The Pizza Industry

Over View

The Leading Edge Group, which puts out a report on the pizza industry,
predicts the pizza industry will be worth $33.9 billion at retail by 2005. The
bad news is traffic at the QSR Pizza Category remained flat during the
period of June 2001 through May 2002. There’s good news and bad news
for the 63,873 pizzerias we currently have in business. The good news is
there were 4,233 new pizzerias that opened between July 1, 2001, and July
1, 2002. The bad news is there were 4,300 pizzerias that closed during that
same period leaving the industry with seven less stores overall. Industry
sales for pizza were up 1 percent for 2001, which gave the pizza industry
overall sales of $29.4 billion. The average check for the QSR Pizza Category
for the period between June 2001 and May 2002 was $5.78. Average sales
per unit for all pizzerias increased to $460,463 from $456,000 the year
before, but this appears to reflect gains in the top 25 chains. Let’s take a
more detailed look at the break down.

U.S. Pizza Sales By Market Share 2002

Pizza Hut 17.3%
Domino’s 9.1%
Papa John’s 5.7%
Little Caesars 4.5%
Rest of Top 25 15%
Independents all others 48.5%

U.S. Pizza Stores 2001

Pizza Hut 12.9%
Domino’s 7.5%
Papa John’s 4.0%
Little Caesars 5.2%
Rest of Top 25 10.4%
Independents all others 59.7%

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The Top 25
The drop in numbers by independent operators appears to have been filled
by the top 25 chains. While seven of the top 25 chains were reported to have
sales losses from the previous year, there are a few shining stars in the rest
of the pack. Average yearly sales per unit for the top 25 increased to
$598,000 from $583,000 the previous year. The top 25 had only marginal
gains in their share of units, but their percent of the total industry sales
looked good for most. Reports from around the industry indicate that part of
the reason may deal with the pizza wars going on with the Big Four (Pizza
Hut, Domino’s Pizza, Papa John’s Pizza and Little Caesars Pizza). New
product launches, such as Cheesy Bread, The P’Zone and the Spinach
Alfredo pizza have been quite popular with consumers. All of the Big Four
are either launching new products with massive marketing campaigns or
testing new concepts in limited markets to see how they will perform. The
Leading Edge Group’s report on the pizza industry stated, "New products
will help fuel sales, as will consolidation in saturated geographic areas."

The Independents

Nearly all of the statistics gathered on independents and all other pizzerias
not in the top 25 for 2001 showed overall decreases from the previous year.
Looking at the independents’ share of the market for the period between July
2001 and July 2002, they owned 59.48 percent of all pizzerias, which was
down from 59.7 percent the previous year. Average unit sales for
independents for the period between June 2001 and May 2002 was $366,720
per year, which was down $4,280 from the previous year. Even while
independents controlled 59.48 percent of the units, they only earned 47.38
percent of the industry’s sales, which was also down from 48.5 percent the
previous year

National Average Yearly Sales of U.S. Pizza Stores

2001 All Stores $458,483 Top 25 Chains $ 580,000 Independents & Others $365,720
2000 All Stores $456,000 Top 25 Chains $583,000 Independent & Others $370,000
1999 All Stores $448,000 Top 25 Chains $589,000 Independents & Others $355,000

(Source: PMQ Technomic, NPD FoodWorld, Info USA and the Franchise Finance Corporation of
America for your research and help in preparing this report.)

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The Winners, the Losers for 2001
There were a few pizzerias that stood out in the crowd. According to PMQ,
(Pizza Marketing Quarterly), Donatos was able to achieve a respectable
increase in same-store sales while managing a 26 percent increase in the
number of total units. While they may not be the top dog in sales and units,
it appears that Donatos has been very effective in recruiting franchisees and
marketing their product. With their 3D store of the future in operation, they
are making the move that we would expect from a McDonald’s-owned pizza
chain. Finally, one statistic that says it all is that this year Donatos passed
Papa John’s in average unit sales. Technomic ranked Donatos as the ninth
fastest growing chain in the U.S. based on sales increase percentage out of
all restaurant chains. Donatos also came in eighth in the U.S. in the 10
fastest growing restaurant chains. This was based on unit increase
percentage. Some other notable pizzerias include Casey’s Carry Out, which
opened about 65 units within the last 12 months. Papa Murphy’s Take ‘N’
Bake is still moving and shaking with an 11 percent increase in sales from
the previous year and a little over 70 new locations. Mr. Gatti’s, opened
about 40 new units and had a 19 percent increase in sales from the previous
year. Piccadilly Circus Pizza opened about 50 new units and saw a 10
percent increase in sales while Pizzas of Eight opened 88 locations.While
the top 25 chains appear to be doing quite well as a whole, there are a few
amongst the wolves who are showing signs of weakness. Technomic reports
Mazzio’s Pizza’s sales down 12.91 percent with a 12.6 percent decline in
units. According to Mazzio’s Pizza, Technomic under-reported total sales by
$6 million, which is the result of combining stores over the past year.
Godfather’s Pizza was reported as having a 5.05 drop in sales and total units
were down 1.9 percent. Following close behind is Pizza Inn who was listed
as having a 4 percent drop in sales and a 5.1 percent drop in units. Little
Caesars continues its downward spiral with sales dropping 3.85 percent and
a 7.1 percent drop in units. Rounding off the list are Villa Pizza and
Cozzoli’s Pizza with a 3.77 percent drop in sales and 3 percent fewer units
and Sbarro with a 1.77 percent drop in sales and 1.4 percent fewer locations.

