1. June 2015 Industry Update

2. Objectives 1 Review indicators 2 Discuss emerging trends 3
Present forecast 3 2

3. Key Indicators

4. The Slow Recovery of Consumer Confidence91
Number of months the index remained below 100 (August 2007 to March 2015)
Consumer enthusiasm has been a gradual build.
Base: 1985 = 100
Source: Conference Board 4

5. Some Food Cost Relief for Operators
CPI FAFH Apr '15 2.9%
CPI FAH Apr '15 1.3%
-2.0%
But menu price inflation creeping up.
% Change vs. same period previous year
Source: U.S. Labor Department

6. More Operators Taking Price
Have Taken Price Increase in First 3 Months of Year
Will Take Price Increase in Next 6 Months
Source: Technomic Operator Surveys Commercial operators only

7. Labor Issues More Pressing for Operators
Top 2 Box Concern
Top 2 Box Score. 1 to 5 scale 1 = not concerned at all; 5 = extremely concerned
Source: Technomic Operator Surveys

8. CDR in Recovery Mode LSR Q1 ’15 2.1% CDR Q1 ’15 2.3%
% Change vs. same period previous year
1Q 2015 data is preliminary
Source: Technomic Same-Store Sales Report for Public Companies

9. U.S. Top 500 Chains: Sales Performance
Annual Growth Rate
2.2%
5.1%
4.1%
3.3%
4.0%
-0.5%
Source: Technomic Top 500 Reports

10. Fast Casual: Still the Bright Spot in the Restaurant Industry
Top 500 Chains
Source: Technomic Top 500 Reports

11. Top 500 Fast Casual Growth Rates
2014 Total Top 500
Fast Casual Sales
2014 Sales Growth
$30 B
12.8%
All fast casual in Top 500
22.3%
Build-your-own in Top 500
10.4%
Non-byo in Top 500
76.4%
23.6%
Note: The results reported here are preliminary and subject to revision.
Source: Technomic Top 500 Report, 2015

12. Shifts in Consumer Demand

13. Starbucks Heats Up to #2 By U.S. sales
Source: Technomic Top 500 Report, 2015

14. Subway Sales Not Healthy
Subway's U.S. sales declined 3.3% in 2014 to $11.9 billion (Technomic estimate)
Source: Technomic Top 500 Report, 2015

15. Big Burger Brands Cold
2014 U.S. sales: McDonald's down 1.1%, Burger King up 1.6% (est.), Wendy's down 0.4%
Source: Technomic Top 500 Report, 2015

16. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

17. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

18. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

19. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

20. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

21. Operators See Changing Demands
Natural/wholesome foods
Consumer food interest/sophistication
Transparency
Less processed foods
Customized menu items
Living wages
Local sourcing
Food authenticity
Sustainability practices
Hormone and antibiotic-free meats
Local brand preferences
Front-of-house preparation
Humane animal treatment
1 to 4 scale: 1 = not a trend/consumer demand, 4 = strong trend/ consumer demand. Top 2 box shown Source: 2015 Technomic Operator Survey

22. Focus on Health & Well-Being
“My most recent restaurant meal was healthy.”
65%
54%
60%
2012
2014
of consumers agree
“It’s important to feel good about the foods and beverages I put into my body.”
Source: Consumer Trend Report Series, 2015
Source: Consumer Trend Report Series, 2015

