Introduction to theFoodser vice IndustryOctober 2012                        1
Technomic, Inc. •   Leading foodservice industry organization •   IFMA partner on F&O, seminars, pubs •   Proprietary, mul...
Sample of Technomic Clients                              3
Today’s Agenda      1    Overview of foodservice industry      2   Foodservice segment size/growth      3   Review of tren...
The Foodservice Business System                                               • Food                                      ...
Critical Sources forFoodservice Outlook                Foodservice                 Operators                              ...
Foodservice Industry OverviewClient Logo
Foodservice Is Defined as...Establishments that prepare and generally serve food, meals,          snacks and beverages awa...
Retail vs. FoodserviceCriteria                      Retail           FoodserviceUnits                         50,000      ...
Value Chain Example:Retail vs. Foodservice                               Retail   Foodservice            Manufacturer     ...
Foodservice Product Value Chain* –2010 • Manufacturer shipments – value   of manufacturer sales to   distributors – $152B ...
Foodservice a Significant Shareof Total Food Industry Sales  1990 = $566B     2000 = $791B    2011 = $1,179B $252B    $314...
Significant Opportunity Still Existsfor Further Foodservice Growth     Share of RSE*                              Share of...
Macro-Economy: Critical IndicatorsTwo most critical indicators forfoodservice health:  • Disposable Personal    Income (DP...
Economic News a Combinationof Positives, Negatives              Positives                         Negatives•   Tax cut ext...
GDP Improving (Barely)                               Quarterly % Change – Real vs. Prior Period                           ...
DPI Generally Flat                                                   % Real Change vs. Prior Year                         ...
Unemployment Remains the KeyChallenge to Faster Industry Growth20%                                                        ...
Job Openings and Unemployment      Disconnect                                                                          Une...
Jobs Picture and FoodserviceSpending• People with jobs are                         • 20% of the economy remains  experienc...
Food Inflation Resulting in Higher, Menu & Grocery Prices – U.S.                                              % Change vs....
Both LSR and CDR Chains in PositiveSame-Store Sales Territory                          % Same Store Sales                 ...
Heavy Restaurant Usage TrendBarometer Pointing Up                    Heavy Restaurant Usage                   Two Times a ...
2012 LSR, FSR Growth RatesAdjusted               Nominal Change                             Real Change                   ...
Revised 2012 & First Look at 2013                 2012 (P)                                   2013 (F)          CPI-FAFH   ...
Foodservice Returning to RealGrowth                        Nominal Change                                        Real Chan...
Quiz Time:Foodservice Industry Overview                                27
Operator Segment ReviewClient Logo
Foodservice Segmentation 2010                Share of Operator Purchases                         Vending       Education  ...
Restaurants & Bars SegmentIncludes...                            Restaurants                              & Bars          ...
Definitions          Segments                           Definitions                              • No table service       ...
Beyond Restaurants SegmentsSegments                                                   Definitions                         ...
Beyond Restaurants SegmentsSegments                                   Definitions                        Includes all ful...
Typical Restaurant Structure                               34
Accounting for Non-traditionalLocations                                 35
A Note on IndependentsIndependent restaurateurs may operate more than onelocation.  • Technomic, Inc., defines independent...
The Restaurant Landscape – 2010Lots of independents and Small Chains don’t equal sellingpower of the Top 500 Chains.      ...
Leading Independent Restaurants Rankedby Food & Beverage Sales Rank   Restaurant/City                       Check Average ...
Tao Las Vegas2010 Projected Sales – $66.0MM  • Restaurant - $28.0  • Club - $28.0  • Pool - $10.0Statistics  • 57 cooks, 8...
Operator Business SituationSlowly Improving        Operator Sales/Revenue Situation for First 4 Months*                   ...
Operators Have Concerns Butthe Mood is Brightening                  -14               -11               -17               ...
Prime Cost: The Most ImportantOperator Metric                         65.9%                  65.0%                  65.6% ...
Hourly Labor Turnovera Headache But Getting Better                          Annual Turnover Rate                          ...
The End of Cheap Food:The Economist – December 6, 2007   “For as long as most people can remember, food has been getting c...
Food commodity prices since January 1980:Reversal of a 22-year downward trendIndex: January 2002 = 100225                 ...
Primary factors affecting crop prices 1 (June 2010 – Jan 2012)Index: January 2002 = 100                                   ...
