Marketing & Sales Leaders Forum Program Planning Committee

Bill McClellan Dawn Foods Chair

Connie Fuller B&G Foods Vice Chair

Judy Karner Azarta

Bryan Koster Barilla

Lisa Kermizis-Abraham Bigelow Tea

Bill McCullough Bunge Oils

Alfredo Ortiz CSM Bakery Products

Hugh Sullins Epi Breads

Cory Sexson FoodHandler

Amy Fattori Grecian Delight

Andrew Dun Insight Beverages

Jeannine Scherzer International Paper

Jeff Pierce Kagome

Ben Wexler Kellogg Company

Michael Alexander King & Prince

Steve Diener Paramount Farms

Doug Allison PepsiCo

Deborah Jackson PepsiCo

Peter Sirgy Reser’s Fine Foods

Dinsh Guzdar Rich Products

John Zimmerman Rosina Food Products

Kristin Bird Sara Lee

Chris Travisano Sugar Foods Corp.

Mike Cannon Surlean Foods

Mike Castagna Ventura Foods

Alan Sterling Wayne Farms

State of the Foodservice Industry

DPI is Sluggish

% Real Change vs. Prior Year

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr-8%

-4%

0%

4%

8%

May 20131.0%

Source: Department of Commerce

Correlates with foodservice spendingKey Insights

Restaurant Employment Has Consistent Growth

% Change from Prior Year

May

'06

Aug

Nov Fe

bM

ay '0

7Au

gN

ov Feb

May

'08

Aug

Nov Fe

bM

ay '0

9Au

gN

ov Feb

May

'10

Aug

Nov Fe

bM

ay '1

1Au

gN

ov Feb

May

'12

Aug

Nov Fe

bM

ay '1

3

-4%-2%0%2%4%6%

Aug 20074.1%

Dec 2009-2.9%

But driven by more part timers.Key Insights

Source: Bureau of Labor Statistics

Jul 20133.7%

Small Chains/Independents Outpacing Chains

2010 2011 2012 2013(F)

1.6%

3.5%

4.9%

2.9%

-1.5%

4.6%5.6%

3.0%

Top 500 Chains Small chains/Independents

Nominal Growth

Indys heavily FSR-orientedKey Insights

(F) = ForecastSource: Technomic

Obamacare Has Many Operator Implications

Yes65%

No35%

Obamacare to Have aDirect Impact? Reactions*

Restaurants Beyond Restaurants

FT employee reduction 44% 27%

PT employee increase 36 29

Raise menu prices 34 46

Reduce FT employee hrs. 29 22

Cut other costs 29 27

Reduce total employee # 21 14Schools least likely impactedThose operators not impacted have <50 employees,

or already provide healthcareKey Insights

*Base: Operators indicating Obamacare to have an impactSource: Technomic Operator Survey – 3Q-2013

Jack LiManaging Director Datassential

believe LTO’s areMORE INTERESTING

more interesting

38%

bettertaste

15%

marketingploy

45%

believe LTO’s areBETTER TASTINGbelieve LTO’s areMARKETING PLOYSLTO“This phrase really has no meaning.

Just 16%believe LTO’s to be very unique

MACmenu adoption cycle

INCEPTIONFoodservice

Fine DiningEthnic independents

RetailEthnic grocersLargely absent elsewhere

ADOPTIONFoodservice

Chef-casualFood trucksFast-casualCasual dining Independents

RetailSpecialty grocersGourmet food retailers

PROLIFERATION

FoodserviceCasual dining chainsQSRLodgingC&U

RetailTraditional grocery storesMass merchandisersClub stores

UBIQUITYFoodservice

Midscale restaurantsB&IK-12C-Stores prepared foodsGrocery deli

RetailFrozen foods aisleC-Store shelvesDrug & dollar stores

MACmenuadoptioncycle

ethnic population

acculturation

urbanization

food culture

technology

TREND ACCELERATION

explore the nuancesfuture predictions

Menu Adoption Cycle

accelerates

2010 2015

2020 2030

fine dining continues its

democratization

FOOD TRUCKS

CHEF-CASUAL

FOODWATCH

CustomizedLTO updates

Bill HalePresidentThe Hale Group

22

Agenda

• The Hale Group has a point of view concerning the evolution of the foodservice landscape and strategic implications for foodservice manufacturers. Specifically,

1. Foodservice 2020: Global, Consolidated, and Structured

2. Consumer Thinking versus Channel Thinking

3. GPO’s as a Segment Opportunity

4. The Distributor of the Future

• Let review this outlook and where it takes us.