23. Changing Family Dynamics
Families are increasingly…
Smaller in size
Multi-generational
Source: Statistics Canada
An understanding of demographic shifts is important in understanding consumers’ current and future needs. We monitor a variety of sources to stay on top of shifts and what we’re seeing is that Canada’s families are changing in dramatic and fundamental ways. I’ve noted some of those here and there are additional slides in your copies of the deck to note the stats, but rather than spend this session rehashing publicly available data I’m going to jump right into the implications. There are 4 main ways that these shifts are changing how today’s families use foodservice. Basically involves menu, atmosphere and amentities that meet a wider range of needstates, preferences and occasions.
1) Due primarily to (slower transition to adulthood) families having fewer children and slightly to an increase in lone-parent families, today’s families are smaller in size – average is now about 2.9 compared to 3.9 in 1961.
2) There are more multi-generational families and this is mainly the result of an aging population that requires more households to take in aging parents, often creating “sandwich” families in which the head or heads our household are caring for children and elderly parents at the same time
3) One of the most important impacts of these changes is that today’s families are very financially divided. One subset includes, educated individuals waiting until they are more established to have children and having fewer children. These consumers have the money to spend on foodservice. Another includes families that are financially strapped – single-parent or struggling two parent households and “sandwich” households.
4) Multi-cultural – visible minorities accounted for 19% of population based on 2011 census, projected to grow to 33% 2031.
Multicultural
Facing financial uncertainty

24. Altered Paths to Purchase
67%
64%
30%
use smartphones to decide whether to visit businesses
own a smartphone
of shoppers’ journeys start online
21%
Source: Catalyst 2014, Technomic Consumer Brand Metrics Aug. 2014
Internet Everywhere has changed the path to purchase. Numbers do lag considerably behind that of U.S. consumers, but on the rise.
How are they using them?
To search, compare, read reviews, share their own reviews and images, create their identity, actually buy online
word of mouth/reviews
-actually buying online
IMPLICATIONS HERE
But also some tensions that may be worth
The changed path of consumer purchasing (BDC top consumer trend)
Talk about growth of and quickened pace
Changed path to purchase (beginning spot to find, compare, get reviews, and purchase
say mobile payment is highly important for restaurants
Source: Pew Research Institute, Technomic Consumer Restaurant Brand Metrics

25. 2.3 Million 76% Urban Renaissance
of major American cities grew in 2013
Source: U.S. Census Bureau
Another societal shift is in this idea of….
American, esp. boomers and young Americans are moving back to cities Started in 2010 – go to stats
Related to delayed marriage/children
And not just cities as walkable communities and the amenities they want need (less thinking about school district, yard for kids, etc.)
2.3 Million
more Americans lived in metro areas in 2013 than in 2012
Source: U.S. Census Bureau 25

26. Outlook

27. Updated Wall Chart Now Includes Sub-segments
Limited-Service Restaurants
Fast casual
Quick service
Full-Service Restaurants
Midscale
Casual dining
Fine dining 27

28. Industry Growth Forecast
Total foodservice
Restaurants
Beyond restaurants
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
Source: Technomic

29. Limited Service & Bars/Taverns
Total LSR
QSR
Fast casual
Bars/taverns
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
2015 CPI = 3.0% 2016 CPI = 2.5% Source: Technomic

30. Full Service Restaurants
Total FSR
Casual
Midscale
Fine dining
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
2015 CPI = 3.0% 2016 CPI = 2.5% Source: Technomic

31. Retail Hosts Growth Forecast
Supermarket FPF
C-Store FS
Other retailers
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
2015 CPI = 3.0% 2016 CPI = 2.5% Source: Technomic

32. Travel & Leisure Growth Forecast
Lodging
Recreation
Transportation
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
Lodging, Recreation CPI 2015=3.0% 2016 = 2.5%
Transportation CPI 2015 = 1.6% 2016 = 1.3%

33. Healthcare Growth Forecast
Senior living
Hospitals
Long-term care
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
2015 CPI = 1.6% 2016 CPI = 1.3% Source: Technomic

34. Other Segment Growth Forecasts
College/university
K-12 schools
B&I
Refreshment services*
n 2015 Real n 2015 Nominal n 2016 Real n 2016 Nominal
* Includes Vending, OCS, micromarkets
2015 CPI = 1.6% 2016 CPI = 1.3% Source: Technomic

35. Conclusions 2015 performance stronger than initial projections
Lower food costs, but higher labor costs
Consumer tastes are changing for the long haul
Positive outlook, as core segments regain strength 35

36. Looking Beyond