June 2015 Industry Update

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

Key Indicators

The Slow Recovery of Consumer Confidence 91 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

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

More Operators Taking Price Have Taken Price Increase in First 3 Months of Year Will Take Price Increase in Next 6 Months Source: 2011-2015 Technomic Operator Surveys Commercial operators only

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: 2012-2015 Technomic Operator Surveys

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

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

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

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

Shifts in Consumer Demand

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

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

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

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

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

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

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

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

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

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

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

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

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

Outlook

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

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

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

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

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

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%

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

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

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

Looking Beyond