Restaurant Research

ChainRestaurantData.com

Arbys Concept Report

Parent Company Arbys Restaurant Group Market Cap N/a

1. 2. 3. 4. 5.

Category Strategy System Stats Sales Performance Operational Overview Unit Level Economics

Pages 1-2 3 4 5 6

6. 7. 8. 9.

Category Unit Growth Build vs. Buy Remodeling Franchisee Overview

Pages 7-8 9 10-11 12

LTM Stock Performance Private

S&P Debt Rating N/a

1. Marketing & Menu Strategy

Arbys continues to pursue a turn-around of its brand which has struggled dramatically since the onset of the great recession. Past attempts to reposition the chain have failed to move the needle as Arbys struggles with how to build brand equity on a foundation of roast beef. New management and ownership is currently looking hard at how the brand fits into the QSR marketplace by seeking to define a target market coupled with a plan of how to reach it. However, we suspect that Arbys real work is to consider how to leverage its uniqueness by making roast beef cool again. If Starbucks can convince the world that caffeine is fashionable, maybe Arbys could do the same with red meat. This will require operational improvements, facility upgrades and a reinvigorated franchisee base. Fortunately, sales stability provides new brand management with some breathing room which could be just the break Arbys needs to get going. Target Market Arbys is in the process of defining a primary target market while also assessing the best method to reach it. As part of this initiative, the company hired the Boston Consulting Group to conduct a brand analysis and help refine Arbys vision. While traditional heavy fast food users (18 34) skewing slightly male have been Arbys historical focus, more recently the chain has been seeking to attract (1) Medium Arbys Customers (MACs), and (2) lapsed customers who have moved on to fast casual through its premium Ultimate Angus roast beef line. Notably, Arbys heavy user frequency tends to be lower than other QSR chains as a result of: (1) higher price points, and (2) its relatively narrow roast beef focus. Roast beef represents Arbys staple and accounts for as much as 60% to 70% of sandwich sales (varying by market with a higher percentage in the middle of the country). The new Ultimate Angus line, which has been well received, features premium sliced whole muscle roast beef and currently drives an estimated 15% of sales (with Arbys regular roast beef sandwiches which are available in a variety of sizes and topping options comprising the remaining 45% to 55%). Arbys Market Fresh premium sliced turkey and chicken sandwiches (including 2 wraps and 2 salads) are the chains next bestselling line at roughly 10% of sales. A three item Toasted Subs line generates about 5% of sales and is primarily driven by the French Dip & Swiss as both the Classic Italian and Turkey Bacon subs are now optional by market. Chicken offerings include the Prime-Cut line (4 sandwiches in crispy or roasted) and boneless chicken tenders (upgraded in 2010). Unique side items include mozzarella sticks, loaded potato bites, Steakhouse onion rings, jalapeno bites, curly fries, Homestyle fries (regional option) and potato cakes. Dessert consists of apple, cherry & chocolate turnovers, vanilla, chocolate or Jamocha shakes and Chocolate Chunk cookies. A 10 item value menu debuted in April 2010 and has been expanded to include apple slices and Kraft Macaroni & cheese. Arbys breakfast menu (available in 10% - 15% of the system and accounting for ~5% of sales at those stores) features an assortment of biscuit, croissant and sourdough sandwiches, wraps, a sausage gravy biscuit, Outside-In Cinnamon Bites pastry and coffee which was also recently standardized throughout the system. As part of an ongoing menu rationalization effort (designed to simplify operations and improve service), the following slow selling items have been eliminated: the $5.01 combo line (4 sandwiches), RoastBurger line, FruiTeas, 1 toasted sub and onion petals. Menu development is currently focused on limited time offers with the goal of adding popular items to the permanent menu as well as product line extensions (with a particular focus on the Angus line). Finally, its kids menu was expanded in October with a Jr. turkey & cheese sandwich, Kraft macaroni & cheese and apple slices with yogurt that can be substituted for fries. Arbys current ad campaign debuted in February 2011 featuring the new slogan Its Good Mood Food which also coincided with the launch of the Ultimate Angus line. The campaign was created by BBDO (hired late 2010) and is designed to portray Arbys food as exciting taste that you can feel better about every day. Commercials feature a spokesman named R.B. (named after Arbys founders) who touts the chains sandwiches as Good Mood Food through the use of corny humor and singing to show that although people might have differences of opinion, they can all get along thanks to Arbys. We note that Arbys just hired a new CMO (Russ Klein who was previously Burger Kings CMO) and that the ongoing brand/ad assessment suggest future marketing tweaks. During 2011, Arbys ran 4 national ad campaigns and 5 are planned for 2012. Since each national campaign airs once per month, regional/local co-ops are responsible for promoting Arbys the balance of the year through local TV, radio and direct mail. Since the launch of its Good Mood Food campaign, Arbys has been focusing more on premium promotions (with new Angus extensions and LTOs such as the Super Reuben Market Fresh sandwich, fish sandwich and seasonal shakes) and less on value. As a result, we estimate value menu sales have decreased from the high teens last year to 10% - 12% currently. Print coupons (more prevalent in non-media efficient markets and when there are no national ads) generally feature bundled deals such as two can dine for $8.99 (2 drinks, 2 sandwiches & 2 fries), 3 beef & cheddar for $5 and 2 French Dip for $5. Facebook promotions typically offer a specific $1 off coupon to members who "Like" Arby's.