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The Bottom Line/ Margins Matter

Pizza Hut opened about 70 new locations and closed about 280. Domino’s
Pizza opened over 200, but also closed over 200. Papa John’s Pizza opened
over 200 units and closed about 150. Little Caesars opened around 40 units
and closed over 230. It should be noted that Little Caesars opened about 20
additional units in Kmart locations, but this may not be so good either since
Kmart is in the midst of bankruptcy proceedings. Little Caesars operates
over 400 units located in Kmart stores.

Trends
There are a couple of trends to note that are either emerging or maturing in
the pizza industry. One trend is a rise in C-store locations. It seems that
everywhere you look there is a convenience store installing a pizza counter
overnight. These are not just some microwavable pizzas you grab and heat;
storeowners are installing countertop conveyor ovens and serving cooked
pies. The Leading Edge Group’s report on the U.S. pizza market hints to a
storm on the horizon; the packaged pizza segment. Packaged pizza is
defined as a combination of frozen, refrigerated and dry mixes. This report
states that U.S. packaged pizza sales reached over $3.3 billion in 2000,
which resulted from strong growth in the 1990’s. Total growth for this
segment from 1995 to 2000 was 29.2 percent. The report states that in 1990,
packaged pizza comprised 10.2 percent of the total pizza sales in the U.S.,
which includes ready-to-eat pizza. In 2000, packaged pizza’s share of the pie
had increased to 11.8 percent and is predicted to be at 13 percent of total
pizza sales by 2005. The success of this segment may be attributed to
convenience and the low cost of frozen pizza. Consumers know they can fill
the freezer up with cheap frozen pizzas and cook them when the urge hits.
Also, the rise in the quality of frozen pizzas has helped too. Consumers can
eat a true "fresh out of the oven" pizza at home now that doesn’t taste like
cardboard. This may be one reason the take-and-bake segment has found a
niche.

Conclusion

It appears that convenience and new products are the key factors in the new
growth areas. C-stores are offering an increasingly satisfactory product on
the fly, take ‘n’ bakes are winning over customers and are quick and can be
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taken home and the frozen pizza segment is coming on strong. Most of the
top 25 chains are doing well, especially those who are continually putting
out new products. If current trends continue, the winners next year will
probably be those who control costs, offer news products and make it more
convenient to grab a pie or slice while on the go…or a pie to cook later.

MORE TRENDS EVIDENT

CELL PHONES ARE BECOMING A FACTOR IN RESTAURANT
SALES
 41% Of adults with cell phones have placed a takeout or delivery
order with them during 2000.
 32% have used them to make dinner reservations. Source: NRA

Consumers are demanding a higher lever of service.

 80% of food service operators report consumer expectations for
quality and consistency of product and service has risen. source:
Yankelovich Monitor. (Perhaps on of the reasons that independents
are doing better is the fact that consumers are more likely to be in a
restaurant with an active owner operator.)

Family dining is growing.

 One third of adults say they dine out more as a family than two years
ago
 Kids choose the location of where to eat from 55% to 90% of the
time. Source NRA

Long Term Pizza Outlook Bright

 39% of adults cook fewer meals than they did two years ago.
 29% of adults feel takeout is essential to the way they live.
 47% of adults feel takeout is essential if they are between the ages of
18-24.
 78% of households make at least one delivery or carryout purchase in
a typical month.
 44% of consumers are buying more takeout or pre-cooked meals.
Source: NRA

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The numbers per capita by state from largest number of stores per capita to
smallest number of stores per capita;

State Stores Population Per Capita/ 10,000

Maine 528 1,274,923 4.14
Pennsylvania 4,646 12,281,054 3.78
Idaho 1,100 2,926,324 3.76
New Hampshire 463 1,235,786 3.75
Massachusetts 2,238 6,349,097 3.52
Connecticut 1,163 3,405,565 3.41
New Jersey 2,867 8,414,350 3.41
Delaware 261 783,600 3.33
Ohio 3,756 11,353,140 3.31
Rhode Island 345 1,048,319 3.29
Vermont 186 608,827 3.06
West Virginia 551 1,808,344 3.05
Michigan 2,966 9,938,444 2.98
Indiana 1,803 6,080,485 2.97
North Dakota 186 642,200 2.90
Montana 254 902,195 2.82
New York 5,289 18,976,457 2.79
Alaska 173 626,932 2.76
South Dakota 207 754,844 2.74
Wyoming 127 493,782 2.50
Idaho 320 1,293,953 2.47
Illinois 3,070 12,419,293 2.47
Minnesota 1,166 4,919,479 2.37
Oregon 783 3,421,399 2.29
Nebraska 383 1,711,263 2.29
Missouri 1,249 5,595,211 2.23
Kansas 583 2,688,418 2.17
Kentucky 868 4,041,769 2.15
Nevada 407 1,998,257 2.04
Colorado 864 4,301,261 2.01
Arkansas 532 2,673,400 1.99
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 Maryland 1,035 5,296,486 1.95
Utah 436 2,233,169 1.95
Virginia 1,361 7,078,515 1.92
Florida 3,051 15,982,378 1.91
North Carolina 1,498 8,049,313 1.86
Washington 1,095 5,894,121 1.86
Arizona 918 5,130,632 1.79
New Mexico 325 1,819,046 1.79
South Carolina 695 4,012,012 1.73
Oklahoma 589 3,450,654 1.71
California 5,691 33,871,648 1.68
Tennessee 943 5,689,238 1.66
Washington D.C. 88 572,059 1.54
Georgia 1,202 8,186,453 1.47
Hawaii 165 1,211,537 1.36
Alabama 595 4,447,100 1.34
Texas 2,649 20,851,820 1.27
Louisiana 543 5,468,976 1.22

