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TWST: What are the factors that support a long-term, strong, positive case for demand for restaurants?

Mr. Kalinowski: Several things have happened over the last few decades that continue to drive demand today, including rising per-capita income, growing population, increased travel — which takes people away from their kitchens — and a greater percentage of women in the work force. Also, restaurant meals are progressively becoming relatively less expensive than they used to be when benchmarked against at-home meals. All these things are positive for the industry. Many of these trends are also occurring overseas, which gives companies such as McDonald’s (NYSE:MCD) and Starbucks (Nasdaq:SBUX) enormous opportunities because they have figured out how to generate large amounts of overseas demand, and they can ride these trends for several years to come.

TWST: I wanted to get back to that point. In your initial comments you referred to the ability of some companies to thrive internationally. What is the secret that McDonald’s and Starbucks possess that has eluded other companies that have tried this — Wendy’s, perhaps, is one example?

Mr. Kalinowski: Wendy’s (NYSE:WEN) is a good case in point. Even though I’m recommending the stock and think the company is being run very well in North America, they have clearly had problems in international markets, most recently pulling out of Argentina, but also having recently halted company operations in the United Kingdom and Hong Kong. I think part of it is just that McDonald’s early on decided that they were going to make a long-term commitment to succeeding in these markets. I think the approach that they took was the right one. Wendy’s, in my opinion, has been a little bit more focused on the short term when they go into international markets, and that really hasn’t been the correct approach.owski: From a fundamental perspective, this year has been quite good. 1999 was also a very good year. But there have been very different stock performances this year. Last year, by our reckoning, was the worst year of the 1990s for restaurant stocks. But this year (2000), the stocks have outperformed the S&P 500. I think part of that can be attributed to good restaurant companies tending to their existing restaurants and doing quite well. Also, there has been a very large sentiment shift favoring restaurants. A year ago, two years ago, technology stocks were much more in favor than they are today. Now people are looking for safe havens to put their money in, and restaurants is one place that people are thinking of as a safe haven.

TWST: Do you expect the supply/demand balance to remain favorable for 2001?

Mr. Kalinowski: Things have been good this year, and I would expect them to remain good, going forward. Demand growth tends to be fairly stable year after year at around 2%-3%; it’s really the supply growth that you need to watch. That overheated quite a bit in the mid-1990s. We finally got back to a much more stable and rational condition last year. That has continued this year, and we think it will continue on into 2001. That’s for two main reasons. First, you’re not seeing a lot of restaurant stock IPOs. Essentially, capital flowing into the industry is much more limited than it was five or six years ago. The other thing is that with unemployment so low, even if you did have a lot of capital to expand, it’s a challenge to find enough people to actually staff your restaurants.