May 2015 NRA Show Presentation Industry Status and Outlook Update

Discussion 1 Macroeconomic Update 2 2015 Technomic Top 500 Review 3 Customer Status 3 Distribution Report 4 2015 & 2016 Growth Outlook 5

Next Foodservice Planning Program Meeting June 22-23,2015 Outlook for Traditional QSR 1 Food with a Story 2 Driving Sales in a Challenging Environment 3 Assessment of Alternative Distribution Channels 4 Guest Speakers: Shake Shack, LYFE Kitchen 5

Arjun Chakravarti, Ph.D. IIT Stuart School of Business Macroeconomic Update Arjun Chakravarti, Ph.D. IIT Stuart School of Business

Mid-2015: Assessing Tradeoffs Expected some liftoff above 3% growth this year We expected some reversion in Q1… …but Q1 growth significantly underperforming: 1% expected versus 0.2% actual What is going on and what do we expect for the end of the year?

U.S. Consumer Situation Hasn’t Changed Since January…

Consumer Confidence Accelerates April ’15 95.9 Index level Recessionary trend Expansionary trend 2015 2007 2001 50 70 90 110 Solid increase in consumer spending to end 2014. Consumers in expansionary mindset.

Unemployment Rate Falling 18 16 14 12 10 8 4 6 1 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 “Full” Employment? Unemp 5.5% Under 10.9% April employment slows as export markets drags hurt energy and manufacturing jobs. Job quality remains an issue but underemployment trends further down. Source: Federal Reserve, Labor Department

Real DPI Creeping Up but Way Off Trend 2003 2007 2011 2014 39 38 37 36 35 34 33 32 31 30 (000s) Wages up 2.1% in 2014, but median wage ($24) is still about $3.16 off prior trend. Income growth expectations still haven’t recovered since recession. Source: Labor Department, UMich Sentiment survey

Inflation Rates Declining Y-Y Percent Change 2009 2011 2014 5 4 3 2 1 -1 -2 -3 CPI Mar -0.1% PCE Feb 0.3% Inflation levels have fallen to dangerously low levels. Low oil prices do not sufficiently account for this drop. Fed likely delays raising interest rates. Source: Federal Reserve, Labor Department

Personal Savings Ticking Up 1980 2005 2015 1987 2000 14 12 10 8 6 4 2 Feb ’15 5.8% Aggregate savings usually reveals fluctuations in income savings of top 10%. Bottom 90% may be slightly pocketing gas savings. Source: Federal Reserve

Consumer Credit: Is “Deleveraging” Over? Debt-income ratios falling and almost in line with equilibrium Equilibrium: sustainable debt for a household based on economic fundamentals and interest rates Actual and Equilibrium Debt (in % of Personal Income) 60 70 80 90 100 1980q1 2002q1 2006q1 2010q1 2014q1 Equilibrium Debt Total Debt-to-Income Ratio Signs point to “YES” but lending conditions are still very tight. Source: Claudia Sahm, Federal Reserve; Albuquerque et al (2014)

Is Q1 an Aberration or Should We Worry?

Contributors Q1 Growth (0.2%) Export Losses Outweigh Consumption Gains Large business originally recovered faster than small on exports. Trade deficits hurting corporate earnings. Source: Bureau of Economic Analysis

Q1 GDP Has Become Slower in General 2010 to Present 2000s 1990s 1980s 1% 2% 3% 4% GDP Growth Q1 Less than Other Quarters Q1 Exceeds Other Qs Q1 Other Possibly all measurement error but since 1985 Q1 growth has been underestimated 80 % of the time. No one is quite sure why. Source: Justin Wolfers, Bureau of Economic Analysis

Foodservice Outpacing Other Spend Percent Change 3 Month Average Change Since 2014 Note: Gas down 24% Overall retail sales stagnant since Jan. Consumers are pocketing gas savings… but Foodservice is a significant exception. Source: Commerce Dept., April 2015

Looking Ahead to End-2015/Early 2016

A 2014-like Late Year Comeback Is Needed Oil prices Gas prices should increase but not significantly Significant supply volatility expected in 2016 Weather probably overstated as an effect. Weather an Issue but Dollar Strength Is Key Lower gas bills more likely to be saved than spent if volatility occurs. Real wage increases are needed to accelerate the U.S. economy and are yet to be seen. Source: Energy Information Administration, Baker-Hughes North America Rig Counts

Housing Isn’t Taking Off Yet Supersized homes: Homes prices aren’t going up as much as home size Substitution toward larger homes Household income isn’t keeping pace with home price growth 41% don’t expect to buy a home in foreseeable future (Gallup) Housing growth not pushing economy forward as in 2013. Many rent without expectation to buy, pressuring rental costs. Source: Gallup, Commerce Dept.