Current Restaurant Industry

A cornerstone of America's economy, restaurants are the nation's largest

private-sector employers, generating an annual economic impact of $1
trillion. Every dollar spent dining out generates more than two dollars for
other industries. On an average day in 2003 the Industry will generate more
than 1.2 billion dollars in sales. According to the National Restaurant
Association’s 2003 Industry Forecast the nation’s 858,000 restaurants will
hit $426.1 billion in sales in 2003, an increase of almost 4.5 percent over
2002 even with the economic downturn. On a inflation-adjusted basis,
restaurant industry sales are expected to increase by 1.8% in 2003. This
could be the 12th year of real consecutive growth for the Industry. According
to the National Restaurant Association the Industry posted positive real
growth of 1.3% in 2002, the 11th year in a row of positive real growth for the
Industry. Nationally, restaurants and bars were among the leading retail
sectors in terms of sales growth during the first half of 2002, according to
U.S. Census Bureau data. On a year-to-date basis through June 2002,
restaurant and bar sales increased at a solid 5.5 percent rate. After adjusting
for menu price inflation, it amounts to real sales growth of about 2.7 percent.
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Not bad, considering the many challenges facing the restaurant industry at
the beginning of the year. Regional disparities in restaurant industry growth
do remain, with many travel-dependent areas still struggling to maintain
sales volumes. But on the whole, the industry registered solid growth during
the first half of the year. In comparison, grocery store sales advanced at a 2.0
percent rate, which after factoring in inflation, results in negative real sales
growth during the first half of the year. Meanwhile, overall retail sales
increased at a 2.8 percent rate during the first half of the year — or roughly
half of the sales gain registered by restaurants and bars. In contrast to a sales
engine that easily outpaced the rest of the economy, the restaurant industry
employment situation was another story. The same industry that saw its job
growth outpace the overall economy in each of the last three years (1999 -
2001), now saw a mirror image in its job losses. On a year-to-date basis
through June 2002, eating and drinking place employment declined at a 1.3
percent rate — compared to a 1.2 percent decline in total non-farm
employment during the same period. As a result of the weak performance in
recent months, eating and drinking place employment remains 186,000 jobs
down from its recent peak registered in July 2001. If job growth at
restaurants and bars remains negative for the remainder of 2002, it will mark
only the second year of negative employment growth since the Bureau of
Labor Statistics employment series began in 1958. Eating and drinking place
employment declined at a 0.5 percent rate in 1991. Looking ahead,
conditions appear favorable for continued restaurant industry sales growth in
2003. In spite of the stock market downturn and consumers' shaken
confidence in corporate America, the U.S. economy appears to be on a path
toward sustainable growth. Disposable personal income, a key barometer for
restaurant sales growth, is projected to register real annualized gains in the
2.5 - 3.5 percent range in both the third and fourth quarters of 2002. The
Congressional Budget Office believes that the economy will continue its
modest recovery this year and strengthen next year. Real (inflation-adjusted)
GDP is forecast to grow by 2.3 percent in calendar year 2002 and by 3.0
percent in 2003. A moderate but steady rise in consumer spending will
continue to provide the foundations for that growth, this augmented, the
CBO estimates, by the rapid upswing in federal spending in 2002 and by a
gradual recovery in corporate spending by the end of the year, which will
continue through 2003. In addition, total U.S. employment — which had
declined up until the second quarter of 2002 — is expected to add back some
of the jobs lost during the recent downturn. Moreover, with interest rates
remaining at low levels, consumers will continue to pocket extra cash from
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home refinancing. As a result, it is our expectation that the resilient
restaurant industry will continue to post sales gains — marking its 12th
consecutive year of real growth of 1.8% in 2003 with even stronger growth
in 2003.

Source: Bureau of Labor Statistics and the Congressional Budget Office.

By 2010, a $577 Billion Dollar Restaurant Industry

Overall the Industry as whole looks destined for solid continuous growth
through 2010 as demographics lead the way. Today’s consumers spend 44%
of every food dollar on meals, snacks and beverages purchased away from
home up from 25% in 1955. By 2010, the National Restaurant Association
estimates that this figure will reach 53% as shifting demographics drive this
upward trend. The most recent Census Bureau statistics show that the
demographic composition of age groups in the population is very favorable
for the restaurant Industry through 2010 with the aging of the baby boomers
and the growth that their spending habits will continue to bring to the
Industry. The population will increase by an additional 9% through 2010 by
25,386,000 to 297,716,000.