Even Top 500 Chains Are NotImmune to Rising Commodity Costs  Jack in the Box        Chili’s        IHOP      +5.0%        ...
More Operators TakingPrice Increases   Have Taken Price Increase in   Will Take Price Increase     First 3 Months of Year ...
Operators Need to Focus More Intensely onOther Value Drivers for Balance                Low Prices/Deals are Not          ...
The Drive for Value:Meeting Consumer Expectations                                     Major Strategies       Upping       ...
Operator’s Employing VariedValue Strategies                       Everyday  Tiered Pricing       Low Price            Extr...
Upping Their Game:Domino’s “Oh Yes We Did”       Before              After                                   52
Online Coupons Have Had MajorImpact                                53
About Groupon • Launched 2008; fastest          Have Used Online Coupon   company to $1B ever. • Negotiates deep discounts...
Groupon May Not Be Answerfor All Restaurants • 42% of Restaurants reported that   Groupon promotions were   “unprofitable”...
Points of Differentiation: MenuInnovation    Chipotle     Wing Stop   Noodles & Company    Pei Wei      Daphne’s     Einst...
Points of Differentiation –Concept Rebuilding and Remodeling  • McDonalds $5BB Makeover    – Remodels: 2,500 units    – Re...
Points of Differentiation:Concept Re-Innovation • Flex Casual Asian • Design more efficiently   services guests • Footprin...
Points of Differentiation:Hey Bartender!                             59
Social Media Rewards Loyalty         Free chips and salsa for checking in         via FourSquare         New sushi roll fo...
Aligning with Lifestyle Needs:Eco-Friendly • 2.1 million pounds of   waste paper saved • 7.5 million gallons of   water sa...
Guests Will Pay More for Mealsthat Match Their Lifestyle   “Makes me more willing to purchase and am willing to pay…”    S...
Quiz Time:Segment Review                 63
BreakClient Logo
Consumer Mind Sets and                Operator ResponsesClient Logo
Consumer Mindset Trends HaveImpact on Foodservice      1   Multi-Generational Demands      2   Ethnic Influence      3   V...
1. Multi-Generational DemandsClient Logo
Who We Are:Meet Your Neighbors                              Generation                        World War II                ...
Generation Gap: Food at Home vs.Food Away-from-Home                                   39%                                 ...
Generational Top Restaurant Spenders      Restaurant Spending Share by Householder Age                                   A...
Generation Gap: Atmosphere                                              All   Millennials Gen X   BoomersSit-down, Full Se...
Generation Gap: Health & Wellness •   Low sodium •   Low fat •   Low calories •   Low carb •   Portion     control        ...
Preferences for Natural andOrganic Skew Younger    “Which of the following do you do on a regular basis?”                 ...
Operator Strategies: AddressingMature Consumers’ Demands                                                                 ...
Operator Strategies: AddressingYoung Consumers’ Demands                                  75
Smart Phone Ordering Changingthe Landscape •   Surpassed $1 billion in digital sales (US) •   Digital sales account for ov...
Tweets To Eats                 77
Kogi BBQLocation: Los Angeles, CA              Korean FusionNumber of trucks: 4          •   Kimchi Pastrami Melt         ...
Welcome to the Mainstream                            79
2. Ethnic InfluenceClient Logo
Ethnic Growth Significant               18%                          % Population Growth Through 2020   population by 2020...
Importance of LSR AttributesVaries by Group                 Cost of Beverages              21%                            ...
Ethnic Influence:Anatomy of a Trend                      5 Stages of a Trend – Chipotle1               2                  ...
Operator Strategies:Addressing the Minority Influence                                    84
3. Value OrientationClient Logo
Across Income Groups, ManyConsumers Have Felt a Direct Impact“Has the economy had a direct       impact on you?"          ...
Operators Utilize Variety ofPricing Strategies       • Absolute Cost LSR   • Relative         Expenditures       • Combo’s...
Dealing Not Necessarily a BadThing for Operators        “How does the fact that a restaurant offers a deal or             ...
Menu Mix Strategies –Focus on Higher Margin Products     June 2008   November    November                   2009        20...
Alternative Protein Strategies:More Poultry on the Menu   Chain             •   Chicken Selects             •   Chicken Sn...
