5. The Technomic Operator Practice
Operations Improvement
Operations New Product Food Waste
Audits Development Audits
Customer
Consumer Operating System
Satisfaction
Research Upgrades
Studies
Menu Kitchen Competitive
Engineering Productivity Analysis
5
6. Today’s Agenda
1 Overview of
foodservice industry
Current Commodity
2 Situation
Commodity Cost Coping
3 Strategies
6
8. Share by Segment has Changed
in the Last Decade
2001 2006 2011
Sales $269.4 Sales $350.2 Sales $370.2
B B B
LSR LSR FSR LSR FSR
FSR
49% 51% 49% 54% 46%
51%
Source: Technomic Top 500 Chain Restaurant Reports 8
10. Top 500 FSR Segments
Turning Around
Top 500 FSR Category Sales Growth vs. Previous Year
Segment 2007 2008 2009 2010 2011
Steak 5% 5% -1% 2% 5%
Seafood 5 5 0 0 5
Varied Menu 10 5 2 -1 3
Asian 10 14 9 3 3
Italian 7 5 2 1 2
Family Style 3 2 1 -1 1
Mexican 3 -5 -2 0 0
Source: Technomic Top 500 Reports 10
11. Consumers Report an Improved
Financial Situation
Overall Financial Situation
April 2012 (April 2011)
Better
Worse
24%
20% (13%)
(31%)
55%
(56%)
Same
Source: April 2012 Technomic Consumer Survey 11
12. Consumer Confidence Up Slightly but Still
Well Below Historic Highs
Jul
2007
Index 111.9
May
120 Feb 2012
Feb
2009
100 2009
25.3
64.9
80 25.3
60
40
20
0
2005 2006 2007 2008 2009 2010 2011 2012
Confidence is a directional indicator for the health
of foodservice spending
Base: 1966 = 100
Source: Conference Board 12
13. Financial Situation Impacting
Foodservice Behavior
66% Budget prevents me from eating out more
56% Going to lower priced restaurants
54% Ordering less expensive items
54% Taking advantage of chain deals
Source: April 2012 Technomic Consumer Survey 13
14. Retail Value Perception Is Trending Down
Value Perceptions vs. Year Ago
Better Same Worse
Chain restaurants 19% 62% 19%
Independent restaurants 18 68 14
Grocery stores 17 49 34
Source: April 2012 Consumer Survey 14
15. Restaurant Industry Improved in 2011
2011 Restaurant Industry Sales Growth
Total = $370B vs. Previous Year
Chains
2.5% 3.5%
#101-500 1.8%
$28B 0.4% 0.8%
8%
All -0.8%
Other* Top 100 -2.2%
-3.2%
$129B $213B
35% 57% -7.1%
Industry Top 500 All Other*
2009 2010 2011
Top 500 drives industry growth
Independent recovery begins
*Restaurant chains, independents, with <$37.5MM in sales
Source: 2010, 2011, 2012 Technomic Top 500 Reports 15
16. 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
But still lower than 2003-2007 Real CAGR (2.8%)
(P) = Preliminary
(F)= Forecast
Source: Technomic 16
18. 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.”
18
19. Food commodity prices since January 1980:
Reversal of a 22-year downward trend
Index: January 2002 = 100
250
200
150
100
Down 1/3 in 22 years Doubled in 10 years
50
0
1980M1
1982M1
1984M1
1986M1
1988M1
1990M1
1992M1
1994M1
1996M1
1998M1
2000M1
2002M1
2004M1
2006M1
2008M1
2010M1
2012M1
Source: International Monetary Fund:
International Financial Statistics 19
20. Non-food commodity prices have
risen even more
Index: January 2002 = 100
700
650
600
550
500
450
400
350
300
250
200
150
100
50
0
Jan 80 Jan 85 Jan 90 Jan 95 Jan 2000 Jan 05 Jan 10
Crude oil All commodities Food commodities
20
21. Factors contributing to higher food
commodity prices
Economy Wide Agriculture Sector
> Meat & dairy consumption
> Economic growth
Long-term > Global biofuel production
trends > Increasing population
> Productivity growth
> Cost of energy > Natural resource constraints
> Weather production
> Exchange rate (LT & ST)
Short-term > Stock-to-use ratio
disruptions
> Exporters’ policy response
> Oil price
> Importers’ policy response
21
22. Primary factors affecting crop prices1
(June 2010 – Jan 2012)