The 45 to 54 age group will increase by 6,534,000 and the 55-54 age group
will increase by 11,321,000. The spending of these two groups together 45-
64 year olds is 25.3% higher than the next highest age group. These two age
groups will account for the highest per capita spending away from home
over all age groups and right behind them are their children and the third
highest age group for growth the 18 to 24 year olds whose numbers will
grow by 3,880,000 by 2010. This is great news for the quick service segment
of the industry in terms of both sales and labor. The bad news is that after
2010 there will be a decline in the 35 to 44 age group by 6,138,000. This
decline will adversely effect any sales gains in the Industry from other
demographic shifts and will pose challenges for the Industry. Another
demographic trend that will continue to drive growth is the two-earner-
income family. The Restaurant Industry has become an essential component
of today’s time conscious lifestyle. Restaurants are no longer just a luxury
for special occasions. Time and convenience are essential and the children of
the baby boom generation have been raised with this “Quality Time” in
mind. Consequently this generation is now and will be more experienced
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and more educated restaurant consumers than their parents were. They will
continue to demand more in quality and service from the Industry as their
expectations grow. Combine a consistent positive economic outlook with
these demographics and the next decade is ripe for growth. According to the
CBO, ( The Congressional Budget Office), real GDP is expected to grow at
a rate of 3% in 203 and 3.1% annually through 2012. Wholesale food
inflation is expected to grow by 1.3 % on an annual basis, while menu-price
increases will probably average 2.5 % per year. The implications of these
trends means that Full Service Restaurants will continue to out-perform
Quick service Restaurants with due to the demographics and offerings
necessary for a more educated restaurant consumer. The take out segment
will continue to grow, and become more common place in Full Service
Restaurants, cafeterias, supermarkets and convenience stores. Demographic
shifts point toward trends in the following segments as well;

 College and University food service will out-perform primary and

secondary food service.
 Hospital and nursing home sales will increase over recent growth due to
the aging of the population.

 The commercial sector will continue to out-perform the noncommercial

sector.

Regional Demographic Growth Through 2010

According to the U.S. Census Bureau the following are both state and
regional resident growth projections through 2010.

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
New England
Region
13,312 13,581 14,172 + 6.5%
Maine 1,241 1,259 1,323 + 6.6 %
New Hampshire 1,148 1,224 1,329 + 15.8 %
Vermont 585 617 651 + 11.3%
Massachusetts 6.074 6,199 6,431 + 5.9%
Rhode Island 990 998 1,038 + 4.8%
Conneticut 3,275 3,284 3,400 + 3.8%

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 Region/State 1995 2000 2010 % Change
(000) (000) (000) 1995-2010
Middle Atlantic
Region
38,153 38,526 39,520 + 3.6%
New York 18,136 18,146 18,530 + 2.2 %
New Jersey 7,945 8,178 8,638 + 8.7%
Pennsylvania 12,072 12,202 12,352 + 2.3%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
East North
Central
43,456 44,419 45,764 + 5.3%
Ohio 11,151 11,319 11,505 + 3.2 %
Indiana 5,803 6,045 6,318 + 8.9 %
Illinois 11,830 12,051 12,515 + 5.8%
Michigan 9,549 9,679 9,917 + 3.8%
Wisconsin 5,123 5,326 5,590 + 9.1%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
West North
Central
18,348 19,082 20,151 + 9.8%
Minnesota 4,610 4,830 5,147 + 11.6 %
Iowa 2,842 2,900 2,968 + 4.4 %
Missouri 5,324 5,540 5,864 + 10.1%
North Dakota 641 662 690 + 7.6%
South Dakota 729 777 826 + 13.3%
Nebraska 1,637 1,705 1,806 + 10.3%
Kansas 2,565 2,668 2,849 + 11.1%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
South Atlantic 46,995 50,147 55,457 + 18%
Delaware 717 768 817 + 13.9 %
Maryland 5,042 5,275 5,657 + 12.2 %
District of 554 523 560 + 1.1%
Columbia
Virginia 6,618 6,997 7,627 + 15.2%
West Virginia 1,828 1,841 1,851 + 1.3%
North Carolina 7,195 7,777 8,552 + 18.9%
South Carolina 3,673 3,858 4,205 + 14.5%
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 Georgia 7,201 7,875 8,824 +22.5%
Florida 14,166 15,233 17,363 + 22.6%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
East South
Central
16,067 16,918 18,122 + 12.8%
Kentucky 3,860 3,995 4,170 + 8.0%
Tennessee 5,256 5,657 6,180 + 17.5%
Alabama 4,253 4,451 4,798 + 12.8%
Mississippi 2,697 2,816 2,974 + 10.3

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
West South
Central
28,828 30,548 34,019 + 18.%
Arkansas 2,484 2,631 2,840 + 14.3%
Louisiana 4,342 4,451 4,798 + 10.5%
Oklahoma 3,278 3,373 3,639 + 11%
Texas 18,724 20,119 22,857 + 22.1%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
Mountain 15,645 17,725 20,221 + 29.2%
Montana 870 950 1,040 + 19.5%
Idaho 1,163 1,347 1,557 + 33.9%
Wyoming 480 525 607 + 26.5%
Colorado 3,747 4,168 4,658 + 24.3%
New Mexico 1,685 1,860 2,155 + 27.9%
Arizona 4,218 4,798 5,522 + 30.9%
Utah 1,951 2,207 2,551 +30.8%
Nevada 1,530 1,871 2,131 +39.3%