Operator Strategies: Cheap Chic                                  91
4. Health & WellnessClient Logo
Food for Thought"Food is an important part of a balanced diet."   -Fran Leibowitz, author/actress                         ...
Portion Distortion    Then             Now                           94
Majority of Diners Still Optfor Less Healthy Meals     “Thinking about the last 10 times you purchased food from a restaur...
What’s Healthy? It’s All in How YouSay It                     All-natural                                                 ...
Freshness Strongly Linked to Health               Fresh                                                    70%            ...
Guests Not So Sure What Goesinto a Healthy Halo                                    Local     19%                  29%     ...
Local Means Close to Home             Local Items Are Sourced Within…                                                     ...
Never Eat Anything Bigger thanYour Head                                Aussie Cheese Fries                             Aus...
Outback Steakhouse’s AussieCheese Fries Same as…      4 Baskin Robbins   Banana Royale Sundaes   67 Slices of Bacon       ...
This is Why You’re Fat                         102
Consumers Surprised by Calorie Counts; Higher than Expected     “Have you been surprised      by the calorie counts?”     ...
Consumers Think the Information HasMade Some Impact on Their Ordering    “How much of an impact has nutrition information ...
Calories Per Dollar                      105
Operator Strategies: Menu Clues                                  106
Operator Strategies: What’s in aName?                                   107
The Next Battlefield: Kids’ Meals • Alarming child obesity statistics driving legislative   and operator initiatives. • Wh...
5. Customization: Have It Your WayClient Logo
The Importance of Choice            “How important is it to be                                            “How important i...
The New “31 Flavors”         “A Few Things, Thousands of Ways”                                             111
Operator Strategies: AddressingCustomization Desires                                  112
The Next Chipotle?                     113
Foodservice Distributor EnvironmentClient Logo
Foodservice Distributor Landscape   2010 Number of Distributors            2010 Foodservice Distributor Sales             ...
The Top 10 Companies ReflectMultiple Types of Distributors                                    Primary Business            ...
Broadline Distributors • Canned, frozen, equipment,   supplies, tabletop, disposables   (400-500 suppliers) • 2,000-4,000 ...
Top Power Broadline Distributors                                          2005 Sales   2007 Sales   2010 Sales            ...
Power Distributors – 2005 vs. 2010                            2005      2010       Change            Companies           3...
Anatomy of a Top 10 Distributor • USF is the second largest national broadline distributor in the United   States • 65 Dis...
Evolving Distributor Realities • More contract business with lower   margins • Losing street customers to clubs,   depots,...
GPOs Increasing asan Industry Factor • Represent 20% of industry   purchasing • Very strong healthcare penetration • More ...
Top 5 GPOs                                2009 FS                               Purchases             GPO                 ...
GPO Penetration of IndependentsHas Stirred Distributors                Total Purchases Made through GPOs                  ...
Contract Share of Business IsQuite High and Growing                     Total Purchases = $201B            Independents   ...
Concern: Customer/Margin MixAre Critical to Profitability     2010 (E) Share of…                   Street Sales Shoulder  ...
History of Distributor Brands                                            2012                                 2007        ...
Brand Structure – Distributor  BrandsQuality                     Price                                  128
DB’s a Key to Future Success      2010 Total Distributor Sales                             Importance of DB’s to     (Oper...
Despites Profitability, Challengesto DB Growth Exist      Distributor Profit/Case*                          Obstacles to S...
Volume Growth Will Come fromOperator and Distributor Brands                             Operator Purchases                ...
Distributor Sales Rep (DSR) Landscape • Educator, territory             “I am more loyal to my DSR   manager, sales genera...
How Distributor Sales RepsSpend Their TimeThere has been no major shift over the recent past                              ...
Other Distribution Alternatives • Buying Groups • Systems Distributors • Specialty distributors   – Product (meat, dairy, ...
Distributor Buying Groups • Affiliation for small/ medium-   size distributors • Provide buying clout –   negotiation leve...
System Distributors • Serve the super chains                         • Lower overhead • Few customers                     ...
Club Stores Are Major Factor    “We see the club store segment as a greater threat to   market share because of the growin...
Clubs/Cash-n-Carry Appeal toOperators • Quality merchandise • Low prices • No minimums • Increased availability/quality of...
A Primer on Trade Spending • Monies paid to distributors by                              Defining Success of   manufacture...