Index: January 2002 = 100 Russia stops grain
350 Strong LDC economic growth.
import
duty
U.S. $ appreciates
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-crop monthly price index: Wheat, rice, corn, & soybean
prices; based on IMF price and trade share data. 22
23. Corn, wheat, rice, and soybean prices
projected to remain historically high
$ per bushel (per cwt for rice)
Rice
16
14
12
10
Soybeans
8
Wheat
6
4
Corn
2
0
1980/81 1985 1990 1995 2000 2005 2010 2015 2020
Source: USDA Agricultural Projections to 2021, February 2012. 23
24. Future prospects: Livestock prices
$ per hundredweight, nominal, U.S. markets
130 Beef cattle: Steers, 5-area
120
110
100
90
80 Broilers: 12-city market price
70
60
50
Hogs: National base
40
30
1990 1995 2000 2005 2010 2015 2020
Source: USDA Agricultural Projections to 2021, February 2012. 24
25. Near-term factors that may influence
future agriculture prices
Weather
Stock levels
Policy changes by food commodity exporters & importers
Exchange rates
Agriculture production costs
Extent of global economic recovery
Import demand:
– Who will be the importers?
25 25
26. Longer-term factors expected to influence
future agriculture prices
Biofuels production
Food consumption patterns
Technology advancements
– Continued slowing of growth in productivity?
– R&D investments.
– Role/acceptance of GMO products.
Natural resource constraints
– Land: Ability to expand cultivated area; productive
capacity of new land
– Water: Ability to continue rate of growth in irrigated areas
Climate change
26
27. Conclusions
Expect prices to fall from recent peak, but to remain
historically high
– Global economic recovery and renewed growth in demand
for crops, animal products, and energy
– Some additional growth in global biofuels output
– Slower productivity growth
– Declining value of the dollar
World agriculture production can keep pace with demand
– In short-run: Production can respond to higher prices within
4 months to 2 years – if the weather cooperates.
– Over next 10 years, global production growth rates projected
to be sufficient
– Longer-term brings increased uncertainty?
27
31. Commodity Cost Strategies:
The Menu
Alternative Protein Strategies
Center of Plate Strategies
Menu Mix Strategies
– Higher Margin Menu Items
– Pricing Strategies
– Daypart Strategies
31
33. Beef Consumption Continues
Downward; Chicken a Bright Spot
Chicken consumption in the U.S. will increase 1.7% to 82 pounds a person
in 2013, while beef consumption may decline 2.2% next year to 54.5
pounds*
Source: U.S. Department of Agriculture. 33
34. 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
• Chicken Nuggets
• Whatachick’n Bites
• Chicken Rings
• Turkey Roaster Sandwich
34
35. Alternative Protein Strategies:
Less Costly Cuts On the Menu
Since 2008, the U.S. Beef Industry has added
13 new Value Cuts:
Value Cuts
Flat Iron Western Tip
Petite Tender America’s Beef Roast
Petite Tender Medallions Boneless Country-Style Beef Chuck Ribs
Ranch Steak Delmonico Steak
Sirloin Tip Side Steak Denver Cut
Sirloin Tip Center Steak Sierra Cut
Western Griller Steak
35
36. Alternative Protein Strategies:
Gourmet Burgers
91% of consumers said they eat
a burger at least once a month;
44% said they consume burgers
at least once a week.
75% of consumers ranked
quality of meat as the first or
second most important
attribute in choosing a burger.