Region/State 1995 2000 2010 % Change

(000) (000) (000) 1995-2010
Pacific
41,951 43,687 50,291 + 19.9%
Washington 5,431 5,858 6,658 + 22.6%
Oregon 3,141 3,397 3,803 + 21.1%
California 31,589 32,521 37,644 + 19.2%
Alaska 604 653 791 +31%
Hawaii 1,187 1,257 1,440 + 21.3%

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Operational Trends for the next decade

According to a recent Delphi study conducted by the National Restaurant

Association the following are a list of trends through challenges facing
Operators for the next decade;

 The Industry will experience intense competition.

 Success will demand that Operators provide the very highest levels of
service and quality food.
 Technological advances will allow more operators to monitor profit and
loss on a daily basis.
 Equipment will be on wheels for ease of movement with quick
disconnect systems for cleaning and flexibility.
 POS technology will be much simpler, faster and more accurate. And
will be tied directly to ordering systems.
 Consumers will continue to look for higher quality takeout.
 The percent of the food dollar spent away from home will continue to
increase.
 Restauranteurs will be challenged to remain people oriented
 Suppliers will continue to be under pressure to improve quality and food
safty.

Restaurant Industry Forecast 2002

A cornerstone of America's economy, restaurants are the nation's largest

private-sector employers, generating an annual economic impact of $1
trillion. Every dollar spent dining out generates more than two dollars for
other industries. The nation’s 858,000 restaurants will hit $407.8 billion in
sales in 2002, an increase of almost 4 percent over 2001.
Overview

Restaurant industry sales are projected to reach a record $407.8 billion in

2002, up 3.9 percent over 2001, according to the 2002 Restaurant Industry
Forecast. On an inflation-adjusted basis, restaurant industry sales are
expected to increase 1.4 percent in 2002, which would represent the eleventh
consecutive year of real growth in the industry. On a typical day in 2002, the
restaurant industry will post average sales of more than $1.1 billion.
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Restaurant industry growth will continue in spite of the current economic
downturn. The economy is currently in the midst of its first recession in over
ten years, a downturn that is expected to continue into early 2002.

However, an improving economy and continued growth in disposable

personal income will be the catalysts to propel the restaurant industry into
another year of real growth.
The projected 1.4 percent real increase in restaurant industry sales in 2002
will be a modest improvement from the 0.8 percent real gain registered in
2001, when the industry was negatively impacted by a slowing economy and
the events of September 11. However, growth in 2002 will still fall short of
the solid gains registered in the previous nine years (1992–2000).
Among the major eating-place segments, the fullservice sector is projected
to lead the way with sales growth of 4.5 percent. Fullservice restaurant sales
are expected to reach $146.7 billion in 2002, which represents a $6.3 billion
increase above their 2001 level. In the quickservice restaurant segment, sales
are projected to increase a somewhat slower 3.7 percent in 2002, with sales
totaling $115.2 billion , up $4.1 billion from 2001.

Labor and Economic Issues Top the List of Challenges for Operators in
2002
In recent years, quickservice and fullservice operators across all check sizes
consistently identified recruiting and retaining employees as their top
operational challenge. However, operators are presented with a host of
additional challenges in the current economic environment.
Among quickservice restaurant operators and fullservice operators with
average checks below $8, recruiting and retaining employees is top
challenge expected in 2002. However, the economic downturn was
identified as the top operational challenge by fullservice operators with
average checks of $8 or more. Many operators in both segments also
indicated that maintaining their volume of business will be the top challenge
for their operation in 2002.

Fullservice and Quickservice Outlook

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Fullservice Restaurant Operators Optimistic about 2002. A strong majority
of fullservice restaurant operators expect business in 2002 to be better or the
same as it was in 2001, according to the National Restaurant Association
2001 Tableservice Operator Survey. Nearly half of fullservice operators
expect business to be better in 2002, while more than one-third indicated that
business should be about the same as it was in 2001. Operators of higher-
check establishments were the most optimistic about an improvement, with
52 percent of operators with average checks of $25-or-more expecting
business to be up in 2002.This represents a solid improvement over
operators' sentiment regarding business in 2001, with roughly four out of 10
operators indicating that business in 2001 was down from 2000 levels.

Fullservice and Quickservice Outlook

Fullservice Restaurant Operators Optimistic about 2002

A strong majority of fullservice restaurant operators expect business in 2002

to be better or the same as it was in 2001, according to the National
Restaurant Association 2001 Tableservice Operator Survey. Nearly half of
fullservice operators expect business to be better in 2002, while more than
one-third indicated that business should be about the same as it was in 2001.
Operators of higher-check establishments were the most optimistic about an
improvement, with 52 percent of operators with average checks of $25-or-
more expecting business to be up in 2002.
This represents a solid improvement over operators' sentiment regarding
business in 2001, with roughly four out of 10 operators indicating that
business in 2001 was down from 2000 levels.