• The dominant forces shaping the foodservice landscape in this decade:

Foodservice 2020: Shaping Pressure Point

Value & Economics

Consumers will drive for value and not expected to increase greater per capita number of AFH occasions

Operators seeking pricing relief and point of differentiation

This will drive price and margin pressure at all levels

=

Consolidation of Operator Purchasing

• Operator demand will be aggregated.

Foodservice 2020: ConsolidatedShare Controlled by Consolidated

Operator Purchasing

Source: The Hale Group’s Estimates

Segments 2009 2020 (P)

Restaurants 58% 72%Lodging 70% 85%Retail Foodservice 80% 90%Recreation 55% 70%Airlines 100% 100%Business & Industry 75% 85%Colleges & Universities 57% 65%

K-12 65% 85%Healthcare 80% 95%Others: Government, Agencies, Institutions 70% 80%Total 62% 79%

Fewer but

bigger buyers

• GPO’s consider their role to be the representative of the operator.

• GPO’s aggregate demand and leverage the power of that purchase volume and exploit market discontinuities.

GPO’s as the Representation of the Operator

Distributor

Manufacturer Manuf. Rep.

DSR’s

Independentand Self-Op’s

OperatorsGPO

Source: The Hale Group estimates

Review of the Foodservice Distributor

Segmentation of Distributors

Role of the Distributor

Foodservice Distributor Landscape: Segmentation

Source: ID Magazine and Newsletters Top 50 , Technomic and The Hale Group estimates (excludes alcohol and non-food equipment))1. Alternative formats include Restaurant Depot, Warehouse Clubs and Cash and Carry

The distinctions between broadline and system distributors will continue to blur; alternative formats capture independent operators.

The structure of the distributor industry will change over the decade… Share of Total Sales (%)

Type of Distribution 1995 2000 2005 2010 (F) 2020 (P) Comments

Broadline 45% 50% 53% 58% 59%Adding categories & systems business to Increase share

System 14% 17% 15% 11% 11%Broadliners are competing for this business

Product Specialist 38% 30% 27% 20% 16%Have high service levels and specialty products

Alternative Format Specialist 2% 3% 5% 11% 14% Capturing the independent

Total Percent 100% 100% 100% 100% 100%

Total Sales ($Billion) $103 $132 $159 $175 $203

Forces of Change for Distributors•There are essentially three forces shaping the change in the distributor community

1. Changing customer mix with more multi-unit operators and buying groups that want a low cost high efficiency and reliable supply-chain / logistics partner – extreme margin pressure

2. Trade income under pressure as the manufacturer trade dollars are now shared among distributors, buying groups, operators and soon to be consumers – margin relief is going away

3. Bigger customers with multi-regional footprints want one distribution vender versus a patchwork – streamlined, one touch distribution network

•The pressures are economics and changing customer needs and wants

Implications for Foodservice

Strategic Imperatives

Distributor Strategy Elements

• A key to future success is an organizational culture that embraces a more…

Success Factor

Analytical approach to decision-making• Doing the homework

Directed approach to business and customer development• Targeting the segments and customers

Structured value proposition and execution• Explicit solution to the opportunity

Measured results and constant corrections• Open sharing of results and accountability

Analytical approach to decision-making• Doing the homework

Directed approach to business and customer development• Targeting the segments and customers

Structured value proposition and execution• Explicit solution to the opportunity

Measured results and constant corrections• Open sharing of results and accountability