Distributor Trade Programs Top 3 Activities Included in                          Operator Food Show Likes    Marketing Pro...
National and RegionalRedistributors                      National              Regional                   • Dot Foods     ...
Finally, Category Management:What’s Happening? • Recognize value but                                                 We ha...
Quiz Time: Distributors                          143
LunchClient Logo
Beyond RestaurantsClient Logo
BR Segments Represent LargeVolume Opportunities  2011 Total Foodservice                                  2011 Beyond Resta...
Retail Host FoodserviceIssues & Outlook                    Total Retail Host Operators                                    ...
C-Stores: Then & Now                       148
Foodservice Leads In-Store Profits                 Average Gross Margin Percent In-Store                                  ...
Meet “Bubba”                    Heavy/Moderate             Light/InfrequentGender       Skews male                   Ske...
Not Your Daddy’s C-Store               Watauga, TX                             151
Retail Host Foodservice All-Stars    Costco       Wegman’s      Sheetz                                        152
Travel & Leisure FoodserviceIssues & Outlook                 Total Travel & Leisure Operator  • Lodging +4.5%             ...
Travel & Leisure Foodservice All-Stars  Thai Airlines   Safeco Field   The Surrey Economy Class    Seattle, WA       NYC  ...
Education FoodserviceIssues & Outlook                        Total Education  • K-12 +2.0%                        Purchase...
Education Foodservice All-Stars    Virginia Tech University   Greenview Upper Elementary School                           ...
Healthcare FoodserviceIssues & Outlook                           Total Healthcare  • Senior Living +3.5%                  ...
Healthcare Foodservice All-StarsVirtues Restaurant – Suma      Vi Assisted &      Hanna HealthCare Health Care (Akron, OH)...
Foodservice Management Firms(FSMs)Companies that operate and manage foodservice facilitieswithin/for other establishments ...
FSMs Dominate Share of SeveralSegments                                    FSM Segment Share 81%       76%                 ...
The Leading Players                       Organization               U.S. Revenue (in millions)             1. Compass Gro...
Leading FSMs Have PrioritizedStruggling B&I Segment                       % of Revenue by Segment                         ...
Compass Uses Multiple BrandsAcross Different SegmentsHealthcare   Healthcare                             Sports &     Busi...
Aramark and Sodexho Use SingleBrand Strategy Across Segments • Corporate name used   across all segments • Emphasize overa...
Sodexo’s Newest - SparBQ • University of Tampa   Stadium • Center of Plate: BBQ   Chicken, Pork, Beef and   Fish • Sides: ...
Quiz Time: Beyond Restaurants                                166
The ChainsClient Logo
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry
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Foodservice Fundamentals Fast Track: Introduction to the Foodservice Industry

  1. 1. Introduction to theFoodser vice IndustryOctober 2012 1
  2. 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. 3. Sample of Technomic Clients 3
  4. 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. 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. 6. Critical Sources forFoodservice Outlook Foodservice Operators Forecasting Distributors Manufacturers 6
  7. 7. Foodservice Industry OverviewClient Logo
  8. 8. Foodservice Is Defined as...Establishments that prepare and generally serve food, meals, snacks and beverages away from home 8
  9. 9. Retail vs. FoodserviceCriteria Retail FoodserviceUnits 50,000 1,032,373 19 major segments;Segmentation Little multiple subsegmentsSyndicated Data Nielsen, IRI NonePrivate Label Penetration Medium HighProduct Selector Consumer Operator 9
  10. 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. 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. 12. Foodservice a Significant Shareof 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. 13. Significant Opportunity Still Existsfor Further Foodservice Growth Share of RSE* Share of Meals 24% 46% 54% 76% Foodservice Retail *Retail sales equivalent Source: Technomic; NPD FoodWorld 13
  14. 14. Macro-Economy: Critical IndicatorsTwo most critical indicators forfoodservice health: • Disposable Personal Income (DPI) • UnemploymentOther important measures: • Economic Growth (GDP) • Inflation 14
  15. 15. Economic News a Combinationof 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. 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% Q103 Q303 Q104 Q304 Q105 Q305 Q106 Q306 Q107 Q307 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 Source: Bureau of Economic Analysis 16
  17. 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. 18. Unemployment Remains the KeyChallenge to Faster Industry Growth20% Unemployment and18% Underemployment16%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. 19. Job Openings and Unemployment Disconnect Unemployment Level 16000 14000Persons (Thousands) 12000 10000 8000 Job 6000 Openings 4000 2000 0 2000 2006 2011 Source: Bureau of Labor Statistics 19
