1) Independent restaurants, defined as those with 1-9 units, make up over 63% of total eating establishments but account for only 35% of total industry sales. 2) The top independent restaurants by sales can generate over $20 million annually with check averages of $50-$80. 3) Tao Restaurant in Las Vegas is the highest grossing independent, projected to generate $66 million in 2010 across its restaurant, club, and pool areas with over 1,400 guests on weekends.

1. Introduction to the
Foodser vice Industry
October 2012
1

2. Technomic, Inc.
• Leading foodservice industry organization
• IFMA partner on F&O, seminars, pubs
• Proprietary, multi-client consulting and research firm
• Food industry publications
2

3. Sample of Technomic Clients
3

4. Today’s Agenda
1 Overview of foodservice industry
2 Foodservice segment size/growth
3 Review of trends/issues
4 Provide answers to your questions
4

5. The Foodservice Business System
• Food
• Non Food
• FS Only
• Multi-Channel
Manufacturers
• Generational
• Ethnic
• Healthy, Value
• Other
Distributors
Consumers
• Broad-line
• Systems
• Club/CNC Operators
• Specialty Industry
• QSR
• FSR • GPOs
• Beyond Restaurants • Re-distributors
• Hotels, Retail, Other • Consultants, Media, etc.
• Brokers, software, etc.
5

6. Critical Sources for
Foodservice Outlook
Foodservice
Operators
Forecasting
Distributors
Manufacturers
6

7. Foodservice Industry Overview
Client Logo

8. Foodservice Is Defined as...
Establishments that prepare and generally serve food, meals,
snacks and beverages away from home
8

9. Retail vs. Foodservice
Criteria Retail Foodservice
Units 50,000 1,032,373
19 major segments;
Segmentation Little
multiple subsegments
Syndicated Data Nielsen, IRI None
Private Label Penetration Medium High
Product Selector Consumer Operator
9

10. Value Chain Example:
Retail vs. Foodservice
Retail Foodservice
Manufacturer $1.00 $1.00
Shipments
Distributor $1.05 $1.15
Sales
Retailer Sells/
Consumer Pays $1.30 $3.50
10

11. Foodservice Product Value Chain* –
2010
• Manufacturer shipments – value
of manufacturer sales to
distributors – $152B
• Operator purchases – value of
distributor sales including
distributor margins – $175B
• Retail Sales Equivalent (RSE) –
value of operator sales including
operator margins – $529B
*Food and nonalcoholic beverages only 11

12. Foodservice a Significant Share
of Total Food Industry Sales
1990 = $566B 2000 = $791B 2011 = $1,179B
$252B $314B $394B $397B $542B $636B
45% 55% 50% 50% 46% 54%
Foodservice Retail
12

13. Significant Opportunity Still Exists
for Further Foodservice Growth
Share of RSE* Share of Meals
24%
46% 54%
76%
Foodservice Retail
*Retail sales equivalent
Source: Technomic; NPD FoodWorld 13

14. Macro-Economy: Critical Indicators
Two most critical indicators for
foodservice health:
• Disposable Personal
Income (DPI)
• Unemployment
Other important measures:
• Economic Growth (GDP)
• Inflation
14

15. Economic News a Combination
of Positives, Negatives
Positives Negatives
• Tax cut extension • Rising commodity costs
• Low interest rates • Europe financial instability
• Weak dollar helping exports • State/local budget shortfalls
• Some increase in consumer • Major natural disasters
spending
• Economy is adding jobs • High unemployment,
underemployment
• Disposable personal income • Continued tight credit grip
is growing for most
• GDP slowly improving
15

16. GDP Improving (Barely)
Quarterly % Change – Real vs. Prior Period
Q2 2012
Q1
1.7%
2006
5.4% Q4
8% 2008
6% -6.8%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Q1'03
Q3'03
Q1'04
Q3'04
Q1'05
Q3'05
Q1'06
Q3'06
Q1'07
Q3'07
1Q'08
3Q'08
1Q'09
3Q'09
1Q'10
3Q'10
1Q'11
3Q'11
1Q'12
Source: Bureau of Economic Analysis 16

17. DPI Generally Flat
% Real Change vs. Prior Year
Aug
2007 Aug 2012
4.1% Dec 4.1%
5%
2009
4%
-2.9%
3%
2%
1%
0%
-1%
-2%
-3%
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Jan '05
Jan '06
Jan '07
Jan '08
Jan '09
Jan '10
Jan '11
Jan '12
May
May
May
May
May
May
May
May
Source: Bureau of Economic Analysis 17

18. Unemployment Remains the Key
Challenge to Faster Industry Growth
20% Unemployment and
18% Underemployment
16%
14%
14.7%
12%
10% 8.3%
8%
8.1%
6% 4.6%
4% Unemployment
2%
0%
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
'07 '08 '09 '10 '11 '12
Source: Bureau of Labor Statistics 18

19. Job Openings and Unemployment
Disconnect
Unemployment
Level
16000
14000
Persons (Thousands)
12000
10000
8000
Job
6000 Openings
4000
2000
0
2000 2006 2011
Source: Bureau of Labor Statistics 19

20. Jobs Picture and Foodservice
Spending
• People with jobs are • 20% of the economy remains
experiencing more stability unemployed, underemployed,
• Hiring for college grads is or discouraged
improving • Acute problems for urban poor,
• More discouraged workers especially in coastal areas
returning to search • Long-term unemployed and
• Government sector is a vets are stigmatized in the
negative exception market
Government Accounting Office, Congressional Budget Office, BLS 20

21. Food Inflation Resulting in Higher,
Menu & Grocery Prices – U.S.
% Change vs. Year Ago
10%
9%
8%
7% CPI FAFH
6% 2.8%
5% PPI Food
4%
3% 2.2%
2% CPI FAH
1% 1.5%
0%
-1%
-2%
-3%
-4%
-5%
Jan '10
Jan '12
Jan' 11
Sep
Sep
Jul
Jul
Jul
Mar
Mar
Mar
May
Nov
May
Nov
May
Source: Bureau of Labor Statistics 21

