NFPI Trends. February 28, 2011

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1 NFPI Trends February 28, 2011

2 Frugality Fatigue? Is the Consumer Spend Changing?

Consumer Spend Changing CONSUMER SPEND Spend since holiday remains elevated, may help reduce unemployment to 9% in 11. Libya Recession blues again?

3 Consumer Spend Changing CONSUMER SPEND Spend since holiday remains elevated, may help reduce unemployment to 9% in 11. Libya Recession blues again? WOMEN MEN MEN VS. WOMEN Men hit hardest by recession. New targeting opportunities result as women are eating out more and men are becoming key shopping decision makers.

EMPLOYMENT BY GENDER (1,000 S) WOMEN RETURNING TO RESTAURANTS Increased visits while men cut back Now spend

4 The Consumer Targets Have Flipped MORE MEN LOST JOBS 69% of the jobs lost Heavy losses in construction & traditionally male dominated fields. Only regained 17% of these jobs - many may be gone forever. EMPLOYMENT BY GENDER (1,000 S) WOMEN RETURNING TO RESTAURANTS Increased visits while men cut back Now spend more in restaurants than men Foods seeing servings increase Chicken Entrée Salad Breakfast Sandwiches PCYA TOTAL $ BY GENDER

Men Hit Harder By Great Recession Employment by Gender (1,000 s) The unemployment gender gap has been caused by the high deterioration of male-dominated industries like

5 Men Hit Harder By Great Recession Employment by Gender (1,000 s) The unemployment gender gap has been caused by the high deterioration of male-dominated industries like manufacturing & construction during the current recession, decreasing household wealth, and tightening credit. The Unemployment Gender Gap During the Current Recession, NY FED; BLS

Interesting Trend Has Developed Women have long

returning to restaurants while men still cutting

By Gender And now spend more in restaurants than

6 Interesting Trend Has Developed Women have long led restaurant traffic Since YE Oct 09 women returning to restaurants while men still cutting back PCYA Total Traffic by Gender Total Dollars By Gender And now spend more in restaurants than men for the first time this decade NPD CREST YE Oct 2010

Traffic by Gender PCYA QSR Major Chain Traffic by Gender QSR MAJOR CHAINS = BIG WINNERS

7 Has Taken Off Last 3 Qtrs - QSR Benefiting Most. RESTAURANT TRAFFIC FLAT LAST QTR BUT... Women increased visits at Total Restaurants +5% Major Chains +8% QSR +6% FSR +2% QSR Traffic by Gender PCYA QSR Major Chain Traffic by Gender QSR MAJOR CHAINS = BIG WINNERS Traffic increased +3% Driven by +9% increase in visits by women. Visits by men decreased -3% NPD CREST YE Oct 2010

8 The Pizza Marketplace Today

More People Consuming Frozen Pizza Regularly 40% % Individuals Consuming Frozen Pizza at Least 1X in 2 Weeks 09/10 35% 30% 25% 20% 15% 10% 5% 0% Consumers are eating more frozen pizza but

9 More People Consuming Frozen Pizza Regularly 40% % Individuals Consuming Frozen Pizza at Least 1X in 2 Weeks 09/10 35% 30% 25% 20% 15% 10% 5% 0% Consumers are eating more frozen pizza but they are not brand loyal! Trend in Per Capita Frozen Pizza Consumption Increasing too

10 But Some Eating Less Frozen Pizza 37% Does Not Taste As Good 30% To Save Money 33% For Health Reasons Source: Technomic Pizza Report March 2010

11 QSR Pizza Comeback Driven By Top 4 Dealing ON DEAL SERVINGS At the Top 4 Pizza Chains increased +20% in 10 to 888MM. Their pizza deal rate 7.9% higher than the industry NPD CREST YE Sep 2010

00 $6.00 In Casual Dine consumers may view pizza as way to have a quality experience for a lower price. $4.00 $2.

12 Even with Deals QSR Pizza is Still More Expensive than Other QSR Options Average Eater Check in the Pizza segment is higher across QSR landscape. $14.00 $12.00 $10.00 Average Eater Check Competing on price alone is not the long term answer $8.00 $6.00 In Casual Dine consumers may view pizza as way to have a quality experience for a lower price. $4.00 $2.00 Total QSR Segment Major QSR Chains Total Industry Small QSR Chains Pizza QSR Independents FSR Casual Dining Group NPD CREST YE Sep 2010

QSR Pizza Servings Increasing MAJOR QSR PIZZA CHAINS SOLD 106 MILLION MORE PIZZAS

flat, but has improved Papa John s has lagged behind A serving of pizza is consumer

Consumers are asked if they had food away from home the previous day, what it was &

13 QSR Pizza Servings Increasing MAJOR QSR PIZZA CHAINS SOLD 106 MILLION MORE PIZZAS IN 2010 Domino s increased servings in each of the 4 quarters Pizza Hut started flat, but has improved Papa John s has lagged behind A serving of pizza is consumer reported. It may be any size or portion of a pizza. Consumers are asked if they had food away from home the previous day, what it was & where they got it. If they respond they had pizza then it is tabulated as a pizza serving. Source NPD-CREST YE Nov 10