Menu

Ads

Promos

Arbys January 2012

Restaurant Research
Chain Arby's Average
(1)

ChainRestaurantData.com
Sandwich
Late Night/ Snack

Total Items

Value Menu

Desserts Average Value % Breakfast Sides Entrees Breakfast Lunch Dinner Sales & Shakes Check

Dine- Take-out/ in Drive-thru

61 58

14 6

10% 17%

15 11

8 5

31 31

7 11

$ 7.50 $ 6.61

2% 13%

60% 52%

34% 29%

5% N/a

30% 25%

70% 75%

(1) Average based on 14 chains (Arby's, Burger King, Carl's, Chick-fil-A, Hardee's, Jack in the Box, Jimmy John's, McDonald's, Quizno's, Sonic, Subway, Taco Bell, Wendy's and Whataburger).

Recent Promotions
Aug-11 Angus Cool Deli (sandwich or wrap), Jamocha Oreo shake LTO, Value Menu Source: RR
100 75 50 25 0
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Carl's Jr. Hardee's Arby's Jack in the Box Sonic Chick-fil-A Quiznos Jimmy John's

Sep-11 Angus Cool Deli (sandwich or wrap), Jamocha Oreo shake LTO, Value Menu

Oct-11 Ultimate Angus Philly, Jamocha Oreo shake LTO

Nov-11 Ultimate Angus Philly, Jamocha Oreo shake LTO

Dec-11 Ultimate Angus Philly, Jamocha Oreo shake LTO

Jan-12 Fish sandwich, Jamocha Cream Pie

Bold products represent new items.

QSR Sandwich Tier 2 - Google Web Search Interest

Ad Spending Estimated Total Marketing Spend 2010 % of System Sales $116 Million 4.2% Ad Fees Franchisee Mandated Ad Contribution Media Focus % of Unit Sales National/Local Primarily national cable television but 4.2% 1.25% - 3.1%/ also print, radio & social media 2.95% - 1.1% In an effort to increase its national media presence (which has suffered from a shrinking ad budget driven by the systems sharp sales declines), Arbys went from a flat rate to a tiered rate advertising structure (based upon the allocation of the national ad contribution). Beginning in April 2010, the required national ad contribution rate was increased from 1.2% of sales to a tiered rate structure currently ranging between 1.25% and 3.5% (depending on the market). The franchisor (Arbys Restaurant Group) partially subsidized the increased ad spending in 2011 for the two markets with the highest required contribution rates. The difference between the 4.2% total ad spending requirement and the national contribution is spent on local and/or co-op advertising. Local/co-op advertising generally consists of regional network and cable television, radio and direct mail inserts. Every domestic Arbys franchisee is required to participate in the AFA Service Corporation which manages national advertising content and placement for the Arbys system. Notably, the company is reassessing its marketing fund allocation system and has hired a consultant to manage the review process with results expected in March 2012. Arbys appointed BBDO New York as its new advertising agency in late 2010 (replacing Omnicom Groups Merkley & Partners of New York).
2010 Estimated Total Domestic Chain Ad Expenditures - SandwichSegment

Agencies

$ Millions
$2,000 $1,500 $1,000 $500 $0

$1,296 $533 $418

$315

$311

$167

$146

$144

$116

$91

$74

$48

$34

Arbys January 2012

Restaurant Research

ChainRestaurantData.com

2. Arbys System Statistics Summary

Sandwich Segment Competitors by 2010 Domestic System-wide Sales
$40.0

$32.4

Billions

$30.0 $20.0

$10.7
$-

$10.0

$8.8

$7.9

$6.9

$3.6

$3.6

$2.9

$2.8

$2.7

$1.8

$1.4

$1.2

$1.2

$0.8

Domestic System Statistics

FYE December 2006 2007 2008 2009 2010 5 yr. ('06 -'10) Average

System-wide sales
System-wide Sales ('000) YOY Growth in System-wide Sales Segment Sales ('000) YOY Growth in Segment Sales Concept's Segment Market Share YOY Change in Concept Mark et Share 3,090,200 5.5% 77,317,400 5.3% 4.0% 0.0% 3,160,000 2.3% 80,621,100 4.3% 3.9% -0.1% 3,255,000 3.0% 85,582,365 6.2% 3.8% -0.1% 2,980,000 -8.4% 86,927,380 1.6% 3.4% -0.4% 2,760,000 -7.4% 88,471,668 1.8% 3.1% -0.3% -1.0% 3.8% -0.2%