22. Both LSR and CDR Chains in Positive
Same-Store Sales Territory
% Same Store Sales
Change vs. Previous Year
6%
LSR
4% 4.6%
2% CDR
1.4%
0%
-2%
-4%
-6%
-8%
Q1'07 Q1'08 Q1'09 Q1'10 Q1'11 Q1'12
Source: Public Company Reports, Technomic 22

23. Heavy Restaurant Usage Trend
Barometer Pointing Up
Heavy Restaurant Usage
Two Times a Week or More
34%
29% 28%
17%
13%
11% 11%
8%
March '11 Sept. '11 Jan. '12 March '12
LSR FSR
Source: Technomic Amex Market Brief April 2012 23

24. 2012 LSR, FSR Growth Rates
Adjusted
Nominal Change Real Change
1.9% 0.6%
LSR 2.5% 0.0%
3.0% 0.5%
-1.3% -2.5%
FSR 2.5% 0.0%
2.5% 0.0%
 2010  2011 (P)  2012 (F)
24
Source: Technomic

25. Revised 2012 & First Look at 2013
2012 (P) 2013 (F)
CPI-FAFH 2.5% CPI-FAFH 2.5%
Nominal Growth 3.9% Nominal Growth 4.3%
Real Growth 1.5% Real Growth 1.8%
 Strongest industry growth since 2007
Key Insights  But still lower than 2003-2007 Real CAGR (2.8%)
(P) = Preliminary
(F)= Forecast
Source: Technomic 25

26. Foodservice Returning to Real
Growth
Nominal Change Real Change
0.5% -0.8%
Restaurants 2.5% 0.0%
2.8% 0.3%
1.1% -0.2%
Beyond Restaurants 2.6% 0.3%
2.9% 0.5%
0.7% -0.6%
Total Foodservice 2.5% 0.1%
2.8% 0.3%
 2010  2011 (P)  2012 (F)
Key Implication First real industry “growth” since 2007.
26
Source: Technomic

27. Quiz Time:
Foodservice Industry Overview
27

28. Operator Segment Review
Client Logo

29. Foodservice Segmentation 2010
Share of Operator Purchases
Vending Education
5% 8%
B&I Leisure
3% 8%
Other
4% Retailers
9%
Healthcare
6%
Restaurants
57%
Source: Technomic 29

30. Restaurants & Bars Segment
Includes...
Restaurants
& Bars
Limited Full Bars &
Service Service Taverns
Quick Cafeterias Casual Fine
Traditional Midscale
Casual & Buffets Dining Dining
30

31. Definitions
Segments Definitions
• No table service
Limited Service
• Fast service orientation
(LSR)
• “Buy before you eat” system
• Subsegment of LSR
Quick Casual (QC) • Freshly prepared, wholesome quality
• Check average: $6-9
• Table service
Full Service
• Limited alcohol service
Midscale (FSR)
• Check average: $6-10
• Lunch, dinner focus
• Table service
FSR Casual Dining
• Full bar service
• Check average: $10-25
• Dinner emphasis
FSR Fine Dining
• Entrée over $20
31

32. Beyond Restaurants Segments
Segments Definitions
 Includes employee feeding in offices, factories, and
plants. To a large extent this service is handled by
Business contract feeding companies such as Aramark, Sodexo
& Industry & Compass
 Defined as all food and beverage products sold
through automatic vending machines, regardless of
their location. Not included are other vended products
Vending/OCS* such as cigarettes, cigars, bulk vending, and other
nonfood items.
 Retail stores that host foodservice, including
supermarkets, convenience stores and other retailers
such as general merchandise stores and department
Retail Hosts
stores. Does not include foodservice within the store
managed by an outside restaurant company.
*OCS = Office Coffee Service 32

33. Beyond Restaurants Segments
Segments Definitions
 Includes all full-time and part-time
colleges/universities (public and private two-year
Education and four-year colleges and junior college
College & University programs.) The key foodservice areas are: Board
contracts in dormitories, Cafeterias, Snack shops
and Special function services
 Encompasses all public and private primary and
secondary school feeding. Total consumption is
based on school purchases and government
Education
contributions, which together compose the total
Primary Schools
dollar value of food. The key components are
Lunch participation, Breakfast participation, Milk
programs, and la carte feedings
 The recreation segment includes foodservice food
and nonalcoholic beverages sales only in various
establishments and locations where activities are
Travel & Leisure
considered recreational in nature.
33

34. Typical Restaurant Structure
34

35. Accounting for Non-traditional
Locations
35

36. A Note on Independents
Independent restaurateurs may operate more than one
location.
• Technomic, Inc., defines independent restaurants as those with
one to nine units, and chains as those with
10 or more.
According to the National Restaurant Association, more
than 7 out of 10 of the nation’s “eating and drinking
places” are single-unit independent operations.
36

37. The Restaurant Landscape – 2010
Lots of independents and Small Chains don’t equal selling
power of the Top 500 Chains.
Units Sales
37.0% 35.2%
63.0% 64.8%
Top 500 Independents & Small Chains
37

38. Leading Independent Restaurants Ranked
by Food & Beverage Sales
Rank Restaurant/City Check Average 2009 Sales
Tao Restaurant & Nightclub – Las
1. $70.00 $59.2
Vegas
2. Joe’s Stone Crab - Miami Beach 68.00 26.3
3. Smith & Wollensky - New York City 84.50 25.0
4. Old Ebbitt Grill - Washington, D.C. 24.00 24.5
5. Carmine’s – New York City 30.00 24.0
6. Lavo Italian Restaurant – Las Vegas 60.00 22.0
7. Tao Asian Bistro - New York City 74.00 20.7
8. Buddakan – New York City 49.00 20.0
9. Gibson’s Bar Steakhouse - Chicago 62.33 19.9
38

