Green Mountain – along with its KeurigK-cup brand – is chugging on all cylinders, bolstered by its partnerships with other momentumcoffee producers such as Starbucks and Newman’s Own.

Summary of Key Findings

The ChangeWave Research Networkis a group of 25,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Table of Contents

Summary of Key Findings...... 8

The Findings...... 10

(A) Overall Restaurant Spending Trends...... 10

(B) Restaurant Categories...... 14

(D) Coffee Buying Trends...... 17

ChangeWave Research Methodology...... 21

About ChangeWave Research...... 21

I. The Findings

Introduction: ChangeWave’sDecember Consumer Spending surveyshowed a strong seasonal pickup in overall U.S. consumer spendingled byan uptick in restaurant spending.

(A) Overall Restaurant Spending Trends

Restaurant Spending Ticks Up. For the second consecutive month we’re seeing an improvement in restaurant spending going forward. One-in-seven consumers (14%) now say they’ll spend more money at restaurants over the next 90 days – up 2-pts from previously.

Will you be dining at restaurants more frequently, less frequently, or about the same amount over the next 90 days as you did during the previous 90 days?

Current Survey Nov ‘11 / Previous
Survey
Aug ‘11 / Previous
Survey
Nov’10 / Previous
Survey
Aug’10 / Previous Survey
Nov ‘09 / Previous Survey
Aug ‘09
More Frequently Than Previous 90 Days / 23% / 14% / 27% / 17% / 21% / 12%
Less Frequently Than Previous 90 Days / 21% / 30% / 18% / 25% / 20% / 26%
Same Amount as Previous 90 Days / 56% / 54% / 54% / 57% / 57% / 59%
Don't Know / 1% / 1% / 1% / 1% / 1% / 2%

Frequency of Dining Out.Nearly one quarter of respondents (23%) now say they expect to dine out More Frequently over the next 90 days – a 9-pt increase since August. At the same time, only21% say they’ll dine out Less Frequently – also a 9-pt improvement. We again note, however, that this is still below the levels seen a year ago.

For those who will be dining at restaurants more frequently over the next 90 days, what are the primary reasons why? (Choose No More Than Three)

Current Survey Nov ‘11 / Previous
Survey
Aug ‘11 / Previous
Survey
Nov’10 / Previous
Survey
Aug’10 / Previous Survey
Nov ‘09 / Previous
Survey
Aug ‘09
More Special Events / 46% / 25% / 48% / 27% / 43% / 22%
Traveling More / 44% / 58% / 43% / 50% / 43% / 52%
Less Time to Cook at Home / 23% / 23% / 23% / 23% / 25% / 25%
Restaurants Offering Better Value / 15% / 12% / 19% / 27% / 20% / 26%
Increased Income / 7% / 10% / 9% / 12% / 10% / 9%
Not Trying to Save as Much Money / 6% / 5% / 10% / 8% / 5% / 10%
Increased Entertainment Budget / 5% / 6% / 6% / 6% / 7% / 6%
Less Concern About Job Security / 5% / 5% / 7% / 7% / 4% / 8%
Economy is Improving / 4% / 2% / 10% / 6% / 11% / 11%
General Decrease in Cost of Living / 1% / 1% / 1% / 1% / 2% / 2%
Other / 14% / 11% / 10% / 13% / 9% / 9%

Reasons for Dining Out More Frequently:Among the growing number of consumers who expect to dine out More Frequently over the next 90 days, 46% say it’s due to More Special Events. We note that 4% say it’s because the Economy is Improving – a 2-pt improvement from previously – but that’s 6-pts less than last November.

And for those who will be dining at restaurants less frequently over the next 90 days, what are the primary reasons why? (Choose No More Than Three)

Current Survey Nov ‘11 / Previous
Survey
Aug ‘11 / Previous
Survey
Nov’10 / Previous
Survey
Aug’10 / Previous
Survey
Nov ‘09 / Previous
Survey
Aug ‘09
Saving More Money / 32% / 33% / 32% / 31% / 32% / 36%
Reduced Income / 30% / 20% / 35% / 26% / 36% / 32%
General Increase in Cost of Living / 29% / 36% / 30% / 21% / 25% / 25%
Rising Food Costs / 22% / 18% / 15% / 8% / 11% / 9%
Reducing Debt / 21% / 20% / 25% / 31% / 32% / 30%
General Concerns About the Economy / 18% / 22% / NA / NA / NA / NA
Restaurants are Too Expensive / 17% / 15% / 15% / 18% / 18% / 18%
Traveling Less / 13% / 18% / 15% / 19% / 15% / 19%
Higher Energy Costs / 9% / 8% / 8% / 6% / 8% / 5%
Recent Purchase of Big Ticket Item(s) / 9% / 6% / 4% / 10% / 4% / 8%
Job Security Concerns / 6% / 5% / 9% / 8% / 12% / 8%
Investing More Money / 3% / 7% / 6% / 6% / 4% / 6%
Other / 11% / 9% / 12% / 15% / 13% / 10%

Top Reasons forInflation Top Reason for Dining Out Less. Among those consumers who plan to dine out Less Frequently over the next 90 days, 32% say it’s because they’re Saving More Money (down 1-pt) and 30%because of Reduced Income (up 10-pts).