Same Store Sales

Franchised Company Total System Segment Avg. 5.0% 1.0% 3.0% 3.2% 1.0% -2.0% 0.0% 2.7% -3.6% -5.8% -4.0% 3.9% -9.0% -8.2% -8.8% -1.1% -5.2% -7.1% -5.8% 1.0% -2.4% -4.4% -3.1% 1.9%

Unit Counts
Franchised Company Total % Growth Rate/Existing Units Segment Avg. 2,399 1,059 3,458 2.4% 2.3% 2,458 1,105 3,563 3.0% 1.8% 2,456 1,176 3,632 1.9% 1.4% 2,418 1,169 3,587 -1.2% 0.6% 2,367 1,144 3,511 -2.1% 0.8% 0.8% 1.4%

Gross New Unit Development

Franchised Company Total % Growth Rate/Existing Units Segment Avg. 95 37 132 3.9% 4.5% 95 51 146 4.2% 3.6% 82 40 122 3.4% 3.5% 49 5 54 1.5% 3.2% 29 0 29 0.8% 3.7%

2.8% 3.7%

Transfers & Closure Rates

Franchised Transfers Franchised Closings Company Closings System Closings Segment Closings 3.0% 1.5% 1.2% 1.4% 2.3% 4.4% 1.1% 1.4% 1.2% 1.8% 2.4% 1.5% 1.4% 1.5% 2.1% 3.7% 3.1% 2.0% 2.7% 2.6% 2.2% 3.6% 1.5% 2.9% 2.9% 3.2% 2.2% 1.5% 1.9% 2.3%

Arbys January 2012

Restaurant Research

ChainRestaurantData.com

3. Sales Performance
Comp Sales Performance Arbys dramatic sales declines appear to have bottomed in 4Q:10 (breaking a streak of 10 negative quarters) and are finally beginning to recoup some of those losses. When the company went private in July 2011 it began reporting only annual sales results. During FYE 2011, comps increased +5.5% and we believe mid to high single digit growth was posted during 4Q:11. We note Arbys sales have been more volatile over the last year with some regional variations including stronger sales in the upper Midwest but weaker results in the Pacific Northwest and West Coast. 2011 sales growth reflects both price increases and improving customer traffic which are benefitting from: (1) the new Good Mood Food marketing campaign, and (2) an emphasis on premium new products including the Angus roast beef sandwich line. While the everyday value menu has been deemphasized, it still represents a significant 10% - 12% of sales and provides a viable option for value driven customers (which was not available prior to April 2010). We attribute Arbys significant comp declines during the 2008 2010 period to: (1) the weak economy and heavy competitor discounting which hit the chain disproportionately hard due to its high $7.50 check average and lack of a value menu, (2) a drop in weekend business (which still has not recovered), and (3) ineffective/inconsistent advertising which was also adversely impacted by a smaller ad budget and less air time due to the sharp 15% decrease in system-wide sales. Although the company is not providing comp sales guidance, Arbys current momentum (driven by its new ads, Angus line and selective price increases) suggests a slightly positive comp bias (+1% to +3%) for 2012 with stronger results likely skewed towards the second half of the year to allow time for new management to complete and implement its marketing and menu initiatives. Arbys steady market share losses over the last 5 years are attributable to below average comp sales results which was further aggravated by net unit declines during 2009 and 2010.

Sales Outlook and Drivers Market Share

Arby's System-wide Comp Performance vs. Sandwich Segment

8% 4% 0% -4% -8% -12% -16% 5.5% 2.0% -7.4% -11.0% -11.5% -5.9%

4Q:09

1Q:10
Arby's

2Q:10

3Q:10
Sandwich

4Q:10

1Q:11

2Q:11

3Q:11

$1B+ Chain Summary

Arby's Share of $1B+ Sandwich Chains

5% 4% 3% 2%
2006 2007 2008
Source: RR

4.0%

3.9%

3.8%

3.4%

3.1%
2010

2009

Arbys January 2012

Restaurant Research

ChainRestaurantData.com

4. Operational Overview
Summary Arbys is increasing its operational focus to improve the systems mediocre rankings. Recent initiatives include hiring a new COO in November 2011 (George Condos is the former SVP/Brand Officer at Dunkin Brands and CEO of Friendlys) who plans to continue Arbys menu simplification process while also focusing on improvements in service, accuracy and quality. In an effort to revitalize Arbys menu, the company hired an outside firm (Mattson) in October 2011. New training programs are being utilized to improve service with a particular focus on guest friendliness and greetings. As an example, all restaurant teams received new training as part of the Good Mood Food campaign roll-out in early 2011. Ongoing company initiatives designed to improve store level operations and customer service include: (1) Red Hat Service, (2) Promise Check, and (3) Safety First. The Red Hat Service program seeks to improve hospitality by hiring friendly people while rewarding staff for high hospitality measurement scores. Promise Check seeks to gather direct customer feedback in a timely and actionable format (via its Mindshare customer feedback program) to make sure Arbys is meeting their expectations. Safety First consolidates all of the chains safety programs into a single computer based module, making it easier for employees to access. Every Arbys restaurant receives 1 to 2 comprehensive unannounced store evaluations per year (with more frequent evaluations for failing stores) by a company Franchise Business Manager. FBMs also provide a variety of on-site consulting services to franchisees. Customer feedback is gathered through its Mindshare program (designed to drive more timely identification and resolution of customer issues) which provides an 800 number call-in/online www.arbys.com/survey on the back of receipts. This program reportedly generates approximately 50100 responses per store per month and is optional for franchisees. Based on independent third party customer satisfaction studies, Arbys ranks in the mid to low end of its peers. Arbys did not earn any top 5 rankings in Zagats 2011 QSR survey. According to the 2011 Market Force Information Survey, Arbys had a 5/11 rating (favorite chain). NRN/WD Partners 2011 Consumer Picks Survey indicates an average ranking for Arbys with a better showing in the food quality, service and cleanliness categories but a lower rating in value.
Quality Value Cleanliness Service Variety Reputation Atmosphere Recommend Return