39. Tao Las Vegas
2010 Projected Sales – $66.0MM
• Restaurant - $28.0
• Club - $28.0
• Pool - $10.0
Statistics
• 57 cooks, 8 chefs, 26 servers,
and 10 Hostesses
• 1,400 pp on a weekend
• Check average: $70.00
• Meals served: 590,990 Miso Glazed Chilean Sea Bass Tao-Tini
with Wok Vegetables $36.00 $13.00
• 75% of revenue from sales
of alcohol
39

40. Operator Business Situation
Slowly Improving
Operator Sales/Revenue Situation for First 4 Months*
49%
43% 45%
37%
31%
25% 26%
22% 21%
17%
Increased Decreased
2008 2009 2010 2011 2012
40

41. Operators Have Concerns But
the Mood is Brightening
-14 -11 -17 -12 -1
71% 71%
65% 61%
57%
Rising Food Increasing Ability to Employee Rising Fuel
Costs Profits Grow Sales Retention Costs
*Top 2 Box on 1 to 5 scale where 5 = “extremely concerned” and 1 = “not concerned at all”
Source: 2010 & 2011 F&O Operator Surveys 41

42. Prime Cost: The Most Important
Operator Metric
65.9% 65.0% 65.6%
61.3%
29.4% 33.7% 33.2% 33.7%
31.9% 32.2% 31.8% 31.9%
LSR FSR <$15 FSR $15 to $12.99 FSR $25.00+
Food Cost Labor Cost Prime Cost
42

43. Hourly Labor Turnover
a Headache But Getting Better
Annual Turnover Rate
Hourly Employees
113%
89%
83% 79%
71% 71% 67%
55%
LSR FSR <$15 FSR $15 to $12.99 FSR $25.00+
2007 2010
LSR = Limited Service Restaurants FSR = Full Service Restaurants *Average check
Source: NRA 2007 & 2010 Industry Operations Reports 43

44. The End of Cheap Food:
The Economist – December 6, 2007
“For as long as most people can remember, food has been getting
cheaper and farming has been in decline. In 1974-2005 food prices on
world markets fell by three-quarters in real terms. Food today is so
cheap that the West is battling gluttony even as it scrapes piles of half-
eaten leftovers into the bin.
“That is why this year's price rise has been so extraordinary. The
Economist's food-price index is higher today than at any time since it
was created in 1845 . Even in real terms, prices have jumped by 75%
since 2005.”
44

45. Food commodity prices since January 1980:
Reversal of a 22-year downward trend
Index: January 2002 = 100
225
Doubled in 10 years
175
125
Down 1/3 in 22 years
75
1980M1
1982M1
1984M1
1986M1
1988M1
1990M1
1992M1
1994M1
1996M1
1998M1
2000M1
2002M1
2004M1
2006M1
2008M1
2010M1
2012M1
Source: International Monetary Fund:
International Financial Statistics 45

46. Primary factors affecting crop prices 1
(June 2010 – Jan 2012)
Index: January 2002 = 100 Russia stops grain
350 import U.S. $ appreciates
Strong LDC economic growth. duty
Rising oil price. U.S. $ depreciates Importers
aggressively Favorable weather
buying Mexico In Europe & FSU
Russia ends
freeze export ban
EU suspends
barley & feed wheat
300 import levies
China dryness
Canada & NW Europe:
rain damages
wheat crop
250 Aust. rain
damages
E. Africa drought
wheat crop
Russia Argentine
wheat U.S. corn & Brazil
export ban yields drop drought
(high temps) Argentina drought
200
Russia drought
U.S. HRW drought
Reductions in estimated global ending grain stocks Higher estimated global grain stocks
150
May Jul Oct Jan Apr Jul Oct Jan
10 10 10 11 11 11 11 12
14-cropmonthly price index: Wheat, rice, corn, & soybean prices; based on IMF
price and trade share data. 46

47. Even Top 500 Chains Are Not
Immune to Rising Commodity Costs
Jack in the Box Chili’s IHOP
+5.0% +4.0% +5.0%
Red Robin Texas Roadhouse Taco Bell
+5.5% +4.9% +7.0%
47

48. More Operators Taking
Price Increases
Have Taken Price Increase in Will Take Price Increase
First 3 Months of Year in Next 6 Months
44% 47%
35% 34% 37%
28%
2010 2011 2012 2010 2011 2012
48

49. Operators Need to Focus More Intensely on
Other Value Drivers for Balance
Low Prices/Deals are Not
Sustainable Competitive Advantage
Service
Convenience
Value Price
Atmosphere
Quality
49

50. The Drive for Value:
Meeting Consumer Expectations
Major Strategies
Upping • Remaining competitive
their Game
• Delivering more
Lifestyle • Responding to core needs, priorities
Points of
On-Line
Differentiation
Coupons
Varied
Menu Strategies
50

51. Operator’s Employing Varied
Value Strategies
Everyday
Tiered Pricing Low Price Extras Relative Pricing
Free Sides with
$2 $4 $6 $8 $10.00 Large Pizza
Premium $5.00 Footlong
Value Menu up to 3 Toppings
Sandwich
51

52. Upping Their Game:
Domino’s “Oh Yes We Did”
Before After
52

53. Online Coupons Have Had Major
Impact
53

54. About Groupon
• Launched 2008; fastest Have Used Online Coupon
company to $1B ever.
• Negotiates deep discounts and
then splits revenue with
Yes
vendor. 22%
• 38.0mm customers
• User: No
– 18-34 years old (68%) 78%
– College educated (50%)
– Single (49%)
– Woman (77%)
– $110K+ (29%)
54

55. Groupon May Not Be Answer
for All Restaurants
• 42% of Restaurants reported that
Groupon promotions were
“unprofitable”
– Customers were deal makers.
– Poor tippers.
– Not repeat customers.
– Barrage of customers
overwhelms restaurant.
– Cannibalize sales and take space
from full paying guests.
– Lowers check average.
“How Effective Are Groupon Promotions For Businesses?”, Rice University, 9/2010 55