  20. 20. Jobs Picture and FoodserviceSpending• 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. 21. Food Inflation Resulting in Higher, Menu & Grocery Prices – U.S. % Change vs. Year Ago10% 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. 22. Both LSR and CDR Chains in PositiveSame-Store Sales Territory % Same Store Sales Change vs. Previous Year6% LSR4% 4.6%2% CDR 1.4%0%-2%-4%-6%-8% Q107 Q108 Q109 Q110 Q111 Q112 Source: Public Company Reports, Technomic 22
  23. 23. Heavy Restaurant Usage TrendBarometer 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. 24. 2012 LSR, FSR Growth RatesAdjusted 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. 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. 26. Foodservice Returning to RealGrowth 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. 27. Quiz Time:Foodservice Industry Overview 27
  28. 28. Operator Segment ReviewClient Logo
  29. 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. 30. Restaurants & Bars SegmentIncludes... Restaurants & Bars Limited Full Bars & Service Service Taverns Quick Cafeterias Casual Fine Traditional Midscale Casual & Buffets Dining Dining 30
  31. 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. 32. Beyond Restaurants SegmentsSegments Definitions  Includes employee feeding in offices, factories, and plants. To a large extent this service is handled byBusiness 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 productsVending/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 departmentRetail Hosts stores. Does not include foodservice within the store managed by an outside restaurant company. *OCS = Office Coffee Service 32
  33. 33. Beyond Restaurants SegmentsSegments Definitions  Includes all full-time and part-time colleges/universities (public and private two-yearEducation and four-year colleges and junior collegeCollege & 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 governmentEducation contributions, which together compose the totalPrimary 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 areTravel & Leisure considered recreational in nature. 33
  34. 34. Typical Restaurant Structure 34
  35. 35. Accounting for Non-traditionalLocations 35
  36. 36. A Note on IndependentsIndependent restaurateurs may operate more than onelocation. • 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. 37. The Restaurant Landscape – 2010Lots of independents and Small Chains don’t equal sellingpower of the Top 500 Chains. Units Sales 37.0% 35.2% 63.0% 64.8% Top 500 Independents & Small Chains 37
  38. 38. Leading Independent Restaurants Rankedby 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. 39. Tao Las Vegas2010 Projected Sales – $66.0MM • Restaurant - $28.0 • Club - $28.0 • Pool - $10.0Statistics • 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. 40. Operator Business SituationSlowly 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. 41. Operators Have Concerns Butthe 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. 42. Prime Cost: The Most ImportantOperator 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. 43. Hourly Labor Turnovera 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. 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 socheap that the West is battling gluttony even as it scrapes piles of half- eaten leftovers into the bin. “That is why this years price rise has been so extraordinary. The Economists 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. 45. Food commodity prices since January 1980:Reversal of a 22-year downward trendIndex: January 2002 = 100225 Doubled in 10 years175125 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. 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 wheat300 import levies China dryness Canada & NW Europe: rain damages wheat crop250 Aust. rain damages E. Africa drought wheat crop Russia Argentine wheat U.S. corn & Brazil export ban yields drop drought (high temps) Argentina drought200 Russia drought U.S. HRW drought Reductions in estimated global ending grain stocks Higher estimated global grain stocks150 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. 47. Even Top 500 Chains Are NotImmune 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. 48. More Operators TakingPrice 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. 49. Operators Need to Focus More Intensely onOther Value Drivers for Balance Low Prices/Deals are Not Sustainable Competitive Advantage Service Convenience Value Price Atmosphere Quality 49
  50. 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. 51. Operator’s Employing VariedValue 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. 52. Upping Their Game:Domino’s “Oh Yes We Did” Before After 52
  53. 53. Online Coupons Have Had MajorImpact 53
  54. 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. 55. Groupon May Not Be Answerfor 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. 56. Points of Differentiation: MenuInnovation Chipotle Wing Stop Noodles & Company Pei Wei Daphne’s Einstein Bros. 56