Initiatives/ Equipment

Quality Control

Customer Ratings

(1 best 32)
Arbys 15th/32

13

21

14

13

19

17

17

18

16

Customer Survey Index Summary - Sandwich

(1 Best - Relative to Segment)
Concept # Companies per Study Arby's NRN Consumer Picks 32 15 Consumer Reports 29 23 JD Powers 28 22 ACSI 4 Brand Keys 8 Market Force 11 5 QSR Drivethru 7

# Top 5 Ratings
Zagat Out of 19 Categories 0

Arbys January 2012

Restaurant Research

ChainRestaurantData.com

5. Unit Economics
While Arbys unit level sales volumes appear to have bottomed in 2010, unit profitability remains under pressure due to rising commodity costs. Arbys estimated FYE 2011 AUV has recovered almost one third of the losses that occurred over the 2008 2010 period but is still approximately 13% below the 2007 peak ($900k versus $1.04 million). We estimate food & paper costs have increased about 100 bps in 2011 to 29.0% which has more than off-set a modest 50 bps improvement in labor due to the sales leverage resulting in an approximate 75 basis point decline in EBITDAR to 17.25% (its lowest level in at least 5 years). Notably, there is also a significant AUV differential between the more modern Pinnacle/Pinnacle Modified stores which represent 51% of the system (depicted in the unit economic data below), older store formats (40% of units) and non-traditional (9% of units). As of FYE 2010, Pinnacle stores generated an estimated AUV of $866k compared to non-traditional and older store formats which generated an AUV of about $759k.

Arby's Franchisee AUV & EBITDAR Trends

$1,200,000 $1,000,000 $1,040,000 25.0% $990,000 20.0% 18.0% 18.0% 17.3% 15.0% 10.0% 5.0% 0.0% 2007
Arby's AUV

AUV

$800,000 $600,000 $400,000 $200,000 $0

19.0%

2008
Sandwich AUV

2009

2010

2011
Sandwich EBITDAR %

Arby's EBITDAR %

Estimated Franchisee Unit Economic History

2007 As of Date AUV Food & Paper Labor & Benefits EBITDAR (Pre G&A) Dec-07 $1,040,000 30.0% 28.5% 19.0% 2008 2009 2010 Dec-10 $866,000 28.0% 31.0% 18.0% 2011 Dec-11 $900,000 29.0% 30.5% 17.3%

Arby's
Dec-08 $990,000 29.0% 29.8% 20.0% Dec-09 $918,000 28.0% 31.5% 18.0%

Sandwich Segment
AUV Food & Paper Labor & Benefits EBITDAR (Pre G&A) $1,090,273 29.5% 27.9% 21.4% $1,112,241 30.1% 28.0% 20.1% $1,099,291 29.0% 28.3% 20.6% $1,083,965 29.3% 28.5% 19.9% $1,098,196 29.6% 28.5% 19.6%

Arbys January 2012

EBITDAR %

$918,000

$866,000

$900,000

20.0%

Restaurant Research

ChainRestaurantData.com

6. Unit Growth
Growth Plans New Unit Development New unit development has been sharply curtailed over the last three years in order to focus on improving sales and profitability at existing stores. Arbys longer-term development prospects suffer from a low sales to investment ratio. All-the-same, the company continues to offer several development incentives including: (1) the Development Incentive Program DIP and (2) Proximity Incentive Program "PIP". The DIP runs from 4/1/11 3/31/13 and seeks to increase Arbys penetration in existing markets by offering a reduced initial fee of $27.5k for the first unit and $15k for each subsequent unit plus a reduced royalty rate of 2% during the first 24 months and then the standard 4% fee for the balance of the term. The PIP (since 2007) encourages existing franchisees to build a new store within 2.5 miles of their existing traditional stores by offering a reduced royalty (1%, 2%, 3% and 4% in yr. 4 and beyond) and no initial fee. According to Arbys website, there is the potential to develop 200+ new restaurants in California, Texas, Florida and New York, 100 to 200 new stores in Illinois, Pennsylvania, New Jersey and Massachusetts with more limited expansion opportunities in the western half of the country. Trade area targets include daily traffic of 20k+, population of 20k+, daytime employees of 6k, household income of $45k and close proximity to other QSR restaurants. Arbys steadily rising closures reflect ongoing concept weakness hastened by declining sales and profits over the last 3 years. We anticipate further closures and system contraction given that: (1) approximately 450 Arbys franchised restaurants (representing about 20% of franchised units as of 4/3/11) were at least 60 days past due on their franchise fees and rent, and (2) a significant amount of franchise stores that are coming up for renewal within the next few years may not get renewed considering the current state of the brand and expensive remodel requirements. However, closures of these units could be moderated by a continued improvement in sales and a more sustainable turnaround.
Arby's Gross New Unit Growth vs. $1B+ Sandwich Chain Average
5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2006 2007 Arby's 2008 2009 2010 Sandwich 2011E