Quickservice Restaurant Operators Expect Continued Growth in 2002

Operators in the quickservice segment are also optimistic about business

conditions in 2002. According to the National Restaurant Association 2001
Quickservice Operator Survey, 55 percent of quickservice restaurant
operators indicated that business in 2002 should be better than in 2001.
Nearly four out of 10 operators expected business to be the same in 2002 as
it was in 2001.
Like fullservice operators, a smaller proportion of quickservice operators
said business was better in 2001 than it was in 2000. Nearly half (48 percent)

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of quickservice operators said business was up in 2001, while 30 percent
reported a downturn in business in 2001.

State/Regional Outlook

Utah Expected to Lead the Nation in Eating-Place Sales Growth in 2002

In recent years, regional growth in the restaurant industry has been strongest
in the regions of the country with the fastest-growing economies — namely
the South and the West. Fueled by steady growth in employment, population
and disposable personal income, most states in these regions consistently
registered sales growth above the national average.
In 2002, the outlook is for a continuation of the same regional trends. The
top four regions in terms of eating-place sales growth are located in either
the South or the West. On a state level, the top 12 states in terms of eating-
place sales growth are also located in either the South or the West. Similarly,
these states and regions are also projected to register above-average growth
in terms of employment, population and disposable personal income

2002 State and Regional Highlights

 The Mountain region is expected to lead the nation with eating-place

sales growth of 6.4 percent in 2002. The East South Central and West
South Central regions are projected to finish second and third with
sales gains of 4.7 percent and 4.5 percent, respectively.
 The Middle Atlantic region is projected to register eating-place sales
growth of 3.6 percent in 2002 — the lowest among the nine Census
regions.
 Utah is expected to lead the nation in terms of sales growth, as the
2002 Winter Olympics provide tremendous boost to the restaurant
industry in Utah.

Industry Commercial Food and Drink Segment Sales Projections

through 2002.
Eating Places/Commercial
Forecast
Segment 2001 Sales 2002 Sales Forecast 2001-2002
Projection Projection 2001-2002 % Real %
(000) (000) Change Change

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FullService 140,393,478 146,711,184 4.5 2.0
Fast Food 111,111,516 115,222,642 3.7 1.3
Cafeterias 2,145,438 2,040,312 -4.9 -7.3
Caterers 3,796,387 3,967,224 4.5 2.1
Non Alcoholic 13,877,319 14,920,230 7.5 5.1
Beverage bars
Total Eating 271,324,138 282,861,592 4.2 1.8
Places
Bars and Taverns 12,809,500 13,257,832 3.5 .6
Total Eating
and Drinking 284,133,638 296,119,424 4.2 1.7
Places
FullService defined as Waiter/Waitress service provided. The order is taken while the customer is seated
and customers pay after they eat.
Limited Service is defined as customer ordering at the register and paying before they eat.
Note real % change is real forecast growth adjusted for inflation.
Source: National Restaurant Association.

Contractor Managed Services/Commercial

Forecast
Segment 2001 Sales 2002 Sales Forecast 2001-2002
Projection Projection 2001-2002 % Real %
(000) (000) Change Change
Plants 6,282,524 6,335,021 .8 -1.6
Industrial
/Manufacturing
Commercial 1,919.212 1,957,596 2 -0.4
Office Buildings
Hospitals & 2,684,545 2,837,564 5.7
Nursing Homes
3.7
Universities & 6,307,908 6,648,535 5.4 3
Colleges
Schools / Primary 2,765,001 2,985,213 8 5.8
& Secondary
In-transit 2,228,670 2,317,817 4 1.6
Services(Airlines)
Sport /Recreation 3,583,960 3,738,070 4.3 1.9
Centers
Total Managed 25,771,820 26,819,816 4.1 1.7
Services
Note real % change is real forecast growth adjusted for inflation

Lodging Places/Commercial
Forecast
Segment 2001 Sales 2002 Sales Forecast 2001-2002
Projection Projection 2001-2002 % Real %
(000) (000) Change Change

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Hotel Restaurants 17,329,214 17,797,103 2.7 0.2
Motor-Hotel 134,002 128,374 -4.2 -6.7
Restaurants
Motel 338,703 331,590 -2.1
Restaurants -4.6
Other 322,443 327,924 1.7 -0.8
Accommodation
Restaurants
Total Lodging 18,124,362 18,584,991 2.5 0.0
Places
Note real % change is real forecast growth adjusted for inflation
Source: National Restaurant Association.

Other/Commercial
Forecast
Segment 2001 Sales 2002 Sales Forecast 2001-2002
Projection Projection 2001-2002 % Real %
(000) (000) Change Change
Retail-Host 15,756,222 16,661,904 5.7 3.3
Restaurants
Recreation and 4,921,359 5,087,640 3.4 1
Sports
Mobile Caterers 982,283 1,010,769 2.9 0.5
Vending and non- 8,521,840 8,700,799 2.1 -0.3
Store Retailers
Total 358,211,524 372,985,343 4.1 1.7%
Commercial
Sales
Retail Host include restaurants in drug and proprietary stores, general merchandise stores, variety
stores , food stores, grocery stores, gasoline-service-stations, and miscellaneous retailers.
Recreation and Sports includes movies, bowling lanes, recreation and sport centers.
Note real % change is real forecast growth adjusted for inflation
Source: National Restaurant Association.

