The fast casual restaurant segment remains the top performer in the restaurant sector, and will continue to lead activity and change. The segment, typified by the likes of Chipotle, Noodles & Company and Zoe’s Kitchen, is providing offerings that are consistent with a number of important consumer dining trends. Despite charging higher prices than many quick serve restaurants, fast casual chains receive high marks from customers from a value point of view. Bob Bielinski, Managing Director of the Restaurant Industry Practice for CIT Corporate Finance, offers his views and analysis on issues, trends and opportunities impacting the restaurant industry.

1. 1
Q&A
© 2014 CIT Group Inc.
CIT Executive Insights
Video Series
What’s hot and what’s not in the restaurant sector?
Bob Bielinski: The fast casual segment continues to be the top
performer in the restaurant sector today. Industry leader Chipotle
has posted some very strong sales this year, and we’ve also seen a
number of growth companies go public, such as Zoe’s Kitchen, Potbelly
Sandwich Works, and Noodles & Company. In addition, the upscale
chains are doing very well with consistent sales across all the brands
as high-end consumers come back to the market. In casual dining, it’s
a little bit more mixed, but Buffalo Wild Wings is really doing a great
job. Their sales are strong, and they have an offering that resonates
with their core customers. However, if you look at traditional casual and
family dining, they continue to struggle. Same store sales have ranged
from a couple of points up to a couple of points down, but traffic trends
are pretty weak.
Are fast casual dining chains rewriting the rules in the restaurant
sector?
Bielinski: Fast casual chains really are rewriting the rules in the
restaurant industry today. These chains are continuing to grow because
they’re better at meeting consumer needs. Their offerings are consistent
with a number of important consumer trends: customization, food
quality, and a comfortable environment. People want to be in a relaxed,
comfortable environment when they dine. Sometimes fast casual chains
have higher prices, but customers still rate them very high from a value
point of view. You also get to control your dining experience; how
long you dine is up to you in a fast casual chain. However, quick serve
and casual dining restaurants are reacting. They’re remodeling their
restaurants; they’re improving the quality of their food and are working
on their value proposition. They’re even experimenting with technology
to improve the customer experience.
How is technology impacting the restaurant sector?
Bielinski: Social media and restaurant review sites have had a
dramatic impact on the restaurant industry. Operators and customers
communicate in ways that we never thought possible. Customers
communicate with each other, by sharing information through a variety
of websites and apps. The internet’s now a key tool for choosing new
restaurants. Consumers rely on online reviews and recommendations
Now Serving Growth in the
Restaurant Sector
Bob Bielinski
Managing Director and
Head of the Restaurant
Industry Practice for
CIT Corporate Finance
Edited transcript: View video at cit.com/bielinski
“The fast casual
segment continues
to be the top
performer in the
restaurant industry
today.”
“Franchisee
consolidation is
going to continue
at a rapid pace.”

2. 2© 2014 CIT Group Inc. 2© 2014 CIT Group Inc.
from friends. Technology’s long been a part of back of the house
operations at a restaurant, but as consumers get more comfortable
with technology, there are new uses emerging in the front of the house.
Pizza chains have really led the charge with mobile ordering apps and I’d
expect increased adoption with other quick serve restaurant chains. In
casual dining, they’ve rolled out tablets for each table so customers use
them for ordering, they play games and get entertainment while they’re
waiting for their meal, and at the end pay their check.
What are your views on the future of franchisee consolidation?
Bielinski: Franchisee consolidation is going to continue at a rapid pace
because many franchisees are aging and they are looking forward to
retirement. You’ve got well capitalized franchisees that are acquiring
stores to achieve greater scale, but you also have smaller franchisees that
are out there looking for complementary geographies. The big domestic
chains continue to sell their corporate stores. It seems as though as soon
as one refranchising program is completed another one is announced.
All mergers and acquisitions are fueled by equity and debt markets that
are eager to finance these transactions. Private equity firms have shown
they’re very interested in backing large franchisees and franchisees are
enjoying some of the lowest interest rates and best terms on debt that
they’ve ever enjoyed. As a result, I think there’s more franchisee deals to
come.
What’s your outlook for M&A activity over the next 12 months?
