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Restaurants & Cafes Industry Profile
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There are about 8 million restaurants in the world and some 300,000 restaurant companies. The restaurant industry divides itself into full-service and fast-food restaurants. Full-service restaurants include family restaurants (such as Denny's), dinner houses (Darden Restaurants' Red Lobster), and grill/buffet type eateries (Metromedia's Ponderosa). The fast-food sector includes sandwich shops, which means hamburgers and Mexican food, as well as pizza and chicken joints. Companies in this sector include giants such as Kahala (Great Steak & Potato, Frullati Cafe), Texas Pacific Group (Burger King), YUM! Brands (Taco Bell, KFC, Pizza Hut), and of course, McDonald's. In a weak economy, the former category's stock suffers as people with less disposable income settle for cheaper fare.
Overall restaurant sales have been rising just over 5% annually. However, the supply of workers age 16 to 24, the primary pool for restaurant employees, has been declining. To solve the problem, companies are hiring more retirees and immigrants, and are increasingly making use of automation. A slowing economy should help offset a shrinking labor force by keeping wages (often minimum) stable, thus posing less threat to profits.
The restaurant industry is a classic mature market. Companies face stiff competition and low profit margins. Given the latter, expect companies to continue growing through acquisition rather than through building new units, which cost upwards of $1 million even for a fast-food unit. Making acquisitions gives companies a larger revenue base over which to spread costs, and it also gives them more leverage with suppliers to keep costs down. Demand should stay steady. With the rise of two-working adult families since the 1980s, Americans have less time and energy to prepare their own meals and have been eating out more frequently.
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Key People
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Howard Schultz - Chairman of Starbucks. Schultz began operations with 11 Seattle stores in 1987. He has managed to create a coffee subculture through innovations in marketing, employee-ownership programs, and a clustering strategy that sees a new store opening every day.
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Robert Brooks - Chairman of Hooters of America. An investor who originally backed Hooters' franchising plans, Brooks later bought control of the company. Under his leadership, the chain has expanded to more than 330 locations and now has its own airline that serves the resorts in Myrtle Beach, South Carolina.
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Julia Stewart - President, CEO, COO, and director of IHOP. Stewart started at IHOP as a 16-year-old waitress before eventually becoming one of the highest-ranking women in the industry. She left Applebee's in 2001, where she served as president.
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David C. Novak - Chairman, president, and CEO of YUM! Brands. Novak heads one of the world's largest fast-food franchisers: YUM!'s central brands include KFC, Pizza Hut, and Taco Bell. He is also a director of J.P. Morgan Chase & Co.
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David Overton - Chairman and CEO of The Cheesecake Factory. Overton and his parents originally started The Cheesecake Factory to make desserts for other restaurants, but after opening a restaurant in Beverly Hills to showcase their cheesecakes they decided to go into the casual-dining business. The chain has become wildly popular and leads the industry with annual unit sales volumes of more than $10 million.
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Wolfgang Puck - President and CEO of Wolfgang Puck. Trained in the kitchens of Monaco, Paris, and Provence, this founder of his eponymous company has seen its unique, combinative cuisine achieve success in a variety of fine-dining units.
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Doug Brooks - President, CEO, and director of Brinker. Brooks heads the casual-dining operator of Chili's Grill & Bar, Romano's Macaroni Grill, and On The Border Mexican Grill & Cantina, among others. He first joined the company in 1978 as an assistant manager.
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Bill Darden - Another casual-dining pioneer and the founder of the Red Lobster chain, which was later acquired by General Mills. After he passed away in 1994, the cereal giant spun off its restaurant business (which by then also included the Olive Garden chain). They named it Darden Restaurants in his honor.
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John T. Schuessler - Chairman, president, and CEO of Wendy's. In the post-Dave Thomas era, Schuelssler has led Wendy's onward to further growth and consistent performance. He joined Wendy's in 1976 and rose through the ranks.
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Allen J. Bernstein - Chairman, president, and CEO of Morton's. Bernstein founded the popular steakhouse in 1988, developing its expansion and growth into international markets. He also serves as a director of Dave & Buster's.
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