Target Markets

Closures

3.9%

4.2% 3.4%

1.5% 0.8% 0.5%

Arby's Transfer & Closure Rates vs. $1B+ Sandwich Chain Average
5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
2006
Arby's Closures

2.7% 1.4% 1.2% 1.5%

2.9%

2007

2008
Sandwich Closures

2009

2010

Arby's Franchise Transfers

Source: RR

Arbys January 2012

Restaurant Research
Click on Drop Down List to Switch Chains

ChainRestaurantData.com

Unit Activity by State

2010 Unit Count % Gross New Unit Openings Unit Closings 2006 2007 2008 2009 2010 0 0 0 1 2 0 1 1 0 0 0 0 2 1 1 2 0 1 0 2 5 5 4 9 8 0 1 3 1 1 2 0 2 0 0 0 0 0 0 2 0 1 0 0 0 2 4 2 9 9 4 5 4 5 2 0 0 0 0 0 0 0 0 0 1 4 2 4 8 14 1 1 1 0 3 0 0 1 0 0 0 0 1 0 0 1 0 0 4 1 0 1 0 2 4 0 0 0 0 0 1 3 0 0 1 0 0 0 1 0 2 2 4 4 4 0 0 2 2 1 0 0 0 2 1 0 0 2 0 1 0 1 0 0 0 0 0 0 0 0 0 0 0 4 1 0 0 0 1 0 0 0 1 3 1 2 0 0 1 0 1 2 6 3 4 5 0 1 3 1 0 0 0 0 0 5 4 2 6 7 0 2 0 2 0 0 1 2 2 0 3 2 0 4 6 0 0 0 0 0 0 0 1 0 1 1 0 0 0 0 0 2 1 2 3 4 6 2 7 14 0 0 0 1 5 0 0 0 0 0 1 1 1 1 1 1 0 1 1 1 0 0 0 0 0 0 0 1 2 1 1 0 0 0 0 48 47 53 92 104 1.4% 1.4% 1.5% 2.5% 2.9% 2006 0 0 2 3 0 1 0 0 0 8 2 0 1 0 0 4 3 5 1 0 2 0 7 5 0 5 0 1 2 0 2 (1) 4 2 1 3 1 0 2 0 4 (1) 3 1 1 0 4 (1) 1 6 0 84 2.5% Net Unit Openings 2007 6 (1) 2 1 (5) (1) 3 0 (1) 1 (1) 1 1 4 6 3 3 8 2 0 0 0 5 6 1 6 0 1 0 0 2 1 2 10 0 2 (1) 0 1 0 3 2 1 11 1 0 6 1 1 4 1 99 2.9% 2008 3 (1) 3 0 0 (3) 0 0 0 7 (1) 0 0 3 0 (1) 1 3 1 0 5 0 (3) 3 4 7 0 1 0 0 2 1 (4) 4 0 0 0 0 2 0 2 1 2 13 1 0 4 0 3 4 0 67 1.9% 2009 0 0 0 0 (5) (1) 0 0 0 (6) (4) 1 0 (7) 1 2 1 (3) (1) 0 1 (1) (4) 0 (1) 2 0 0 (4) (1) (1) (1) (2) (3) 0 (5) 0 (2) (1) 0 3 0 1 1 2 0 (1) 0 1 0 0 (38) -1.0% 2010 (1) 0 0 0 (8) (1) 0 (2) 0 (8) (1) 1 (1) (14) (3) 0 1 (1) (3) 0 1 0 (4) (1) (1) 3 1 0 (1) 0 0 0 (3) (1) 0 (6) 0 0 (6) 0 3 0 (3) (11) (5) 0 0 (1) 0 1 0 (75) -2.1% Transfers Between Franchisees 2006 0 0 0 0 8 0 1 1 0 30 1 0 0 2 2 0 0 0 1 1 0 0 4 0 1 2 0 0 1 0 0 0 0 4 0 0 0 0 0 0 0 0 0 10 0 0 1 0 0 1 0 71 3.0% 2007 0 0 2 0 5 0 0 0 0 1 2 0 0 1 0 0 0 4 1 0 0 0 2 0 2 0 0 0 0 0 2 0 1 47 0 8 0 0 11 0 0 0 0 10 1 0 4 1 0 0 0 105 4.4% 2008 0 0 2 0 2 0 0 0 0 3 3 0 0 0 8 0 0 8 2 0 0 0 10 0 0 0 0 0 0 0 1 1 7 1 0 1 0 0 1 0 4 0 0 0 2 0 1 1 0 0 0 58 2.4% 2009 0 0 0 0 6 10 0 0 0 0 0 0 0 0 5 0 0 2 0 1 0 1 4 0 0 1 0 0 1 0 1 0 0 34 0 1 0 0 1 0 0 1 0 4 14 0 0 0 0 5 0 92 3.8% 2010 10 0 0 0 2 0 0 0 0 15 0 0 0 1 1 1 0 1 0 0 0 0 4 0 7 0 0 0 2 0 1 0 0 0 0 2 0 0 0 0 0 0 1 0 3 0 0 3 0 0 0 54 2.2%