56. Points of Differentiation: Menu
Innovation
Chipotle Wing Stop Noodles & Company
Pei Wei Daphne’s Einstein Bros.
56

57. Points of Differentiation –
Concept Rebuilding and Remodeling
• McDonalds $5BB Makeover
– Remodels: 2,500 units
– Rebuilds: 6,100 units
Goal: boost average annual sales at each renovated
restaurant from $2.3 million to $3.1 million during the
next four to five years (34.7%)
57

58. Points of Differentiation:
Concept Re-Innovation
• Flex Casual Asian
• Design more efficiently
services guests
• Footprint reduced from
3,000 to 2,500 sq. ft.
• Upfront cost reduced by
$50,000
• Off-premise revenue has
grown to more than 40% of
system-wide sales
• Monthly overhead expected
to decrease $2K
58

59. Points of Differentiation:
Hey Bartender!
59

60. Social Media Rewards Loyalty
Free chips and salsa for checking in
via FourSquare
New sushi roll for FourSquare
“Swarm Party”
Coupons, customer engagement
yield 10 million fans on Facebook
Discounts to “Tweet while you eat”
60

61. Aligning with Lifestyle Needs:
Eco-Friendly
• 2.1 million pounds of
waste paper saved
• 7.5 million gallons of
water saved
• 4.4 million kilowatts of
energy saved
• 3,194 cubic yards of
landfill space saved
St. Petersburg – Worm Bin
61

62. Guests Will Pay More for Meals
that Match Their Lifestyle
“Makes me more willing to purchase and am willing to pay…”
Sustainable 25% 8%
Locally Sourced 25% 7%
Fair Trade 23% 8%
Slightly More For (Up to 5% Increase)
Significantly More For (More Than a 5% Increase)
Technomic College and University Report 62

63. Quiz Time:
Segment Review
63

64. Break
Client Logo

65. Consumer Mind Sets and
Operator Responses
Client Logo

66. Consumer Mindset Trends Have
Impact on Foodservice
1 Multi-Generational Demands
2 Ethnic Influence
3 Value Orientation
4 Health & Wellness
5 Customization
66

67. 1. Multi-Generational Demands
Client Logo

68. Who We Are:
Meet Your Neighbors
Generation
World War II
( > Age 75 )
6% Post - Millennials
Swing ( < Age 14 )
(Age 63-75) 19%
9%
Millennials
Baby Boomers ( Age 14 - 31 )
(Age 43-62 ) 25%
25%
Generation X
(Age 32 - 42 )
16%
68

69. Generation Gap: Food at Home vs.
Food Away-from-Home
39%
44%
“I eat out more
frequently than I
prepare my own
food at home.” 40%
33%
All Millennials Gen X Boomers
Base: 1,501 respondents ages 16 to 62
Scale: Top 2 Box rating on scale from 1-6 where 6 = agree completely
and 1 = disagree completely 69

70. Generational Top Restaurant Spenders
Restaurant Spending Share by Householder Age
Age 75+
5%
65 - 74 < Age 35
8% 24%
55 - 64
16%
35 - 44
45 - 54
23%
24%
Source: Bureau of Labor Statistics Consumer Expenditure Survey 70

71. Generation Gap: Atmosphere
All Millennials Gen X Boomers
Sit-down, Full Service Chain
(Chili’s, Outback Steakhouse, Red Lobster, etc.)
• To relatively quiet 68% 56% 71% 80%
• To be lively with conversations from
32 44 29 20
other diners in the background
71

72. Generation Gap: Health & Wellness
• Low sodium
• Low fat
• Low calories
• Low carb
• Portion
control • Fresh
• Organic
• Local
• Natural
• Sustainable
72

73. Preferences for Natural and
Organic Skew Younger
“Which of the following do you do on a regular basis?”
18%
14% 13% 14%
8% 8%
Eat Foods that Eat Foods that Are Considered All-Natural
are Organic
Millennials Gen X Boomers
Base: 1,501 consumer respondents Scale: Top 2 Box – 5/6 rating on a 6-point scale
Source: Technomic, Generational Consumer Trend Report (2008) 73

74. Operator Strategies: Addressing
Mature Consumers’ Demands
 Senior Club Card
 Early Bird Special  “55 Menu”  Weekly Drawings to Win
 Senior Discounts  Senior Loyalty Program Free Meal
 28 Vegetables  “Diet Smart Choice” @
Specialty Salad Bars
Source: Technomic; ID Magazine 74

75. Operator Strategies: Addressing
Young Consumers’ Demands
75

76. Smart Phone Ordering Changing
the Landscape
• Surpassed $1 billion in digital sales (US)
• Digital sales account for over 30% of overall sales
• iPhone and Android apps downloaded more than 3mm times
• Mobile ordering sales account for 8% of sales.
76

77. Tweets To Eats
77

78. Kogi BBQ
Location: Los Angeles, CA Korean Fusion
Number of trucks: 4 • Kimchi Pastrami Melt
• Black Jack Quesadilla
Web: www.kogibbq.com • Korean Short Rib Tacos
http://twitter.com/kogibbq • Tofu Tacos
Twitter Followers: 63,366 • Chocolate Tres Leches
Facebook Fans: 10,539 • Spicy BBQ Chicken Tacos
• Burritos
78

79. Welcome to the Mainstream
79

80. 2. Ethnic Influence
Client Logo

81. Ethnic Growth Significant
18% % Population Growth Through 2020
population by 2020
• 81% of the population
increase from 2000 to 2020 Asian 68.4%
will be from minority
groups Hispanic 67.8%
African American 26.4%
White 5.0%
Source: U.S. Census Bureau 81

82. Importance of LSR Attributes
Varies by Group
Cost of Beverages 21%
67%
Healthy Kids Menu Items 20%
60%
Beverages With Natural Flavors 41%
56%
Promotions 29%
47%
Kid Friendly Promotions 7%
31%
Menu Items that Appeal to Kids 8%
27%
Receiving Value 31%
44%
Cost of Food 39%
56%
Non-Hispanic Hispanic
82