  57. 57. Points of Differentiation –Concept Rebuilding and Remodeling • McDonalds $5BB Makeover – Remodels: 2,500 units – Rebuilds: 6,100 unitsGoal: boost average annual sales at each renovatedrestaurant from $2.3 million to $3.1 million during thenext four to five years (34.7%) 57
  58. 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. 59. Points of Differentiation:Hey Bartender! 59
  60. 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. 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. 62. Guests Will Pay More for Mealsthat 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. 63. Quiz Time:Segment Review 63
  64. 64. BreakClient Logo
  65. 65. Consumer Mind Sets and Operator ResponsesClient Logo
  66. 66. Consumer Mindset Trends HaveImpact on Foodservice 1 Multi-Generational Demands 2 Ethnic Influence 3 Value Orientation 4 Health & Wellness 5 Customization 66
  67. 67. 1. Multi-Generational DemandsClient Logo
  68. 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. 69. Generation Gap: Food at Home vs.Food Away-from-Home 39% 44% “I eat out morefrequently than Iprepare 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. 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. 71. Generation Gap: Atmosphere All Millennials Gen X BoomersSit-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. 72. Generation Gap: Health & Wellness • Low sodium • Low fat • Low calories • Low carb • Portion control • Fresh • Organic • Local • Natural • Sustainable 72
  73. 73. Preferences for Natural andOrganic 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. 74. Operator Strategies: AddressingMature 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. 75. Operator Strategies: AddressingYoung Consumers’ Demands 75
  76. 76. Smart Phone Ordering Changingthe 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. 77. Tweets To Eats 77
  78. 78. Kogi BBQLocation: Los Angeles, CA Korean FusionNumber of trucks: 4 • Kimchi Pastrami Melt • Black Jack QuesadillaWeb: www.kogibbq.com • Korean Short Rib Tacoshttp://twitter.com/kogibbq • Tofu TacosTwitter Followers: 63,366 • Chocolate Tres LechesFacebook Fans: 10,539 • Spicy BBQ Chicken Tacos • Burritos 78
  79. 79. Welcome to the Mainstream 79
  80. 80. 2. Ethnic InfluenceClient Logo
  81. 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. 82. Importance of LSR AttributesVaries 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. 83. Ethnic Influence:Anatomy of a Trend 5 Stages of a Trend – Chipotle1 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. 84. Operator Strategies:Addressing the Minority Influence 84
  85. 85. 3. Value OrientationClient Logo
  86. 86. Across Income Groups, ManyConsumers 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. 87. Operators Utilize Variety ofPricing Strategies • Absolute Cost LSR • Relative Expenditures • Combo’s & Bundling FSR • BOGO • Ladder 87
  88. 88. Dealing Not Necessarily a BadThing 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. 89. Menu Mix Strategies –Focus on Higher Margin Products June 2008 November November 2009 2010 July 2011 July 2010 June 2008 89
  90. 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. 91. Operator Strategies: Cheap Chic 91
  92. 92. 4. Health & WellnessClient Logo
  93. 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 Id known I was going to live so long, Idhave taken better care of myself.” -Leon Eldred 93
  94. 94. Portion Distortion Then Now 94
  95. 95. Majority of Diners Still Optfor 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. 96. What’s Healthy? It’s All in How YouSay 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. 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. 98. Guests Not So Sure What Goesinto 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. 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. 100. Never Eat Anything Bigger thanYour 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. 101. Outback Steakhouse’s AussieCheese Fries Same as… 4 Baskin Robbins Banana Royale Sundaes 67 Slices of Bacon 5 Big Macs 101
  102. 102. This is Why You’re Fat 102
  103. 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. 104. Consumers Think the Information HasMade 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. 105. Calories Per Dollar 105
  106. 106. Operator Strategies: Menu Clues 106
  107. 107. Operator Strategies: What’s in aName? 107
  108. 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. 109. 5. Customization: Have It Your WayClient Logo
  110. 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. 111. The New “31 Flavors” “A Few Things, Thousands of Ways” 111
  112. 112. Operator Strategies: AddressingCustomization Desires 112
  113. 113. The Next Chipotle? 113
  114. 114. Foodservice Distributor EnvironmentClient Logo
  115. 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. 116. The Top 10 Companies ReflectMultiple 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. 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 >$1B in sales 117