Arby's

State Total Franchised Company Total 2006 2007 2008 2009 2010 2011E Alabama 102 32 70 2.9% 0 6 3 1 1 0 Alaska 9 9 0 0.3% 0 0 0 0 0 0 Arizona 83 83 0 2.4% 2 2 5 1 1 0 Arkansas 44 44 0 1.3% 5 1 1 0 2 0 California 120 92 28 3.4% 5 0 4 4 0 0 Colorado 61 61 0 1.7% 1 0 0 0 0 0 Connecticut 14 2 12 0.4% 2 3 2 0 0 0 Delaware 17 17 0 0.5% 0 0 0 0 0 0 District Of Columbia 0 0 0 0.0% 0 0 0 0 0 0 Florida 169 79 90 4.8% 10 5 9 3 1 0 Georgia 146 54 92 4.2% 6 4 3 1 1 1 Hawaii 9 9 0 0.3% 0 1 0 1 1 0 Idaho 21 21 0 0.6% 1 1 0 0 0 0 Illinois 130 125 5 3.7% 4 6 7 1 0 1 Indiana 179 80 99 5.1% 1 7 1 1 0 1 Iowa 54 54 0 1.5% 4 3 0 2 0 0 Kansas 52 52 0 1.5% 3 3 2 1 1 1 Kentucky 132 84 48 3.8% 6 8 3 1 0 1 Louisiana 27 27 0 0.8% 1 3 1 1 1 0 Maine 8 8 0 0.2% 0 0 0 0 0 0 Maryland 48 31 17 1.4% 3 3 5 1 2 1 Massachusetts 5 5 0 0.1% 0 0 0 0 0 0 Michigan 185 78 107 5.3% 9 7 1 0 0 1 Minnesota 85 2 83 2.4% 5 6 5 2 0 0 Mississippi 23 20 3 0.7% 0 1 4 1 0 1 Missouri 85 81 4 2.4% 5 6 9 2 4 2 Montana 19 19 0 0.5% 0 1 0 0 1 0 Nebraska 50 50 0 1.4% 1 1 1 0 0 0 Nevada 30 30 0 0.9% 2 0 0 0 0 0 0 0 0 0.0% 0 0 0 0 0 0 New Hampshire New Jersey 27 10 17 0.8% 2 2 3 2 1 0 New Mexico 30 30 0 0.9% 1 1 1 0 0 0 New York 84 84 0 2.4% 5 4 2 1 1 1 North Carolina 138 78 60 3.9% 7 10 5 0 0 0 North Dakota 14 14 0 0.4% 1 0 0 0 0 0 Ohio 279 177 102 7.9% 8 6 2 1 1 1 Oklahoma 95 95 0 2.7% 1 1 0 2 0 1 Oregon 37 16 21 1.1% 0 1 2 0 0 0 Pennsylvania 145 57 88 4.1% 5 3 2 3 0 0 Rhode Island 0 0 0 0.0% 0 0 0 0 0 0 South Carolina 77 64 13 2.2% 4 3 3 3 4 0 South Dakota 15 15 0 0.4% 0 2 1 0 0 1 Tennessee 109 57 52 3.1% 3 3 3 3 0 0 Texas 170 102 68 4.8% 5 17 15 8 3 1 Utah 68 35 33 1.9% 1 1 1 3 0 1 Vermont 0 0 0 0.0% 0 0 0 0 0 0 Virginia 109 107 2 3.1% 5 7 5 0 1 1 Washington 64 40 24 1.8% 0 1 1 1 0 0 West Virginia 36 35 1 1.0% 1 1 3 1 0 1 Wisconsin 91 87 4 2.6% 6 4 5 2 2 0 Wyoming 16 15 1 0.5% 1 1 0 0 0 0 Total 3,511 2,367 1,144 100.0% 132 146 120 54 29 18 % YOY Growth -2.1% -2.1% -2.1% 3.9% 4.2% 3.4% 1.5% 0.8% 0.5% Please note state unit data is derived from FDDs and may vary from figures reported in 10-ks and annual reports.