Pizza Servings Improve, While Servings of Protein Toppings Decline TRADITIONAL

Pepperoni Reigns King but is down Chicken servings have increased Non-Protein

Total Servings Pizza (excluding Major Chains) Total Servings of Protein Toppings

14 Pizza Servings Improve, While Servings of Protein Toppings Decline TRADITIONAL TOPPINGS DOWN? Pepperoni Reigns King but is down Chicken servings have increased Non-Protein Toppings are slightly up No Additional Toppings, Just Cheese largest increase PCYA Total Servings Pizza (excluding Major Chains) Total Servings of Protein Toppings (excluding Major Chains) Consumers asked, What toppings were on your pizza?, so 1 serving of pizza will generate multiple servings of toppings. Source NPD-CREST YE Nov 10

TOP 4 CHAINS ARE CHANGING THE DEAL The $10

15 Why Are Meat Protein Toppings Down? WOMEN S QSR PIZZA SERVINGS +10% Women are eating more pizza out. Chicken as a topping is on the rise. TOP 4 CHAINS ARE CHANGING THE DEAL The $10 pizza has morphed. Now chains are offering price driven deal with a limit of 3 toppings.

16 Consumers Still Interested in New Toppings OPPORTUNITY FOR INNOVATION Consumers want new or innovative pizza sauces and meat toppings

17 The Popularity of Independent Pizza Restaurants Please tell us whether any of the following are your favorite pizza restaurant? Popularity of Independent Pizza restaurants ranks second only to Pizza Hut. 27% 22% 14% 11% 5% 3% Source: Mintel Oxygen Pizza Report 10/10

18 Value - Not Deep Discounting

19 new value = Cheap Unique Smart Bundling & Combos Limited Time Align Offerings With Target Consumer s Idea of Value & Meaning They Derive From Purchases Beyond price Lot of food Worth it Brand experience

20 Don t Discount Premium & Check Builders

21 ultra premium Stand apart from the clutter with a more premium pizza. Despite that QSR pizza is touting lower prices right now, retail pizza is still cheaper especially when you consider the delivery fee, tips, and add-on s Room to go more premium? How important in creating a good pizza? 51% Premium Cheese 46% Premium Meat 42% Premium non-meats

22 old world italian Combine classic old world Italian ingredients and unique regional Italian pizza ingredients or cues adds credibility for quality Q Q Q Q Italian Sicilian Sicilian-Style Neapolitan-Style Greek Tuscan

23 Growing Beyond Pizza CONSUMERS ORDER Appetizers (42%) & side items (50%) of the time when ordering pizza from a restaurant Source: Technomic Pizza Consumer Trend Report 2010

24 Women & Men

25 working women Promotions & LTOs targeted to women will be an effective way for restaurants to increase their traffic & sales in PROMOTE: -Single serve pizzas -Small bites / Right size menu items -Emphasize health -Ingredients with health halo - chicken

26 Female Appeal Cater Bluntly to Women Healthy, Health Halo, Lighter Diet aware, but doesn t influence decision to eat pizza Will splurge, then make up with other meals But more important with age New & Unique Shaped Pizzas Smaller portions, by the slice Variety Cheeses, meats, veggies Tomato sauce still preferred but perhaps garlic or pesto? Stuffed Crust Build My Own Remember when Harry Met Sally? ½ & ½ Compromise Domino s. Cali Chicken Bacon Ranch, Vegi Feast Papa John s. Grilled Chicken Club, Tuscan 6 Cheese, Garden Fresh. Papa Murphy's. DeLITE Crust Surprise! She s Price $$ Conscious. Coupons & promotions play a strong role in pizza purchasing decisions especially with young females

man of the house Men suffered decreased employment & earnings.

Trading down likely Men becoming the shopping decision makers

Traditionally targets via manly combinations & bulk value

27 man of the house Men suffered decreased employment & earnings. Many forced to change industries to find a job. Trading down likely Men becoming the shopping decision makers PROMOTE: -Fast Follow QSR. Traditionally targets via manly combinations & bulk value -Emphasize gut fill, meaty trading out Typically the heaviest restaurant & QSR user, young adults continue to cut back the most on eating out.

28 Manly Combinations Cater Bluntly to Men Like QSR No diets allowed - The Indulgent Eater Value in bulk. Means lots of SPICY! Savory vs. Sweet Quantity Over Variety Specialty Meaty Pizzas The Works, Everything Multiple Meats & Meat Lovers A Little Non-Traditional, Especially Sauce Familiarity with variety of different wing sauces Perhaps BBQ, Buffalo, Garlic Parmesan? Game Day Domino s. MeatZZa OR Bacon Cheeseburger Feast Pizza Hut. Pepperoni Lover s, Spicy Sicilian Papa John s. The Works, BBQ Chicken & Bacon Extreme Manly. He-Man.