2002 Eating Place Sales Projections by Region/State;

New England Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Connecticut 3,556,800 3,684,845 3.6
Main 1,278,021 1,329,141 4.0
Massachusetts 7,887,413 8,195,022 3.9
New Hampshire 1,374,268 1,440,233 4.8
Rhode Island 1,112,729 1,160,576 4.3
Vermont 672,066 695,588 3.5

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 New England 15,881,297 16,505,405 3.9
Totals
Source: National Restaurant Association.

Middle Atlantic Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
New Jersey 8,435,056 8,806,198 4.4
New York 18,624,395 19,283,982 3.5
Pennsylvania 11,757,078 12,141,192 3.3
Middle Atlantic 38,816,529 40,231,372 3.6
Totals
Source: National Restaurant Association.

South Atlantic Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Delaware 1,028,488 1,079,730 5.0
District of 1,436,710 1,462,313 1.8
Columbia
Florida 19,977,170 20,756,280 3.9
Georgia 9,372,042 9,868,761 5.3
Maryland 5,949,301 6,181,324 3.9
North Carolina 8,565,389 9,002,224 5.1
South Carolina 4,350,145 4,566,559 5.0
Virginia 7,163,242 7,475,560 4.4
West Virginia 1,357,741 1,410,693 3.9
South Atlantic 59,200,228 61,803,444 4.4
Totals
Source: National Restaurant Association.

East North Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Illinois 13,442,251 13,931,326 3.6
Indiana 6,507,865 6,774,687 4.1
Michigan 10,386,132 10,764,016 3.6
Ohio 12,108,456 12,532,252 3.5
Wisconsin 5,504,860 5,703,035 3.6
East North Central 47,949,564 49,705,316 3.7
Totals
Source: National Restaurant Association.

East South Central Region

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 State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Alabama 3,785,512 3,952,075 4.4
Kentucky 3,876,847 4,051,692 4.5
Mississippi 1,866,886 1,952,763 4.6
Tennessee 6,033,854 6,335,546 5.0
East South Central 15,563,099 16,292,076 4.7
Totals
Source: National Restaurant Association.

West North Central Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Iowa 2,743,588 2,833,223 3.3
Kansas 2,589,664 2,701,020 4.3
Minnesota 5,207,177 5,415,464 4.0
Missouri 5,909,281 6,116,106 3.5
Nebraska 1,768,602 1,832,272 3.6
North Dakota 618,254 639,893 3.5
South Dakota 737,355 764,183 3.6
West North Central 19,573,921 20,302,161 3.7
Totals
Source: National Restaurant Association.

West South Central Region

State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Arkansas 2,108,463 2,194,910 3.3
Louisiana 3,976,505 4,147,495 4.3
Oklahoma 3,276,514 3,423,957 4.5
Texas 22,516,648 23,552,413 4.6
West South Central 31,878,130 33,318,775 4.5
Totals
Source: National Restaurant Association.

Mountain Region
State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Arizona 5,803,522 6,163,341 6.2
Colorado 5,532,611 5,864,567 6.0
Idaho 1,183,084 1,243,251 5.1
Montana 1,053,856 1,096,111 4.0
Nevada 2,635,773 2,775,469 5.3
New Mexico 1,953,459 2,052,757 5.1
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Utah 2,035,897 2,305,267 13.2
Wyoming 577,941 600,256 3.9
Mountain Totals 20,776,143 22,101,019 6.4
Source: National Restaurant Association.

Pacific Region
State Eating-Place Sales Eating-Place Sales
2001 (000) 2002 (000) % Change
Alaska 981,836 1,021,205 4.0
California 38,791,181 40,675,713 4.9
Hawaii 2,729,595 2,765,079 1.3
Oregon 3,961,123 4,119,568 4.0
Washington 7,223,415 7,469,011 3.4
Pacific Region 53,687,150 56,050,576 4.4
Totals
Source: National Restaurant Association.

The Local Market Segment

We estimate that there are currently 25 Full Service Family Restaurants that
are located within in our 5 mile radius Demographic area. We believe that of
these restaurants only 7 are currently targeting our customer, "The Family",
based upon a full Service Italian pizza Menu, Atmosphere, and Pricing of
these 7 Restaurants, only 5 are in the $8.00 or under average ticket range per
person offering lunch and dinner.

We have included in supporting documents the current demographic

information for the City of North Miami, and POP -FACTS statistics
regarding a 1 mile, 3 mile, and 5 mile radius of our demographic. Highlights
include;

1Mile Radius 3 Mile Radius 5 Mile Radius

Population 20681 136303 350,538

Customer Profile

Our menu was developed as a moderately priced menu with an average

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ticket price of $ 8.00 targeting the middle class working family, the single
parent working families, and singles interested in a routine family fare
within our 5 mile demographic who have a median income of $35,000.00.
Current trends within the Food Industry according to the National Restaurant
Association that our menu and facility are designed to capitalize on are;

1.)Value and Convenience continue to drive Industry growth.... Food away

from home is no longer considered a luxury but it is considered to be a
component of today_s convenience driven lifestyle.