27% of restaurant customers
said they prefer to purchase
burgers made with Angus beef,
compared to 20% in 2007
36
37. Alternative Protein Strategies: Lesser
Known/Less Popular Proteins and Cuts
Evolutionary
– Pork
– Turkey
– Lamb
West Town Tavern
– Chicken (Dark Meat) BBQ Lamb Ribs
– Tofu/Seitan
– Seafood
Revolutionary
– Goat
– Offal The Girl & The Goat Smoked Goat
Rillette Empanadas
37
38. Ingredients—Pork
Bridge House Tavern’s Hot Doug’s
Pig Wings The Brigitte Bardot
Incidence of Pork Center-of-the-Plate Entrées
652
631
626
Jan-Jun 2010 Jan-Jun 2011 Jan-Mar 2012
Base: 730 Menus among the Top 500 & Emerging Chains
and Top Independent Operators
Source: Technomic, MenuMonitor 38
39. Center of the Plate Strategies:
Perception is Reality
Which dot is bigger?
39
40. Center of the Plate Strategies:
Perception Altering Tactics
Fleckage
Divide & Conquer
Ex-Squeeze Me
Plate Geometry
Less is More
The Elongation Effect
40
41. Center of the Plate Strategies:
Using Less to Create More
41
42. Center of the Plate Strategies:
The Elongation Effect
The more elongated, a figure, the larger it is perceived to be.
42
43. Menu Mix Strategies –
Focus on Higher Margin Products
June 2008 November November
2009 2010
July 2011 July 2010 June 2008
43
44. Pricing Coping Strategies: More
Operators Taking Price Increases
Have Taken Price Increase Will Take Price Increase
in First 4 Months of Year in Next 6 Months
44% 47%
35% 34% 37%
28%
2010 2011 2012 2010 2011 2012
Source: Technomic Operator Surveys:
May 2010, May 2011, April 2012 44
45. A Case Study: BJ’s Brewhouse
“Commodity basket” cost
expected to increase
approximately 3% during
2012
Cost increases expected to
be manageable via menu
price increases and
productivity/cost offsets
2012 menu prices expected
to increase in the 3.0% to
3.5% range
45
47. Daypart Coping Strategies:
Snacking Daypart Development
Consumers snack much
How often do you typically eat a
more frequently than snack in-between meals?
those polled in 2010
Snacking represents 19%
of all quick-serve traffic
(NPD) 48%
Low risk/high reward 25%
29% 27%
daypart
35% of consumers are More than once a Once every day
choosing healthier day
snacking options than 2010 2012
they were two years ago
47
49. Commodity Cost Coping Strategies:
The Kitchen
Food Waste Control Strategies
Production Strategies
– Scratch/House Made
– Transformative
49
50. Food Waste Control Strategies:
4% to 10% Waste Produced Pre-Consumer
Inbound Supply Post Consumer
Pre- Consumer Waste
Chain Waste Waste
• Receiving and
• Incorrect product • Miss/Over
material handling • Overproduction
preparation portioning
errors
• Poor inventory
storage/retrieval
• Trim waste • Pilferage/Theft • Plate waste
design or
processes
• Ineffective supply
chain monitoring • Spoilage/Contami
• Miss-expediting
& documentation nation
processes
• Product
• Recipe design
spillage/damage
50
51. Food Waste Control Strategies:
Control Tactics
Goals
Can’t Count What You
Can’t See
Individual Accountability
Monitoring Equipment
Documentation (3 W’s)
51
52. Production Strategies: Derivatives
Left Over Tactics
– Vegetable Trim = Stock
– Fresh Fruit = Sauces/
Chutneys
– Starches = Thickeners
– Coffee = Iced Coffee
“Must haves”
– Soup
– Pizza/Calzone
– Quiche
52
53. Production Strategies:
House Made/Scratch
Benefits
– Labor is a fixed, not a
variable cost
– Culinary flexibility
– Cost Saving - Base
ingredients less costly than
value added/processed
ingredients
Disadvantages Newport School District
Spokane, Washington
– Staff skill levels
– System consistency
53
54. Production Strategies:
Transformative Cooking
Transformative Cooking Methods
– Smoking
– Braising
Benefits
– Cheaper cuts
– On-Trend: 46% of diners find
smoked food appealing or
very appealing
54
56. Supply Chain Coping Strategies:
Local Sourcing