29 Transparency

30 transparency trends New labeling standards in restaurants may provide an opportunity to advertise better retail nutritionals Whole Foods color codes & rates sustainably raised seafood Bold against the herd strategies

31 Health Matters. No It Doesn t. Yes It Does. No?

32 the halo effect Pizza can be a Healthy Indulgence Simple ingredients seem better for you Other ingredients carry a natural halo

33 Consumer Targets Overlooked?

34 Source: Mintel Target New Pizza Consumers RESTAURANT PIZZA FROZEN PIZZA TAKE N BAKE TAKE OUT USERS DELIVERY USERS DINE-IN USERS USERS Families & younger audiences Presence of kids = increased usage & frequency Kids in household Under-25 s 81% HH with kids; 4.5 pizzas a month Higher income households 71% HH with NO kids; 3.5 pizzas a month Targets time pressed middle class families Located in suburban neighborhoods 3 of 5 take it to go. Most frequent purchase method; 1.17x a month Dad s emerge as highest frequency users Hispanic families, tend to be larger Men < 35 highest frequency users, with 27% dining in 3X+ a month Working/Single Parents, Affluent/Limited Income Families, Younger males Consumers tend not to be brand loyal Bulk of pizza consumers eat, followed by carryout (50%), & delivery (44%) Take out only Not as kid focused Under-35s, who represent the pizza restaurant market s core users, are the most likely users of pizza from other sources as well. As a result, they are typically not brand loyal

35 mature palates wanted Empty Nesters overlooked? Keep Options Simple - American Flavors - Retro - Classics - Homemade Appeal - Timeless - Flavorful options with an eye toward dietary constraints - Clean ingredient lines

36 Think Outside the Freezer Case

37 its not delivery or takeout or is it? Give frozen pizza a fresh restaurant appeal - Simple White or Kraft Brown Box like delivery - Prepared By or On - Picked On (applies to vegetables) - Chef Approved

38 keeping up with tech Use Technology To Your Advantage It s About Communicating With Consumers iphone Apps Touch CPK Snacking Shipped On Demand Source: Tyson Strategic Opportunity Platforms 2011

39 Less IS More

40 1-2 Toppings Preferred The Classics Done Well! Pick Star, Hero Ingredients Build my pizza w/ 1-2 toppings Build my pizza w/ 3-5 toppings Order Specialty/no subs Build my pizza w/ 5+ toppings Order Specialty w/subs 45% 33% 8% 8% 6% Source: Technomic Pizza Consumer Trend Report 2010

41 Pizza Trend Curve & Classic Toppings Refresh

42 Pizza Toppings Trend Curve Specialty Sausage: Duck, Soy, Chicken, Andouille, Linguica Prosciutto, Often Di Parma Sauce: Creole, Curry, Thai, Peanut, Roasted Red Pepper, Vodka, Rosa, & Chipotle Turkey Seafood: Scallops, Mussels, Mahi Mahi, Tuna Rosemary, Thyme Fruit: Apples, Pears Chilean Tomatoes Capers Avocado Nuts: Almonds, Walnuts, Pine Nuts Fresh Onion Callouts: Yellow, Sweet, Spanish, Cipollini Vegetables: Baby, Cauliflower, Potato, Wild Mushrooms, Crimini Mushrooms, Sauerkraut Multi Grain Crusts Cajun, Caribbean Chiles: Anaheim, Serrano, Mild Green Cheese: Havarti, Pecorino Romano, Gouda, Buffalo Mozzarella Buffalo Sauce Arugula Zucchini Capicolla Pancetta Spinach Chorizo Sour Cream Salsa Portobello Mushrooms Kalamata Olives Mediterranean Greek Taco Crusts: Multi-grain, Whole Grain, Flatbread, Cornmeal Cheese: Blue, Fontina, Goat, Soy, Romano, Gorgonzola, Jack Sauces: Garlic, White, Marinara, Ranch, Taco Green Onion Pepperoncini Hot Peppers Lettuce Shrimp Eggplant Oregano Cilantro Margherita Dessert Pizza: Cookie, Fruit Whole Wheat Crust Cheese: Fresh Mozzarella, Ricotta Pepperoni Beef: Ground, Meatball Pork: Bacon, Ham, Canadian Bacon Sausage/Italian Sausage Salami Chicken Anchovy Tomato/Roma Tomatoes Onion, Red Onion Vegetables: Mushrooms, Olives Black/Green, Artichoke/Artichoke Hearts Broccoli Basil Pineapple Garlic Spinach Peppers: Red, Bell, Banana, Green, Jalapeno Sauces: Tomato, Alfredo, BBQ, Pesto Olive Oil/Sauce Cheese: Mozzarella, Cheddar, Parmesan, Provolone, Feta Source: Mintel Menu Insights Q3 2010; Noble Insights 2010

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