Arbys January 2012

Restaurant Research
Building Efficiency

ChainRestaurantData.com

Valuation Build vs. Buy

New Build vs. Buy Analysis Arbys low AUV and relatively large footprint negatively impact its sales to investment ratio. However, Arbys management team continues to seek ways to reduce construction costs for new stores including a smaller building with reduced seating capacity. Some franchisees would also like to see an in-line option which could also help to improve the new build ROI. Currently, the Arbys system utilizes 4 building designs: (1) Pinnacle, (2) Pinnacle Modified, (3) a Convenience Store option, and (4) non-traditional (colleges, airports, retail centers). Pinnacle restaurants feature a prominent diamond-shaped two-story window that extends above the roofline of the building while the Pinnacle Modified incorporates a pinnacle shaped window in the roof line. Typical new building parameters include a to acre lot with a 1:2 parking/seating ratio and freestanding building size of 2,133 3,015 sq. ft. with a drive-thru. Arbys estimated franchise EBITDA multiple has been steadily declining since 2007 and is currently about 10% below the segment average which reflects concept weakness and a sizeable supply of distressed stores. New build costs run approximately 30% more than a hypothetical acquisition.

New Build Cost Overview

Arby's New Build Costs (Excluding Land)
New build AUV Building & Sitework Furniture, Equipment & Signage Small Wares & Inventory Initial Franchise Fee Soft Costs (*) Total Land (sq. ft.) Building size (sq. ft.) # seats Sales/sq. ft. Investment costs/sq. ft. Sales/investment (excluding land) $950,000 $600,000 $300,000 $20,000 $37,500 $40,000 $997,500

Sandwich
$1,157,231 $587,692 $338,769 $17,308 $37,115 $51,154 $1,032,038 33,060 2,422 56 $477.89 $426.19 1.12

Typical New Unit Requirements

34,000 2,800 74

Investment Statistics
$339.29 $356.25 0.95

(*) Soft costs include pre-construction costs such as the initial franchise fee, architectural and engineering fees, permits, opening advertising, training expenses and utility deposits, but excludes liquor license (if applicable) due to the extreme range in costs.

Concept Arbys Sandwich

Estimated Concept Business Valuations (EBITDA Multiple) Average Estimated Multiple % Change 2012 Absolute Range Jul 10 Jan 11 Jul 11 Jan 12 Jan12/ Jul 11 Low High Median 4.10 4.03 4.00 3.97 -0.8% 3.75 4.38 4.06 4.32 4.36 4.36 4.42 1.4%

Source: January 2012 RR Valuation Survey

New Build vs. Buy Analysis

Arby's
New Build AUV 950,000 vs. AUV EBITDA (post G&A) Purchase Price Multiple Business Value Land & Building Value (Rent/Cap Rate) Total Acquisition Costs Assumptions Annual Land & Building Rent % G&A per Unit 8.0% 35,000 Cap Rate Land Cost 1.30 7.8% 450,000 Acquisition 900,000 48,250 3.97 191,766 923,077 1,114,843

Building Costs Ex. Land Land Total New Build Investment

997,500 450,000 1,447,500

New Build Investment Costs/Acquistion Costs

Arbys January 2012

Restaurant Research

ChainRestaurantData.com

7. Remodeling Overview
Remodel initiatives System Physical Condition The Pinnacle design was introduced in 1996 to update Arbys restaurants with a lighter, brighter feel. Pinnacle restaurants feature a prominent diamond-shaped two-story window with the Arbys hat logo suspended inside that extends above the roofline of the building (the Pinnacle Modified incorporates a pinnacle shaped window within the roofline of the building), a red metal roof and a bold red and subtle tan color scheme which is accented by red illuminated awnings located above each window. In order to accelerate remodel progress, the Blade Pinnacle remodel was introduced in 2009. Blade remodels are designed to be a less expensive alternative to a full Pinnacle update and feature the construction of a new faade on an existing building so that it resembles the traditional Pinnacle design using synthetic stucco but without the glass window. The remaining exterior of the building is painted to look new while new signs and red illuminated awnings are installed. Interior elements include a new seating package, front counter, queue line, paint, wall coverings, ADA compliant restrooms and kitchen equipment (including a new slicer counter). The company plans to review and update its remodel program in 2012. The Blade Pinnacle remodel (including the interior and exterior of the building as well as some deferred maintenance) costs approximately $250k to $300k according to the company. Notably, this represents an approximate $100k to $200k reduction in remodel costs since 2009. A complete scrape & rebuild typically costs around $825k. Franchisee remodel estimates run slightly lower at about $200k (excluding any deferred maintenance). Franchisees also have the option of a refresher (at a cost of up to $50k) which includes completing all deferred maintenance, required kitchen upgrades, new paint reflecting the current colors, interior dcor, upholstery, carpet and upgraded signage in return for a 5 year franchise extension. Although limited information has been made available concerning post remodel sales increases, the company has previously targeted a 10% lift for the full remodel. Franchisee sales lift estimates range from +5% to +10% for a full remodel but nothing for a refresher. From 1996 (the inception of the Pinnacle image) through FYE 2010, about 51% of the system incorporated at least some Pinnacle design elements (including 20% that have been built from the ground up). Currently, no financing program is in place. However, the company may provide a partial credit of the $25k renewal fee as an incentive to remodel. Franchisees are obligated to maintain premises in good condition. Upon franchise expiration, franchisees are required to remodel their stores and the length of the renewal term varies depending on the scope of remodel (from 2 up to a full 20 year term).