83. Ethnic Influence:
Anatomy of a Trend
5 Stages of a Trend – Chipotle
1 2 3 4 5
• Fine Dining • Specialty Food • Chain • Mainstream • QSR Menus
• Ethnic and Publications Restaurants Magazines • Mainstream
Independent • Sur La Table • Williams- Grocery
Restaurants • Food Network Sonoma
83

84. Operator Strategies:
Addressing the Minority Influence
84

85. 3. Value Orientation
Client Logo

86. Across Income Groups, Many
Consumers Have Felt a Direct Impact
“Has the economy had a direct
impact on you?" “Yes” by Income
<$35,000 74%
$35,000-$59,999 71%
Yes No $60,000-$99,999 70%
70% 30%
$100,000-
59%
$149,999
$150,000+ 66%
86

87. Operators Utilize Variety of
Pricing Strategies
• Absolute Cost
LSR • Relative
Expenditures
• Combo’s &
Bundling
FSR
• BOGO
• Ladder
87

88. Dealing Not Necessarily a Bad
Thing for Operators
“How does the fact that a restaurant offers a deal or
discount influence your opinion of…?”
Quality of Food Overall Value of Restaurant
1% 2% 3%
52% 50%
69%
30%
46% 47%
Improves It No Change Lessens It
88

89. Menu Mix Strategies –
Focus on Higher Margin Products
June 2008 November November
2009 2010
July 2011 July 2010 June 2008
89

90. Alternative Protein Strategies:
More Poultry on the Menu
Chain
• Chicken Selects
• Chicken Snack Wraps
• Chicken McBites
• Chicken Wings (in test)
• Chicken Parmesan Sandwich
• Italian Basil Chicken Sandwich & Wrap
• Popcorn Chicken
• Garden Salad Wrap with Crispy or Grilled Chicken
• Turkey Roaster
• Turkey n’ Cheddar Roaster
• Grand Turkey Club Roaster
90

91. Operator Strategies: Cheap Chic
91

92. 4. Health & Wellness
Client Logo

93. Food for Thought
"Food is an important part of a balanced diet."
-Fran Leibowitz, author/actress
“Life expectancy would grow by leaps and
bounds if green vegetables smelled as
good as bacon.”
-Doug Larson, columnist, Green Bay Press-Gazette
“If I'd known I was going to live so long, I'd
have taken better care of myself.”
-Leon Eldred
93

94. Portion Distortion
Then Now
94

95. Majority of Diners Still Opt
for Less Healthy Meals
“Thinking about the last 10 times you purchased food from a
restaurant, how many times would you say that you ordered a meal
that you consider to be healthy?”
Ordered a meal I
Ordered a meal I consider to be
do not consider to healthy
be healthy 42%
58%
Base: 1,500 consumers aged 18+ 95

96. What’s Healthy? It’s All in How You
Say It
All-natural 73%
Preservative-free 73%
Hormone-free 72%
Steroid-free 72%
Certified organic 71%
Having no artifical sweeteners 71%
Organic 69%
Unprocessed 68%
Natural 65%
Antibiotic-free 64%
Base: Approximately 500 consumers aged 18+; base varies slightly as attributes were
randomly rotated. Consumers indicated their opinion on a scale of 1–5 where 5 = much
more healthy and 1 = much less healthy 96

97. Freshness Strongly Linked to Health
Fresh 70%
Real 41%
Seasonal 38%
Homemade 35%
Made from scratch 34%
Premium 32%
Housemade 30%
Authentic 29%
Homestyle 25%
Artisan 24%
Base: Approximately 500 consumers aged 18+; base varies slightly as attributes were
randomly rotated. Consumers indicated their opinion on a scale of 1–5 where 5 = much
more healthy and 1 = much less healthy 97

98. Guests Not So Sure What Goes
into a Healthy Halo
Local 19% 29%
Organic 18% 27%
Natural 16% 27%
Sustainable 10% 17%
Very good understanding
Good understanding
Base: 1,500 consumers aged 18+ 98

99. Local Means Close to Home
Local Items Are Sourced Within…
31%
50 miles
27%
10%
100 miles
17%
27%
The city/community
22%
18%
The state
22%
Perceived restaurant/retailer defintion Consumer definition
Base: 1,500 consumers aged 18+ 99

100. Never Eat Anything Bigger than
Your Head
Aussie Cheese Fries
Aussie Fries topped with
melted Monterey Jack,
Cheddar, bits of fresh
chopped bacon and served
with a spicy ranch dressing.
Calories = 2,900
Fat Grams = 182
Carbohydrate Grams = 240
100

101. Outback Steakhouse’s Aussie
Cheese Fries Same as…
4 Baskin Robbins
Banana Royale Sundaes 67 Slices of Bacon
5 Big Macs
101

102. This is Why You’re Fat
102

103. Consumers Surprised by Calorie
Counts; Higher than Expected
“Have you been surprised
by the calorie counts?” “Are they higher than expected?”
Base: Have read calorie information = 161 Base: Surprised by calorie content = 136
Yes No
Yes
82% No 30%
70%
18%
103

104. Consumers Think the Information Has
Made Some Impact on Their Ordering
“How much of an impact has nutrition information on
menus impacted your ordering behavior?”
43%
30%
15%
12%
A great deal Somewhat Not really Not at All
Base: Have visited restaurants that post calories = 192 104

105. Calories Per Dollar
105

106. Operator Strategies: Menu Clues
106

107. Operator Strategies: What’s in a
Name?
107

108. The Next Battlefield: Kids’ Meals
• Alarming child obesity statistics driving legislative
and operator initiatives.
• What does it mean to customers and operators?
108