2.) Off -premises dining, by providing a takeout menu and advertising that
menu locally on a consistent basis through direct mailings.

3.) Children......The census bureau predicts that the influence of children will
continue to grow in the years ahead in response to the baby-boomers babies.
Four million children a year are born each year in this country and that trend
is expected to continue through the year 2000. Within a 5 mile radius of the
Sunshine diner there are 300000 family members, 60.4% of which are a
married couple family. according to POP-FACTS statistics, (see supporting
documents section Demographics.).

4.) Ambiance....give restaurants a competitive edge. In the 1990s restaurant

customers want more entertainment for their dollar and The Pizza House
delivers with real New York Italian ambiance .

Competition

Pizza House, Inc. currently views 2 Local Specialty Bars to be its primary
competition within its five mile radius demographic, menu and price
offering. These Companies are ;

1.) Mama's Pizzeria

2.) Palermo's Pizza and Pasta

The following chart illustrates how the Sunshine Diner's product compares
to the competition:

Feature Pizza House Mamas Palermos

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Theme New York Style Chicago Style NewYork Style
Menu Items
Number of Seats 100 88 66
Estimated Seat 1 1 1
Turnover
Estimated Average $ 1.25 $ 1.25 $ 1.25
Ticket Beverage
Estimated Average $ 6.00 $ 7.00 $ 7.00
Ticket Food Lunch
Estimated Average $ 8.00 $ 9.00 $10.00
Ticket Diner
Estimated $ 1,000,000 plus $ 1,000,000 $ 900,000
Revenues
Unique Advantage Value Established Liquor
Target Customer Family Family Single/Married
( 18-50) 40+
Customer Offered None None
Questionnaire
Service Excellent Fair Fair

Advertising Value/Coupons/ None None

Mailers
Number of 30 25 20
Employees
Dining Room Size 1500 sq. ft 1000 sq. ft. 1000 sq. ft.
Take Out Menu Offered Offered Offered
Cleanliness Spotless Clean Dirty
Restrooms Spotless Clean Dirty
Rating 1-10 10 10 8

Business Risk

Cost Structure

Pizza House, Inc. will open its first store, "The Pizza House", with the
funding of this Business Plan and significantly increase its overhead.
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If the market acceptance of our menu and facility slows, margins and
profitability may suffer. While we are currently predicting operating
profitability based upon funding and reaching our sales goals in the first
year, Pizza House, Inc. is unable to predict whether its operating results for
the full fiscal year ending December 2002 will be profitable.

Pizza House, Inc. believes that the net proceeds from a working capital line
of credit in the amount of $150,000 and cash flow from operations will be
sufficient to allow Pizza House, Inc. to meet the expected growth in demand
for its products and services in even its Worst Case financial forecast. There
can be no assurance that sufficient capital will be raised if necessary in the
future or that future revenues will meet our growth expectations. Should
either of these fail to occur Pizza House, Inc., may elect to 1.) reduce the
expansion to a level consistent with a slower growth plan, or 2.) pursue other
financing alternatives. Implementation of either of the foregoing options
could delay or diminish Pizza House, Inc.'s growth and adversely affect its
profitability.

Competition

Pizza House, Inc. competes with Companies such as Pizza Hut and Pappa
Johns'. Several of whom have very established businesses. Although we
believe these companies in some instances have greater financial resources
than the Pizza House, Inc., we still feel that our menu, service, and
atmosphere are filling a special unique niche in this marketplace that has not
been answered.
There can be no assurance that competition in the future will not increase
from these Companies or from present or new regionally-based or nationally
based companies. Furthermore, if the market for Pizza Restaurants continues
to grow, companies will likely devote greater resources to this segment of
the market.

Economy

Restaurant industry growth will continue in spite of the current economic

downturn. The economy is currently in the midst of its first recession in over
ten years, a downturn that is expected to continue into early 2002. However,
an improving economy and continued growth in disposable personal income
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will be the catalysts to propel the restaurant industry into another year of real
growth.
The projected 1.4 percent real increase in restaurant industry sales in 2002
will be a modest improvement from the 0.8 percent real gain registered in
2001, when the industry was negatively impacted by a slowing economy and
the events of September 11. However, growth in 2002 will still fall short of
the solid gains registered in the previous nine years (1992–2000).

Industry Growth

There can be no assurance that growth will continue within this segment of
the Food Service Industry at the present rate, or at all.

Government Regulation

There can be no assurance that Pizza House, Inc.'s. operation and

profitability will not be subject to more restrictive regulation or that Pizza
House, Inc. operations and profitability will not be subject to more
restrictive regulation or increased taxation by federal, state, or local
agencies.

Insurable Liability

Pizza House, Inc. has budgeted $3,000.00 per year for all of the following
insurance coverage;

Fire
Theft
Liability
Liquor
Product
Windstorm

The Company will continue such coverage if available at a reasonable cost.

However, future increases in insurance premiums could make it prohibitive
for us to maintain adequate insurance coverage. A large damage award
against Pizza House, Inc., not adequately covered by insurance, would
adversely affect our financial position.
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Pizza House, Inc. has addressed or will address with funding all of the
above weaknesses and risks associated with its profitable operations.
We believe the risk for this enterprise and to our lender to be no greater
than that currently associated with the Industry.

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