ELECTRONIC HOUSE CALL - December 2, 1997

I received this recently from Ed Manley, CFE, President and Chief Operating Officer of the International Food Service Executives Association, Inc. (IFSEA). It is worth passing along. Thought you might enjoy this - These guys are supposed to be the best at predicting our industry.

Andrew von der Vard, Director of F & B Corporate Finance for Schroders, a company specializing in the food service field reported at the recent IFMA President's Conference that the outlook is not good for the restaurant industry, with too many seats for too few bottoms to fill them. Looking at various industry segments Schroders reports Restaurants - Units exceed demand; sales per unit are down; there is profit pressure; capital inflow is down. Marginal players will be out through 1998. On the positive side - moderate real growth of the economy; consolidation is accelerating. Negatively - Unit expansion exceeding real sales growth for the 3rd straight year. Labor costs me due to minimum wages. Best buys are in the Theme/Specialty area with a 31.6% growth rate (Starbucks rated best because they established a brand name, usable in many formats, much like Hard Rock did. Worst - Family Dining, like Shoney's at 14.2% growth rate. Outlook for Restaurants - More prepared meals; healthy fast food; delivery, Eatertainment; $15 + casual dining due to audience sophistication; catering.

Non-Commercial outlook - Evasion of traditional accounts. Hospitals - educated yet stronger staff cutbacks. Schools - fewer resident students, cost forms, corporates - reduced headcount, competition; airlines - cost cutting. Best Buy-SODEXHO Alliance SA. New sources of growth - New venues (ie-Malls); Int's, - Branded- licensing/franchising; Non food services, acquisitions.

Distribution - Top 7 companies hold less than 25% of the total market - over 18,000 smaller regional distribution. Looking at fewer SKU's & more frequent distribution; lower margins but higher asset turnover; efficiency of delivery; One chain/multiple amounts. Stronger growth than the FS industry (7% vs 3%); driven by fast-food & casual dining; margin pressure; more efficient management; consolidation; Focus on service/efficiency rather than growth.

For more information on IFSEA, check out their website at http://www.ifsea.org.

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