Bielinski: This year has been a very solid year for M&A activity. Valuation
multiples have remained strong. There were a number of headline deals:
Burger King acquired Tim Horton’s, and TGI Fridays and Red Lobster
were both divested by their corporate parents. Chuck E. Cheese, also
went private. In addition, franchisee consolidation continued at a rapid
pace, and there were a handful of IPOs this year: Dave & Buster’s, El
Pollo Loco, Papa Murphy’s, and Zoe’s Kitchen all went public. This M&A
market is fueled by equity and debt providers that are eager to finance
transactions. Looking forward, as private equity firms look to divest the
companies they bought in the 2010/2011 boom, I think activity is going
to accelerate. In 2015, if the capital markets are strong and the economy
continues to improve, I think it’s going to be another good year for M&A.
How do you view IPOs in the sector?
Bielinski: The IPO market has been very strong for restaurant companies
and the market is now accepting smaller chains, especially fast casual
chains and growth chains. For private equity firms, the IPO market is a
very attractive divestiture option. So you’ve seen a number of these firms
go public this year. In 2014 alone, you’ve seen Dave and Busters, El Pollo
Loco, Papa Murphy’s and Zoë’s Kitchen. In addition, there have been a
number of companies that have already filed registration statements
with the SEC to go public. The IPO market continues to look strong.
However, one caution is that these newly public companies often come
with high expectations. If a company misses its numbers, its stock price
can get punished.
CIT Executive Spotlight with Bob Bielinski
Now Serving Growth in the Restaurant Sector
2© 2014 CIT Group Inc.
“This year has been
a very solid year for
M&A activity.”
“In 2015, if the
capital markets
are strong and the
economy continues
to improve, I think
it’s going to be
another good year
for M&A.”
“Private equity has
shown very strong
interest in the
restaurant business
for the last several
years.”

3. 3© 2014 CIT Group Inc.
How active is private equity in the sector?
Bielinski: Private equity has shown very strong interest in the restaurant
business for the last several years. They’re seeking companies not only
for growth potential, but they’re also interested in businesses that have
need of operational improvement. In 2014, casual dining giants TGI
Fridays and Red Lobster were acquired, and burger chain Checkers and
Rally’s, the Chicago-based chain Portillo’s, and Chuck E. Cheese, are all
now owned by private equity. Interestingly, private equity’s now taken
an interest in smaller emerging brands, especially fast casual chains.
Newk’s, Protein Bar, Piada, Veggie Grill, and Mendocino Farms have all
received investments from private equity. Private equity firms understand
the sector, they know how to grow these businesses, they know how to
improve margins, and if the debt markets continue to support M&A in the
restaurant sector, then private equity is going to continue to invest.
Has post-crisis financial regulation affected growth in the
restaurant sector?
Bielinski: Post-crisis financial regulation really hasn’t had an impact
yet on the restaurant sector. Debt financing is widely available to Tier 1
franchisees and larger firms, but of course that could change. Right now
these companies are enjoying the best terms and lowest interest rates
they’ve ever experienced. Restaurant companies rely heavily on debt,
they need the capital for remodels, for new units and for acquisitions. If
regulatory limitations are imposed on banks, it could have a negative
impact on restaurant companies and limit their ability to continue to
build their businesses.
How much of an impact will rising interest rates have on the industry?
Bielinski: Restaurant companies and large franchisees are currently
enjoying some of the best terms and lowest interest rates they’ve ever
experienced on debt, but higher rates obviously are going to increase
their borrowing costs and that could impact their profitability. Currently,
ready access to inexpensive debt is fueling a solid M&A market,
especially among franchisees. The hope is that the economic recovery
will continue and that will drive increased sales and profits for restaurant
companies, so that any increase in interest rates would be manageable.
However, if the industry lags and sales don’t keep pace with the overall
economy, then it could be more difficult to manage.
What factors do you consider when providing financing to a restaurant
company?
Bielinski: When looking at providing financing to a restaurant company,
the first thing I look at is store level performance. Sales and store level
margins are the key metrics there as well as the operating trends.