109. 5. Customization: Have It Your Way
Client Logo

110. The Importance of Choice
“How important is it to be “How important is it to be
able to customize your meal able to customize your meal
at the following types of at the following types of
LSR’s? FSR’s?
82%
78% 78%
61% 59% 71% 71% 68%
57% 53% 63%
48% 56%
Sandwich
Asian/Noodle
Mexican
Bakery Café
Burger
Chicken
Steak
Varied Menu
Mexican
Asian
Italian
Family
Seafood
Base: 1,501 consumer respondents
Scale: Top 2 Box – 5/6 rating on a 6-point scale 110

111. The New “31 Flavors”
“A Few Things, Thousands of Ways”
111

112. Operator Strategies: Addressing
Customization Desires
112

113. The Next Chipotle?
113

114. Foodservice Distributor Environment
Client Logo

115. Foodservice Distributor Landscape
2010 Number of Distributors 2010 Foodservice Distributor Sales
Total = $201 Billion
Broadline
2,500 Club Stores/
Nonfoods Systems
15% CNC
3,000 Distributors
8%
18% 12%
All Other
Distributors Top 10
Specialists 38% Broadliners
11,000 42%
67%
*U.S. only 115

116. The Top 10 Companies Reflect
Multiple Types of Distributors
Primary Business
Broadline Systems Club/CNC
1. Sysco
2. US Foodservice
3. PFG
4. Gordon
5. McLane
6. Restaurant Depot
7. Costco
8. Reinhart
9. Martin Brower
10. MBM
116

117. Broadline Distributors
• Canned, frozen, equipment,
supplies, tabletop, disposables
(400-500 suppliers)
• 2,000-4,000 customers
• 8,000+ SKUs on hand
• Negotiated pricing with
independents, small chains
• Cost-plus pricing with large
chains
• Power Distributor >$150MM*
in sales
• Billionaire Club Distributor >$1B
in sales
117

118. Top Power Broadline Distributors
2005 Sales 2007 Sales 2010 Sales
($B) ($B) ($B)
1. Sysco* $31.4 $36.4 $38.4
2. U.S. Foodservice 18.5 20.0 18.8
3. Performance Food Group 5.7 6.3 10.3
4. Gordon Food Service* 3.7 6.0 7.7
5. Reinhardt 2.1 3.1 4.5
6. Maines Paper 2.0 2.4 3.0
7. Food Services of America 2.0 2.6 2.6
8. Ben E. Keith 1.3 1.7 2.1
9. Shamrock 1.3 1.7 1.9
Total $69.1 $80.2 $89.3
*Includes sales in Canada 118

119. Power Distributors – 2005 vs. 2010
2005 2010 Change
Companies 31 34 +3
Total Sales
$74,800 $95,000 +$20,200
($MM)
Sales/Company 2,412 2,617 +$205
DCs 387 464 +77
DSRs 20,500 20,000 -500
119

120. Anatomy of a Top 10 Distributor
• USF is the second largest national broadline distributor in the United
States
• 65 Distribution Centers and 14 Processing facilities
• Infrastructure
– ~250,000 customers
– ~27,500 employees
– ~4,700 sales associates
– ~300,000 SKUs
– ~35,000 Private Label
– ~6,000 suppliers
– ~6,000 trucks
• Serves three primary customer segments
– Street (independent restaurants) Broadline locations
– National Accounts (hospitals, schools, etc.) North Star locations
– National Chain Restaurants
120

121. Evolving Distributor Realities
• More contract business with lower
margins
• Losing street customers to clubs,
depots, CNC
• Less street pricing power than in the
past
• GPOs a battle for “operator control”
• Distributor brands advantage
• Focus on operating cost reduction
121

122. GPOs Increasing as
an Industry Factor
• Represent 20% of industry
purchasing
• Very strong healthcare penetration
• More involvement in other
segments
• Manufacturer issues: extendibility,
double dipping, no volume
guarantee
• Distributor issues: loss of operator
“control,”
margin erosion
122

123. Top 5 GPOs
2009 FS
Purchases
GPO ($000) Segment Focus
Multi-Unit
Foodbuy
$2,400,000 Foodservice
(Compass)
Operators
Entegra
2,000,000 Hospitality
(Sodexho)
Avendra 2,000,000 Travel & Leisure
Premier 1,500,000 Healthcare
Multi-Unit
Dining Alliance 1,000,000 Foodservice
Operators
123

124. GPO Penetration of Independents
Has Stirred Distributors
Total Purchases Made through GPOs
Total Segment GPO % of Total Relevant
Segment Purchases ($MM) Segment Purchases
K-12 $2,595 28%
Colleges 1,845 29
Hotels 3,337 36
Street Restaurant 3,055 6
Business & Industry 770 10
Hospitals 4,030 89
Nursing Homes 2,170 61
Recreation 2,216 34
Total $20,020 21%
“In terms of non-specialized GPO’s, I would describe them as
pariahs. They don’t add a lot of value. They simply disrupt
the profit potential in the marketplace.”
Source: 2009 Technomic GPO Study 124

125. Contract Share of Business Is
Quite High and Growing
Total Purchases = $201B
Independents
37%
62%
Contract
Top 500 Chains 35%
Other Contract/Chain 10%
GPOs 10%
FSMs 10%
125

126. Concern: Customer/Margin Mix
Are Critical to Profitability
2010 (E) Share of… Street Sales Shoulder
the Profit Load
37%
65%
63%
35%
Sales Profit
Street Contract
(E) = Technomic estimate 126

127. History of Distributor Brands
2012
2007
• Distributor brands
• Better value
1997
• Good quality
• Distributor labels • An alternative to
• Lower cost manufacturer brands
• Questionable
quality
127

128. Brand Structure – Distributor
Brands
Quality
Price
128

129. DB’s a Key to Future Success
2010 Total Distributor Sales Importance of DB’s to
(Operator Purchases) = $201B Future Success
by Brand Type
Extremely Not Very
Important Important
Operator $47B 35% 18%
23%
Distributor Important
$37B Manufacturer
$117B 23%
18% Very
59% Important
24%
Source: Technomic Distributor Intelligence Service Issue #68 (6/11) 129