Remodel Costs

Sales Bump

% updated Financing FDD requirements

Pinnacle Exterior

Modified Pinnacle Exterior

New Interior

Arbys January 2012

10

Restaurant Research

ChainRestaurantData.com

8. Franchisee Overview
Franchisee Sentiment Arbys franchisee sentiment appears to be slowly recovering from its worst levels set last year as a result of: (1) the recent improvement in sales trends, (2) the companys separation from Wendys in July 2011 and (3) the appointment of several new industry veterans including Hala Moddelmog (Arbys President and past President of Churchs) in May 2010, George Condos (Arbys Chief Operating Officer and former Dunkin Brand Officer) in November 2011, Russ Klein (Arbys Chief Marketing Officer and former Burger King CMO) in January 2012, Jon Luther (Arbys board member and current chairman of Dunkin Brands) and Sid Feltenstein (Arbys board member and former chief executive of Yorkshire Global Restaurants). However, some franchisees would like to see a more defined strategic vision for the brand given all the recent management changes. Further, sentiment is sometimes contentious in light of the significant amount of financial strain that operators have endured during 3+ years of sharp sales and profit declines which resulted in approximately 20% of franchised restaurants falling behind on their franchise fees and rent (with some operators closing stores rather than investing in expensive remodels upon franchise renewal or venturing into alternative brands instead of opening new Arbys because of its low ROI). Franchisee Profile Franchising start date Number of franchisees Largest Franchisees Financial requirements Franchisee associations 1965 There are approximately 395 domestic Arbys franchisees (about 6 stores each on average). As of January 2012, Arbys 10 largest franchisees operated 774 units (about 33% of the franchised system). Currently seeking experienced franchisees with a proven track record in the restaurant industry and the necessary capital (currently $500k in liquid assets) for multi-unit development. AFA Service Corp. (AFA) is responsible for Arbys marketing and advertising strategies. Notably, Arbys Restaurant Group (ARG) and the AFA have operated under a management agreement since 2005 in which ARG provides general managerial responsibility for the day to day operations of AFA, and in consultation with the AFA Board, develops the marketing strategy for the Arbys brand. In addition, the system benefits from ARCOP, Inc., a non-profit cooperative formed in 1978 whos mission is to contain or reduce costs through consolidated purchasing efficiencies and ensure continuity of supply. Membership in ARCOP is open only to Arby's franchisees and Arby's LLC. The initiation fee for a new franchisee is $100 and the dues are funded through a sourcing fee on a few select items. According to Arbys FDD dated March 2011, there was only one franchise litigation case pending (related to unpaid royalty fees for a terminated franchisee) and 1 concluded international case. $37.5k initial unit; $25k for subsequent units (including a $10k per unit development fee). Reduced initial fees ($27.5k first unit and $15k subsequent units) are available as part of Arbys Development Incentive Program. The initial fee is $12.5k for non-traditional stores. Renewal fees are 10% of the then current initial fee. 4% of gross sales payable monthly (4% - 7% for non-traditional restaurants). A temporary reduced royalty fee is available as part of the Development Incentive and Proximity Incentive Programs.

Litigation Franchise Fees:

Royalty Fees:

# 1 2 3 4 5

Units 278 69 69 68 56

Largest Arbys Franchisees Franchisee # Units United States Beef Corporation 6 53 Carisch, Inc 7 53 DRM, Inc. 8 45 Restaurant Management, Inc. 9 44 Beavers, Inc. 10 39

Franchisee The Bailey Company, LLP FX4 Lunan Corporation Loves Country Stores, Inc. Pilot Travel Centers, LLC

Source: Company as of January 2012

Arbys January 2012

11

Restaurant Research

ChainRestaurantData.com

www.ChainRestaurantData.com
Contact Wally Butkus at (203) 405-1901 or wbutkus@ChainRestaurantData.com with questions related to this report.

Copyright: This publication may not be reproduced, retransmitted electronically, including via email, intranet or internet or copied in any form, in whole or part, without prior written permission, whether for internal business use or otherwise. Violators risk criminal penalties and civil damages of up to $150,000 per offense. We vigorously prosecute copyright infringers. Copyright 2012 Restaurant Research LLC. All rights reserved.

Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Researchs analyses and opinions are not a guarantee of the future performance of any company or individual franchisee. RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment.

Arbys January 2012

12