Next thing is the positioning of the brand. What sector is it in? What
is the consumer perception on the brand? Does it have a defensible
position? Are there growth opportunities? The strength of the brand
is really important. Also, before providing financing you want to take
a look at the condition of the stores: do they need capital for deferred
maintenance? Finally, and this is more qualitative, I always look at the
complexity of the operating plan and compare that to the management
team’s experience to try to determine if they can execute. At the end of
the day we’re concerned about whether the cash flow will be sufficient
to repay the loan.
“The hope is that the
economic recovery
will continue and
that will drive
increased sales and
profits for restaurant
companies.”
“... in today’s
environment, not all
restaurant companies
have pricing power.”
“Post-crisis financial
regulation really
hasn’t had an
effect yet on the
restaurant industry.”
CIT Executive Spotlight with Bob Bielinski
Now Serving Growth in the Restaurant Sector

4. 4© 2014 CIT Group Inc.
How are increased costs impacting the financial needs and growth
strategy of restaurants?
Bielinski: Pressure from increased costs, whether it’s wages or
commodities, obviously hurts margins, and restaurant companies
generally respond by raising prices. However, in today’s environment,
not all restaurant companies have pricing power. There’s a very cautious
consumer out there. They’re also finding that as the economy improves,
it’s more difficult to find staff and that’s resulting in higher wages.
Plus, as many people are aware, there’s been a lot of activity and a lot
of discussion around raising the federal minimum wage. So how are
operators responding to this? They’re trying to be more efficient. They’re
trying to increase their use of technology in operations and they’re
reducing the cost of a new unit. But at the end of the day, if profits drop
further, growth will be focused on the best locations because that’s
where they can get their return on investment.
Where do you see growth over the next year?
Bielinski: The most significant growth in the restaurant industry is
going continue to come from the fast casual segment. These chains
will continue to add units and grow sales. It’s not just industry leader
Chipotle; Zoe’s Kitchen, Potbelly Sandwich Works, and Noodles &
Company are companies that have recently gone public and have capital
to grow. In addition, there’s a number of emerging chains that are now
backed by private equity firms, like Newk’s, Protein Bar, Piada, Veggie
Grill, and Mendocino Farms. They also have the capital to grow. I think in
the franchising world you’ll see individual franchisees continue to grow
via acquisition, but I’m not sure it’s going to result in more units overall
for the domestic chains. Industry-wide, I think sales are going to mimic
economic conditions, so if we see slow and steady improvement in the
economy, restaurant sales should follow.
“The most significant
growth in the
restaurant industry
is going continue to
come from the fast
casual segment.”
“There’s a number of
emerging chains that
are now backed by
private equity firms,
like Newk’s, Protein
Bar, Piada, Veggie
Grill, and Mendocino
Farms. They also have
the capital to grow.”
“Social media and
restaurant review
sites have had a
dramatic impact
on the restaurant
industry. Operators
and customers
communicate in ways
that we never thought
possible.”
CIT Executive Spotlight with Bob Bielinski
Now Serving Growth in the Restaurant Sector
To learn more about CIT Corporate Finance, Retail & Restaurants, visit cit.com/bielinski.
Members of the press who have an interest in speaking with Mr. Bielinski can contact Curt
Ritter at Curt.Ritter@cit.com or Matt Klein at Matt.Klein@cit.com. Additional CIT Executive
Insights can be found at cit.com/ExecutiveInsights.
Executive Biography:
Robert (Bob) Bielinski is Managing Director of CIT Corporate Finance, Retail & Restaurants.
He has more than 25 years of restaurant and retail financial management, investment
banking, corporate lending and transaction experience.
Prior to CIT, Bielinski was a Managing Director with a middle market investment bank.
Before that, he was a Managing Director with Richard C. Breeden & Co., an advisory
firm headed by Richard Breeden, former Chairman of the U.S. Securities and Exchange
Commission. Bielinski’s investment banking experience includes seven years at Lehman
Brothers, where he began his career. In the restaurant and retail industries, he has held a
variety of senior financial positions, including Senior Vice President – Finance and Treasurer
at Boston Chicken, Inc. and Vice President – Financial Operations at The Limited.
Bielinski holds an MBA from the Kellogg School of Management at Northwestern University
and bachelor’s degrees in electrical engineering and management from the Massachusetts
Institute of Technology.
November 2014