Note that the percentage citing a General Increase in Cost of Living (29%) is down 7-pts and General Concerns About the Economy (18%) is down 4-pts.

For each of the following meals, please estimate the average amount you and/or your family are currently willing to spend per person while eating out at restaurants.

Breakfast / Lunch / Dinner
$3 or Less Per Person / 7% / 1% / 0%
$4-5 Per Person / 22% / 8% / 1%
$6-8 Per Person / 31% / 27% / 2%
$9-11 Per Person / 14% / 29% / 10%
$12-15 Per Person / 4% / 18% / 20%
$16-20 Per Person / 1% / 5% / 22%
$21-25 Per Person / 0% / 2% / 16%
$26-30 Per Person / 0% / 0% / 11%
More Than $30 Per Person / 0% / 0% / 12%
None/Don't Eat This Meal Out / 10% / 2% / 1%
Don't Know /NA / 11% / 7% / 5%
Consensus Estimate: / $6.82 / $9.95 / $19.75

Consumer Willingness to Spend: The average amount respondents are willing to spend per person when dining out has increased since August. Willingness to spend on Dinner out ($19.75) has reached a new high, Lunch out ($9.95) has also increased and Breakfast out ($6.82) has reached a new 2-year high.

(B) Restaurants Categories

Change in Net Difference Score – Current Survey (Nov 2011) vs. Previous Survey (Aug 2011)

Current Survey Net
Difference
Score
(Nov '11) / Previous Survey Net
Difference
Score
(Aug '11) / Change in Net Difference Score
(a) Upscale/Fine Dining Restaurants – $25 or More Average Per Person (e.g., Ruth's Chris Steakhouse, Morton's) / -16 / -26 / +10
(b) High End Casual Restaurants – $16-25 Average Per Person (e.g., Outback Steakhouse, Cheesecake Factory) / -9 / -19 / +10
(c) Moderate Casual Dining Restaurants – $11-15 Average Per Person (e.g., Chili's, Applebee's, California Pizza Kitchen) / +2 / -5 / +7
(d) Quick Casual/Family Restaurants – $6-10 Average Per Person (e.g., Panera Bread, Corner Bakery, Chipotle, Friendly's) / +5 / -2 / +7
(e) Fast Food Restaurants – $5 or Less Average Per Person (e.g., McDonald's, Wendy's, Taco Bell) / -4 / -8 / +4

Moderate Casual Restaurants (+7) andQuick Casual/Family Restaurants (+7) have also experienced gains, whileFast FoodRestaurants (+4) show the smallest increase.

Looking first at Upscale/Fine Dining Restaurants, Morton’s Steakhouse (-1) shows a 2-pt uptick from previously.

High End Casual Restaurants: We’re also seeing a bounce back for Outback Steakhouse (+5; up5-pts) and Cheesecake Factory (+3; up 5-pts) going forward – both having experienced sharp declines in our previous survey inAugust.

There are also positive signs for Macaroni Grill – which is up 4-pts from previously and almost back to the level seen last November.

Moderate Casual Restaurants:Chili’s (+5) appears positive, up 3-pts after its recent decline in August. We also note that TGI Friday’s (+3) has jumped 4-pts since their previous low in August.

Quick Casual/Family Restaurants:IHOP (+5; up 3-pts) appears to have recovered from last quarter’s fall – as has Panera Bread (+12; up 4-pts).

Fast FoodRestaurants: We’re seeing a 4-pt improvement for McDonalds (+9) going forward – back to the levels seen in the spring, and 2-pts better than a year ago (Nov 2010).

Wendy’s(+7) is also up 4-pts from since August and 1-pt higher than last year.

(D) Coffee BuyingTrends

Do you typically buy fresh brewed coffee from a restaurant or coffee shop (including cappuccinos, frappucinos, latte's, and/or iced coffees)?

Current Survey Nov ‘11
Yes / 28%
No / 72%

More than one-in-four respondents (28%) say they typically buy fresh brewed coffee from a coffee shop or restaurant.

Overall, do you think you'll spend more money at coffee shops over the next 90 days, less money, or about the same amount compared to the previous 90 days?