130. Despites Profitability, Challenges
to DB Growth Exist
Distributor Profit/Case* Obstacles to Selling DB’s
Average = $1.30
$2.30
53%
40% 40%
$1.10
Mfg. Brands Sales Rep Lack of
($0.35) Specified Resistance Customer
Distributor Manufacturer Operator Acceptance
Brands Brands Brands
*Based on case value of $26.50
Source: Technomic 130

131. Volume Growth Will Come from
Operator and Distributor Brands
Operator Purchases
($B*)
Change
Brand Type 2010 2015 ($B)
Manufacturer $117 $115 -$2
Operator 47 53 +5
Distributor 37 39 +2
Total $201 $206 +5
*In constant 2010 dollars 131

132. Distributor Sales Rep (DSR) Landscape
• Educator, territory “I am more loyal to my DSR
manager, sales generator than I am to his/her company.”
• Handle 50-60 customers
• Distributors believe DSRs
Disagree
pay big dividends 40%
• Not looking to reduce
numbers
Agree
• New skills – operator food 60%
cost management
• Talent upgrades
“Our customers, even the new
generation, want to see DSRs”
132

133. How Distributor Sales Reps
Spend Their Time
There has been no major shift over the recent past
% of Time
Other* Taking
28% Orders
32%
Traveling Helping
19% Customers
21%
Average = 25 minutes
*Includes admin, scheduling, etc.
Source: Distributor Intelligence Service 133

134. Other Distribution Alternatives
• Buying Groups
• Systems Distributors
• Specialty distributors
– Product (meat, dairy,
equipment)
– Segment (vending, airlines)
• Warehouse clubs
• Cash-n-carry
• Direct-store delivery (DSD)
134

135. Distributor Buying Groups
• Affiliation for small/ medium-
size distributors
• Provide buying clout –
negotiation leverage
• Expanded marketing,
strategy, support services
135

136. System Distributors
• Serve the super chains • Lower overhead
• Few customers • Cost-plus pricing with chains
• Limited inventory • Ownership structures vary
Broadliner
Independent Chain Owned
Owned
Source: Technomic; ID Magazine 136

137. Club Stores Are Major Factor
“We see the club store segment as a greater threat to
market share because of the growing ethnic restaurant
segment. They are very price sensitive. They don’t mind
running out to Restaurant Depot. They don’t consider the
value that a broadliner provides.”
137

138. Clubs/Cash-n-Carry Appeal to
Operators
• Quality merchandise
• Low prices
• No minimums
• Increased availability/quality of
perishables
• Package size
• Brand names and private label
• “See, touch, smell” before buying
138

139. A Primer on Trade Spending
• Monies paid to distributors by Defining Success of
manufacturers to Marketing Programs
carry/promote products
• Manufacturer trade funding =
Increases Volume 88%
>75% of distributor operating
profit
• Typical manufacturer Increases Account
79%
Penetration
spending level  16.2% of
sales
Increases Profits 75%
• Majority of Trade Spend is
“Local Trade Spending”
(58.5%) New Customers 71%
Source: Technomic Distributor Intelligence #58 (7/2010) 139

140. Distributor Trade Programs
Top 3 Activities Included in Operator Food Show Likes
Marketing Programs
Serving
Samples
Ideas
8%
Purchase 10%
92% 88% Discounts
71% 7%
Networking See New
3% Products
56%
Sales Food Show Contests/
Talking to
Meetings Participation Promotions
Reps
for DSR's
3% Other
13%
Source: Technomic Driving Change: Improving Local Trade Spending ROI.
Common Interest Sponsorship (2009); Technomic Distributor Intelligence
Service #58 (7/2010) 140

141. National and Regional
Redistributors
National Regional
• Dot Foods • Alpine
Open Redistribution
Distribution • Empire Beef
• Foodservice
Center
• SYSCO RDC • Honor Foods
Network
• Golden Bay
• Reddy Raw
Closed (Federated)
• Golbon
Distribution • Progressive Group
• RW Zant
Alliance
• MBM
• Twelve Baskets
141

142. Finally, Category Management:
What’s Happening?
• Recognize value but We have started
mapping our
slow to adopt strategy to roll out
We would like to
• Biggest Concerns have a formal
category
management
– Customer CMP are not ready 13%
Relationships (58%) to start
29% We do not have
– Time Consuming any plans to
(53%) develop a CMP
16%
– Rank & File
Commitment (42%) We have
• Becoming a key established a
initiative formal CMP
42%
– Sysco
– U.S. Foodservice
Source: Technomic Distributor Intelligence Service Report #60 9/2010 142

143. Quiz Time: Distributors
143

144. Lunch
Client Logo

145. Beyond Restaurants
Client Logo

146. BR Segments Represent Large
Volume Opportunities
2011 Total Foodservice 2011 Beyond Restaurants
Purchases = $179.6B* Purchases = $77.8B*
Healthcare
$10.1B All Other
B&I 13.0% $7.1B
$6.0B 9.0%
8.0%
Vending/OCS
Rest. & Bars Beyond $9.4B Retail Hosts
$101.8B Restaurants 12.0% $15.2B
57% $77.8B 20.0%
43%
Education
Travel & $14.9B
Leisure 19.0%
$15.1B
19.0%
*Excludes alcohol and non-foods
Source: Technomic 146

147. Retail Host Foodservice
Issues & Outlook Total Retail Host Operators
Purchases = $15.2B
• Super Markets +4.0%
– Large FS footprint Other Retail
Hosts
– Value $2.5B
– Variety 16%
• C-Stores +1.5% C-Stores
$3.7B
– Continued focus on beverage 24%
– Hi fuel costs hurt
• Other +3.5% Supermarkets
$9.1B
– Club store growth 60%
Source: Technomic 147

148. C-Stores: Then & Now
148

149. Foodservice Leads In-Store Profits
Average Gross Margin Percent In-Store
Frozen Dispensed
68%
Beverages
51%
25% Cold Dispensed
67%
Beverages
Foodservice Merchandise Hot Dispensed
54%
Beverages
Prepared Foods 45%
Source: CSNews Industry Report 149