  118. 118. Top Power Broadline Distributors 2005 Sales 2007 Sales 2010 Sales ($B) ($B) ($B)1. Sysco* $31.4 $36.4 $38.42. U.S. Foodservice 18.5 20.0 18.83. Performance Food Group 5.7 6.3 10.34. Gordon Food Service* 3.7 6.0 7.75. Reinhardt 2.1 3.1 4.56. Maines Paper 2.0 2.4 3.07. Food Services of America 2.0 2.6 2.68. Ben E. Keith 1.3 1.7 2.19. Shamrock 1.3 1.7 1.9 Total $69.1 $80.2 $89.3 *Includes sales in Canada 118
  119. 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. 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. 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. 122. GPOs Increasing asan 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. 123. Top 5 GPOs 2009 FS Purchases GPO ($000) Segment Focus Multi-Unit Foodbuy $2,400,000 Foodservice (Compass) Operators Entegra 2,000,000 Hospitality (Sodexho) Avendra 2,000,000 Travel & Leisure Premier 1,500,000 Healthcare Multi-Unit Dining Alliance 1,000,000 Foodservice Operators 123
  124. 124. GPO Penetration of IndependentsHas Stirred Distributors Total Purchases Made through GPOs Total Segment GPO % of Total Relevant Segment Purchases ($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. 125. Contract Share of Business IsQuite High and Growing Total Purchases = $201B Independents 37% 62% Contract Top 500 Chains 35% Other Contract/Chain 10% GPOs 10% FSMs 10% 125
  126. 126. Concern: Customer/Margin MixAre 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. 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. 128. Brand Structure – Distributor BrandsQuality Price 128
  129. 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 ImportantOperator $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. 130. Despites Profitability, Challengesto 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 $26.50 Source: Technomic 130
  131. 131. Volume Growth Will Come fromOperator and Distributor Brands Operator Purchases ($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. 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. 133. How Distributor Sales RepsSpend Their TimeThere 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. 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. 135. Distributor Buying Groups • Affiliation for small/ medium- size distributors • Provide buying clout – negotiation leverage • Expanded marketing, strategy, support services 135
  136. 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. 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. 138. Clubs/Cash-n-Carry Appeal toOperators • 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. 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. 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 DSRs 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. 141. National and RegionalRedistributors 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. 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. 143. Quiz Time: Distributors 143
  144. 144. LunchClient Logo
  145. 145. Beyond RestaurantsClient Logo
  146. 146. BR Segments Represent LargeVolume 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. 147. Retail Host FoodserviceIssues & 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. 148. C-Stores: Then & Now 148
  149. 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. 150. Meet “Bubba” Heavy/Moderate Light/InfrequentGender  Skews male  Skews femaleAge  Skews young (<24)  Skews older (45+)Race  Hispanic  CaucasianEducation  High school, some college  College graduateIncome  Less than $25K annually  $50K-$75K 150
  151. 151. Not Your Daddy’s C-Store Watauga, TX 151
  152. 152. Retail Host Foodservice All-Stars Costco Wegman’s Sheetz 152
  153. 153. Travel & Leisure FoodserviceIssues & 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. 154. Travel & Leisure Foodservice All-Stars Thai Airlines Safeco Field The Surrey Economy Class Seattle, WA NYC 154
  155. 155. Education FoodserviceIssues & 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. 156. Education Foodservice All-Stars Virginia Tech University Greenview Upper Elementary School (South Euclid, OH) West End Market Hokie Grill 156
  157. 157. Healthcare FoodserviceIssues & 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. 158. Healthcare Foodservice All-StarsVirtues Restaurant – Suma Vi Assisted & Hanna HealthCare Health Care (Akron, OH) Independent Living Center (Verona, PA) (San Diego, CA) 158
  159. 159. Foodservice Management Firms(FSMs)Companies that operate and manage foodservice facilitieswithin/for other establishments (typically noncommercialestablishments) for purpose of making a profit 159
  160. 160. FSMs Dominate Share of SeveralSegments 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. 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. 162. Leading FSMs Have PrioritizedStruggling 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. 163. Compass Uses Multiple BrandsAcross Different SegmentsHealthcare Healthcare Sports & Business Dining Facilities Education Vending Entertainment Dining 163
  164. 164. Aramark and Sodexho Use SingleBrand 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. 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. 166. Quiz Time: Beyond Restaurants 166
  167. 167. The ChainsClient Logo
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