Current Survey Nov ‘11 / Previous Survey
Aug ‘11 / Previous
Survey
May ‘11
More Money / 12% / 9% / 12%
Less Money / 19% / 25% / 19%
About the Same / 65% / 63% / 67%
Don't Know/NA / 4% / 3% / 2%

Coffee Spending – Next 90 Days:Currently, 12% of this group says they’ll spend More Money at coffee shops over the next 90 days – a 3-pt increase since August. Another 19% say they’ll spend Less Money – a 6-pt improvement from previously.

We want to learn more about where you will be purchasing fresh brewed coffee over the next 90 days. For each of the following places, please tell us if you plan to purchase coffee more often, about the same amount, or less often over the next 90 days compared with the previous 90 days.

More
Often / About
the
Same / Less
Often / Current Survey Net
Difference
Score (Nov '11) / Previous Survey Net
Difference
Score (Aug '11) / Change
in Net Difference
Score / Will Not
Purchase
Coffee Here/NA
Starbucks / 11% / 46% / 11% / 0 / -10 / +10 / 33%
McDonald's / 9% / 38% / 6% / +3 / -3 / +6 / 47%
Local Coffee Shops / 6% / 43% / 4% / +2 / -2 / +4 / 47%
Barnes & Noble / 1% / 15% / 4% / -3 / -6 / +3 / 80%
Dunkin' Donuts / 4% / 23% / 6% / -2 / -5 / +3 / 67%
Panera Bread / 3% / 19% / 5% / -2 / -4 / +2 / 73%
Brewing Coffee at Home / 30% / 51% / 3% / +27 / +25 / +2 / 16%
Seattle's Best / 1% / 14% / 2% / -1 / -2 / +1 / 83%
The Coffee Bean / 0% / 8% / 1% / -1 / -2 / +1 / 91%
Tim Hortons / 2% / 10% / 1% / +1 / 0 / +1 / 87%
Local Convenience Stores (e.g., Wa-Wa, 7-Eleven) / 2% / 24% / 5% / -3 / -4 / +1 / 68%
Caribou Coffee / 1% / 7% / 2% / -1 / -1 / 0 / 90%
Peet's / 2% / 10% / 2% / 0 / 0 / 0 / 86%
Krispy Kreme / 0% / 4% / 2% / -2 / -1 / -1 / 95%

Looking at specific coffee shops, Starbucks (0) has made a major comeback – up 10-pts to a new high in a ChangeWave survey.

Meanwhile, McDonald’s (+3) is also staging a recovery in the coffee market - up 6-pts from recent lows and now higher than a year ago (Nov 2010). Here’s a closer look at coffee spending trends at McDonald’s:

Over the next 90 days, which of the following brands of coffee - if any - do you plan on purchasing to brew at home? (Check All That Apply)

Current Survey Nov ‘11 / Previous Survey
Aug ‘11 / Previous
Survey
Nov ‘10 / Previous
Survey
Aug ‘10 / Previous
Survey
Nov ‘09 / Previous
Survey
Aug ‘09
Starbucks / 27% / 26% / 28% / 23% / 27% / 22%
Folgers / 17% / 14% / 19% / 20% / 20% / 19%
Maxwell House / 17% / 13% / 15% / 17% / 9% / 16%
Dunkin' Donuts / 11% / 9% / 8% / 15% / NA / NA
Green Mountain / 10% / 8% / 11% / 4% / 10% / 6%
Kirkland (Costco Brand) / 10% / 14% / 9% / 15% / 12% / 10%
Eight O'clock / 8% / 5% / 5% / 9% / 8% / 6%
Kona / 7% / 4% / 4% / 5% / 5% / 7%
Trader Joe's / 7% / 7% / 7% / 7% / 8% / 7%
Member's Mark (Sam's Club Brand) / 5% / 3% / NA / NA / NA / NA
Millstone / 5% / 3% / NA / NA / NA / NA
Peet's / 5% / 9% / 6% / 6% / 6% / 8%
Nescafé (Taster's Choice) / 4% / 5% / 5% / 3% / 6% / 4%
Newman's Own / 4% / 5% / 3% / 2% / 4% / 2%
Seattle's Best / 4% / 7% / NA / NA / NA / NA
Gevalia / 2% / 3% / 6% / 4% / 4% / 3%
Allegro (Whole Foods Brand) / 1% / 2% / NA / NA / NA / NA
Do Not Brew Coffee At Home / 4% / 7% / 4% / 4% / 4% / 3%
Other / 21% / 19% / 21% / 21% / 25% / 26%

Coffee Brewed at Home:Starbucks (27%; up 1-pt) remains the top 'brew at home' coffee brand. Folgers (17%; up 3-pts) and Maxwell House (17%; up4-pts) are tied for second place.