150. Meet “Bubba”
Heavy/Moderate Light/Infrequent
Gender  Skews male  Skews female
Age  Skews young (<24)  Skews older (45+)
Race  Hispanic  Caucasian
Education  High school, some college  College graduate
Income  Less than $25K annually  $50K-$75K
150

151. Not Your Daddy’s C-Store
Watauga, TX
151

152. Retail Host Foodservice All-Stars
Costco Wegman’s Sheetz
152

153. Travel & Leisure Foodservice
Issues & Outlook Total Travel & Leisure Operator
• Lodging +4.5% Purchases = $15.1B
– Meetings, catered events
Transportation
– Upscale recovery
$1.9B
• Transportation +2.5% 13%
– International departures
– Flat 2012
• Recreation +.4% Lodging
Recreation
$8.5B
– Less discretionaries 55% $4.7B
31%
Source: Technomic 153

154. Travel & Leisure Foodservice All-Stars
Thai Airlines Safeco Field The Surrey
Economy Class Seattle, WA NYC
154

155. Education Foodservice
Issues & Outlook Total Education
• K-12 +2.0% Purchases = $14.9.6B
– Diversified enrollment
– Nutrition legislation
College/
– Parents University
• College & University +4.5% $5.8B
41%
– College population increasing
– Growth in 2-year colleges K-12
– Greater FSM, GPO focus Schools
$8.8B
– More savvy diners 59%
Source: Technomic 155

156. Education Foodservice All-Stars
Virginia Tech University Greenview Upper Elementary School
(South Euclid, OH)
West End Market
Hokie Grill
156

157. Healthcare Foodservice
Issues & Outlook Total Healthcare
• Senior Living +3.5% Purchases = $10.1B
– Here come the Boomers Senior
– Housing crises Living
$2.6B
– Retirement income 25%
• Hospitals +5.1% Long-Term
– Upscaling, customer service focus Care
$3.2B
– Cash operations 32%
Hospitals
• Long Term Care +.4% $4.2B
43%
– Severe budget shortages
– Delay of elderly entering nursing
homes
Source: Technomic 157

158. Healthcare Foodservice All-Stars
Virtues Restaurant – Suma Vi Assisted & Hanna HealthCare
Health Care (Akron, OH) Independent Living Center (Verona, PA)
(San Diego, CA)
158

159. Foodservice Management Firms
(FSMs)
Companies that operate and manage foodservice facilities
within/for other establishments (typically noncommercial
establishments) for purpose of making a profit
159

160. FSMs Dominate Share of Several
Segments
FSM Segment Share
81%
76%
60% 58%
38% 37% 36% 35%
19% 18% 16% 15% 15% 15%
B&I C/U Recreation Hospitals K-12 Senior Living Long-Term
Care
2010 2007
 Over 7,000 B&I units are FSM-run compared to less
Key Insights than 3,000 self-ops
160

161. The Leading Players
Organization U.S. Revenue (in millions)
1. Compass Group $9,200
2. ARAMARK 8,600
3. Sodexho 7,900
4. Delaware North 1,950
5. Centerplate 1,000
¹/ North America revenue
Source: Technomic/Foodservice Director 161

162. Leading FSMs Have Prioritized
Struggling B&I Segment
% of Revenue by Segment
6%
13% 18%
11% 6% 34%
41% 19% 30%
20%
16% 19%
22%
19% 26%
Business & Industry Education Healthcare Recreation Other
162

163. Compass Uses Multiple Brands
Across Different Segments
Healthcare Healthcare Sports & Business
Dining Facilities Education Vending Entertainment Dining
163

164. Aramark and Sodexho Use Single
Brand Strategy Across Segments
• Corporate name used
across all segments
• Emphasize overall
foodservice expertise
versus
segment expertise
• Management believes
that future change in
segment branding
strategy would be
reactive and negatively
received
164

165. Sodexo’s Newest - SparBQ
• University of Tampa
Stadium
• Center of Plate: BBQ
Chicken, Pork, Beef and
Fish
• Sides: Smoked Macaroni
and Cheese, Vegetarian
Chili, Corn Bread, Sweet
Potato Fries
• Combos: $5.49 - $8.49
165

166. Quiz Time: Beyond Restaurants
166

167. The Chains
Client Logo

168. Limited Service Segmentation
LSR Segmentation Median AUV
FCR Comparison ($000)
28.6% Total LSR $791
QSR $653
QSR
71.4% FCR $1,098
QSR Composition FCR Composition
Pizza 40 Mexican
Other Sandwich 17
28
Frozen Desserts 20 Bakery Café 13
Hamburger 20 Chicken 9
Coffee & Other Beverage 16 Hamburger
Specialty* 9
16
Chicken 10 Other Sandwich 9
Cafeteria/Buffet 9 Specialty** 6
Family Steak 7 Asian
Donut 5
6
Mexican 6 Pizza 5
Asian 4
Total QSR Chains: 182 Total FCR Chains: 73
*QSR Specialty includes: Bagel, Barbecue, Chili, Other Ethnic, Seafood and snack
**FCR Specialty includes: Barbecue, Italian, Other Ethnic and Salad
Source: Technomic, Inc.; company reports 168

169. Full Service Segmentation
Full-Service Segmentation Median AUV
Comparison ($000)
MSR Total FSR $2,725
18.0%
CDR $3,000
CDR
82.0% MSR $1,475
CDR Composition MSR Composition
Varied Menu 86 Family Style 35
Steak 33
Italian 23 BBQ 6
Mexican 20
Seafood 18 Italian 2
Asian 11
BBQ 7 Specialty** 1
Specialty* 3
Total CDR Chains: 201 Total MSR Chains: 44
*CDR Specialty includes: Other Ethnic and Other
**MSR Specialty includes: Hamburger
Source: Technomic, Inc.; company reports 169