1. Future of the Independent Restaurant Operator Study Highlights February 11, 2008 Project #13024 Food Industry. Facts. Insights. Consulting. Prepared by:

2. 2 Introduction FSMA sponsored this Technomic study Definition of independent operators Agenda Background & scope of study Market size Key highlights Implications

3. Market Overview

4. 4 Restaurant market (2008) UnitsSales *Include operators with 4-9 units Major chains Small chains* Independents (1-3 units)

5. 5 Independent restaurant market (2008) LSR FSR UnitsSales Ethnic restaurants: 19% of units 11% of sales

6. 6 UnitsSales/Unit Broker target market 45,000 units $20B <$1MM >$1MM Sales

7. Key Findings

8. 8 Sentiment among independents Acknowledge tough times Extremely cautious with capital Concerned but guardedly optimistic about future Recognize need to adapt Believe they are better positioned than chains Top concerns Food costs Consumer spending Macro-environment

9. 9 Performance trends Independents are experiencing traffic and margin declines Time frame: Dec. 08 vs. Dec. 07

10. 10 Characteristics of the average independent Longevity Quality of food Reputation Good service Location Personality # of years in business Average = 13 Keys to success

11. 11 Response to the environment % Who Have... Q: How have you adapted to the current business environment? (select all) Independents are extremely concerned about consumer pricing thresholds. Support with pricing strategy insights.

12. 12 Independents are more receptive to support than ever! % Indicating would like help Q: Would you like help from your suppliers with any of these issues? (Yes) Help operators manage food costs and attract customers. Expect push back on price increases. Product quality trade- outs are most likely to occur in low- impact categories. Help operators manage food costs and attract customers. Expect push back on price increases. Product quality trade- outs are most likely to occur in low- impact categories.

13. 13 Sourcing dynamics Avg. 11 distributors (across types) 92% give primary over 50% of their volume Bottlers, office supplies and E&S are next biggest sources Club stores play a role Using multiple distr. enables price comparisons & shopping around. Expect them to look for lower landed costs.

14. 14 Future sourcing strategies Shop around more Don't expect any changes Buy more products from local producers Give primary more of my volume Larger drop size (excl. growth) Buy from fewer distributors Fewer deliveries Buy from more distributors Q: Please think about your purchases for your restaurant. Going forward do you expect you will…(select all) Shopping around might lead to product/brand switches. Show the versatility and value of your products to protect account penetration.

15. 15 Interface with independents Like face-to-face contact Generally pleased with contact frequency Report the quality and number of broker services has been consistent Want e-communication to support in-person Appreciate contact at food shows Want more productive use of time together Tailor your account strategy to meet key customer needs and wants to heighten effectiveness of interface.

16. 16 Meeting improvements % Indicating #1 Area for Improvement for: Q: What would be the 1 area in which youd like to see your (DSRs/Brokers) concentrate on more when they are with you? What could they do to make your time together more productive? (select 1) DSR MeetingsBroker Meetings Cost reduction ideas Show new products Menu ideas/dev. Discuss promotions Bus. building opportunities Market trends Problem solving Taking orders Share cost containment and reduction best practices. Emphasize new product ROI and versatility. Help customers differentiate. Share cost containment and reduction best practices. Emphasize new product ROI and versatility. Help customers differentiate.

17. 17 Use of special services is limited Broker and Manufacturer Special Services Use Positive impact Most valuable for TODAY Consumer trends15%32% Recipe dev.1321 Food costing1144 Nutritional info931 % who do not use any services60% Note: % have used service in past 12 mos.; top box strong positive impact Promote (and develop) those that have the biggest impact.

18. 18 Preferred way to learn about new products % Indicating Preference Q: How would you like to learn about new products available from manufacturers or distributors? (select all) Elevate your role! Leverage food shows for new product demonstrations. Support efforts with samples & e-strategy. Demonstrate product versatility & margin advantages. Elevate your role! Leverage food shows for new product demonstrations. Support efforts with samples & e-strategy. Demonstrate product versatility & margin advantages.

19. Outlook

20. 20 Independent operator expectations for the future Q: What do you expect to happen in the next 12 months? Operator forecasts for 09: hope for steady-state

21. 21 What to expect from independents More efficient operations, including purchasing Better asset utilization and cost management More focus on enhancing the customer experience Further leveraging their local status

22. 22 We do not anticipate any growth until 2011 Annual sales growthMenu prices 2008-2%+3.5-4.5% 2009-5+3-4 2010-2+2-3 2011+2+2-3 Independent restaurant market

23. 23 There will be net unit contraction over the next three years Net change in units 2008-2011 LSR chains-1% FSR chains-11 Small chains-3 Independents-4 TOTAL-3%

24. Implications

25. 25 Implications and imperatives 1.Independents are under real pressure. They are willing to listen so bring them solutions and best practices: Menu pricing strategies Cost reduction/containment Margin optimization Product versatility Waste + yield management

26. 26 Implications and imperatives 2.Make sure your principals provide you with truly differentiated new products and that your independent operator support programs have a measurable ROI. 3.Define and elevate your role to key accounts. Position yourself as a valued resource Look for opportunities to enhance and build on DSR efforts.

27. 27 Implications and imperatives 4.Improve effectiveness of interface. The right targets Meeting frequency Task + time allocation 5.Set market-realistic goals for the near- and longer- term. Audit milestones frequently Be prepared to adjust mid-cycle

28. Questions?