75% of consumers consider Local Means Close to Home
the idea of locally sourced
31%
important 50 miles
27%
47% of operators are
concerned about the ability to 10%
100 miles
locally source – up 6 points* 17%
Benefits:
The 27%
– Lower costs city/community 22%
– Proximity
– Consumer alignment 18%
The state
Concerns 22%
– Food safety
Perceived restaurant/retailer defintion
– Availability Consumer definition
Source: 2010 & 2011 F&O Operator Survey 56
57. Supply Chain Coping Strategies: Contract
Purchasing/Prime Vendor Agreements
Street Sales Shoulder
2011 (E) Share of… the Profit Load
37%
65%
63%
35%
Sales Profit
Street Contract
57
58. Supply Chain Coping Strategies:
Private Label Brands
59% of Distributors view
Obstacles to Selling DB’s
Private Label Brands as
Important or Very Important
to their business
53%
Benefits
40% 40%
– Multiple pricing/quality
tiers
– Better margin for
distributors Mfg. Sales Rep Lack of
Brands Resistance Customer
Disadvantages Specified Acceptance
– Transferability
– Underlying producers
58
59. Supply Chain Coping Strategies: Group
Purchasing Organizations (GPO’s)
Represent 20% of industry
purchasing
Manufacturer issues:
double dipping, no volume
guarantee
Distributor issues: loss of
operator “control,”
margin erosion
Operator issues: relationship
interference
59
60. Supply Chain Coping Strategies:
Alternative Distributors
Warehouse clubs
– Costco, BJ’s Wholesale,
Restaurant Depot, GFS Market
Place, Sam’s Club
Benefits
– Quality merchandise/Low prices
– No minimums
– Brand names and private label
– “See, touch, smell” before buying
Disadvantages
– SKU continuity
– Lack of delivery, business support
60
63. Customer Makeup and Mindsets: Majority of
Guests Looking for Innovation on the Menu
Attitudes Toward New and Innovative Flavors
(Consumer Clusters)
Opportunity - Try
New Ones on
Occasion
15%
Ready for Trial -
Regularly Seek
New Flavors
64%
Everyday - Stick to
Favorites
21%
Source: June 2011 Market Brief 63
64. Customer Makeup and Mindsets:
Increasing Ethnic Diversity
Hispanic and Asian populations
have swelled by more than 40 % % Change in Population By
since 2000, compared to the 1.5% Race: 2000 - 2010
increase of non-Hispanic whites.
The U.S. white population is 43.0% 43.3%
projected to become the minority
– an estimated 47% of the
population – by 2050.
50.4 % of babies younger than 12.3%
9.7%
age 1 were minorities or of more
1.2%
than one race last year.
Total Hispanic Asian African White
Recent immigration patterns in American
the US reflect the arrival of an
average of 104,000 foreigners a
day in the U.S.
64
65. Customer Makeup and Mindsets:
Changing Market Means Changing Tastes
Those of Greek, Middle Eastern,
Hispanic, African, Jamaican and % of Households Who Would
Native American descents account Probably or Definitely
for the majority lamb or goat meat Purchase Lamb*
consumers.
Based on ethnic population 30%
growth trends and recent
20%
immigration patterns , the
prospects for an increase in
general demand meats such as
lamb and goat appear good.
2006 2011
*Source: American Lamb Board 65
66. Customer Makeup and Mindsets:
Rise of Millenials
Millennials are more likely to
visit restaurants which are “I prefer to visit restaurants
innovative than any other that offer dishes featuring
new or innovative flavors and
cohort. ingredients”
Although Millennials earn a
lower income than older
consumers, a greater percentage 38% 36%
of Millennials (42%) than Gen
Xers (33%) and Boomers (24%)
report visiting upscale casual
dining restaurants at least once a Older Younger
month. Millennials Millennials
(28–35) (20–27)
66
68. Conclusions & Recommendations
Identify key items for evaluation
Multiple strategies available
Take a holistic approach: controlling commodity costs not
single answer
Look to all supply chain partners for support
68