Risk: Time to Keep an Eye on the Globe CHINA Slowing below 7% Falling investments Consumer spend underperforms Housing sector default risk

Risk: Time to Keep an Eye on the Globe EUROPE / JAPAN International demand for dollars as a safe-haven and to pay commodity bills suggest that dollar strength is entrenched in the short-run. Continued weakness Default risk in Greece Solid U.S. recovery depends either on export-rebalancing or wage growth in the U.S. The two are increasingly related but dollar strength may temper 2015 growth.

Federal Reserve Policy in 2015 Fed Claims Rate Increases Possible this Summer Unlikely given dollar strength and deflation risk Futures market suggests Dec 2015 for increase Export losses are having a bigger impact than we thought. We still expect growth on par or slightly above 2014, but “escape velocity” looks less likely. Source: Federal Reserve, Labor Department

Slow Improvement on 2014 Barring Global Risk Conclusions Slow Improvement on 2014 Barring Global Risk Downward guidance: 3% looks more like the high end in U.S. GDP growth Foodservice outpacing retail by 2x U.S. economy is global leader. . . . . .but not strong enough yet to sustain dollar strength/export losses Wage and housing growth in the U.S. are still 1-2 years away as the economy is improving but Dollar strength keeps it off trend.

2015 Technomic Top 500 Restaurant Chain Report

Headline: Starbucks Heats Up to #2

Headline: Subway Sales Not Healthy

Headline: Big Burger Brands Cold

Headline: Wing Houses Soar

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 Report(s)

FSR: Menu Category Sales Growth 3.6% Top 500 FSR Sales Growth Rate Source: Technomic Top 500 Report

Fastest Growing FSR Chains 2014 Sales ($MM) $239 $215 $245 $234 $205 2014 Sales Growth 45% 21% 20% 19% 17% 2014 Unit Growth 39% 20% 18% 19% 9% Growth rates nominal. Source: Technomic Top 500 Report; FSR Chains > $200 million U.S. sales

LSR: Menu Category Sales Growth 4.2% Top 500 LSR Sales Growth Rate Source: Technomic Top 500 Report(s)

Fastest Growing LSR Chains 2014 Sales ($MM) $201 $311 $523 $426 $4,049 2014 Sales Growth 38% 31% 30% 29% 28% 2014 Unit Growth 30% 32% 20% 28% 12% Growth rates nominal. Source: Technomic Top 500 Report; LSR Chains > $200 million U.S. sales

Fast Casual: Still the Bright Spot in the Restaurant Industry Top 500 Chains Source: Technomic Top 500 Report(s)

Customer Status

Operator Revenue Situation Best in Recent History Net Increase* (%) *% indicating revenues increasing minus % indicating revenues decreasing. Base: 730-820 operators representing all major segments. Representative Sample Source 2008-2015 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

McDonald’s Drags Down LSR Results 2012 2013 2014 % Change vs. same period previous year Source: Technomic Same-Store Sales Report

Major CDRs All in Positive Territory 2012 2013 2014 % Change vs. same period previous year Source: Technomic Same-Store Sales Report

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

Some Food Cost Relief for Operators CPI FAFH Mar '15 2.9% CPI FAH Mar '15 1.9% 0.4% But menu price inflation creeping up

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

More Optimism About Profit Growth This Year Net Profit Growth* * % expecting profits to increase minus % expecting profits to decrease in year. Source: 2009-2014 Technomic Operator Surveys

Operators Experiencing Changing Business Dynamics Strong/Moderate Consumer Demand or Trend 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

Operator Takeaways Brighter 2015 Expected Lower food costs, but higher labor costs Consumer Taste, Demand Evolution in Full Bloom

Distribution Report

Distribution Market is $240B Other broadliners +4% Custom +3% Club/CNC +8% All other +3% Power distributors +5%

Market is Highly Fragmented Share # Companies Power distributors 40% 21 Custom 17% ~30 Club/CNC 10% ~15 All Other/Other Broadliners 33% >15,000

Distributors Are Generally Upbeat Better end-market Some perceive “windfall” Generally favorable costs Business mix improvement Volume and profit growth

Concerns Driver shortage Margin pressures Trade dollar “repatriation” Mega deal fallout? Alternative channels/local market competition “Disruptors”

CatMan Has Some Traction Sysco is pacesetter Formal processes Dedicated resources New business disciplines Some successes Informal scorecarding

Data sharing, JBP are enablers Key CatMan Elements Customer penetration Price, promotion, trade efficiencies Effective field execution Profitable assortment and distribution Data sharing, JBP are enablers

The $64,000 Question? Expect resolution in next 45 days

Industry Growth Outlook: 2015 & 2016

Industry Growth Forecast Total Industry 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 Midscale Casual 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 FS 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 foodservice business brighter Core segments regaining strength Potential paradigm shift in distribution on the horizon Consumers changing the face of the business