Future of the Independent Restaurant Operator

Study Highlights

February 11, 2008Project #13024

Food Industry. Facts. Insights. Consulting.

Prepared by:

2

Introduction

FSMA sponsored this Technomic studyDefinition of independent operatorsAgenda

Background & scope of studyMarket sizeKey highlights Implications

Market Overview

4

56%40%

7%

6%

37%54%

Total = 569,000 Total = $419B

Restaurant market (2008)

Units Sales

*Include operators with 4-9 units

Major chains

Small chains*

Independents(1-3 units)

5

Independent restaurant market (2008)

68% 77%

32% 23%

Total = 321,000 Total = $50B

LSR

FSR

Units Sales

Ethnic restaurants: 19% of units 11% of sales Ethnic restaurants: 19% of units 11% of sales

6

UnitsSales/Unit

Broker target market

45,000 units $20B

45,000 units $20B

15%

41%

85%

59%

Total = 321,000 Total = $50B

<$1MM

>$1MM

Sales

Key Findings

8

Sentiment among independents

Acknowledge “tough times”Extremely cautious with capitalConcerned but guardedly optimistic about futureRecognize need to adaptBelieve they are better positioned than chainsTop concerns

Food costsConsumer spendingMacro-environment

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40%

23%16%

45%

29%35%

15%

48% 49%

Check Average Traffic Margins

Gone up Stayed the same Gone down

Performance trends

Independents are experiencing traffic and margin declines

Time frame: Dec. 08 vs. Dec. 07

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Characteristics of the “average” independent

Longevity Quality of food Reputation Good service Location “Personality”

4-5 years27%

11-20 years24%

6-10 years14%

<3 years22%

21+ years19%

# of years in businessAverage = 13 Keys to success

11

Response to the environment

73%

59%

52%

45%

44%

39%

37%

Raised menu prices

Downsized staff

Worked to build traffic

Changed menu

Operational improve.

Modified portion size

Lower cost alt.

% Who Have...

Q: How have you adapted to the current business environment? (select all)

33%

33%

24%

16%

15%

7%

Make more from scrach

Use more distr. brands

Expanded revenue sources

More value added products

Reduced margins

Lower quality

Independents are extremely concerned about consumer pricing thresholds. Support with pricing strategy insights.

Independents are extremely concerned about consumer pricing thresholds. Support with pricing strategy insights.

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Independents are more receptive to support than ever!

89%

52%

44%

38%

35%

29%

Food costs

Consumer spending isdown

Other operating costs

Keeping skilled labor

Finding skilled labor

Labor costs

% 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.

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Sourcing dynamics

Avg. 11 distributors (across types)92% give primary over 50% of their volumeBottlers, office supplies and E&S are next biggest

sourcesClub stores play a role

Using multiple distr. enables price comparisons & “shopping around”. Expect them to look for lower landed costs.

Using multiple distr. enables price comparisons & “shopping around”. Expect them to look for lower landed costs.

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Future sourcing strategies

47%

26%

22%

22%

17%

15%

13%

9%

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.

Shopping around might lead to product/brand switches. Show the versatility and value of your products to protect account penetration.

15

Interface with independents

Like face-to-face contactGenerally pleased with contact frequencyReport the quality and number of broker services

has been consistentWant e-communication to support in-personAppreciate contact at food showsWant more productive use of time together

Tailor your account strategy to meet key customer needs and wants to heighten effectiveness of interface.

Tailor your account strategy to meet key customer needs and wants to heighten effectiveness of interface.

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Meeting improvements

% Indicating #1 Area for Improvement for:

Q: What would be the 1 area in which you’d 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 Meetings Broker Meetings

Cost reductionideas

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.

26%

21%

10%

9%

8%

7%

7%

4%

31%

18%

8%

9%

9%

5%

6%

4%

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Use of special services is limited

Broker and Manufacturer Special Services

UsePositiveimpact

Most valuable for

TODAY

Consumer trends 15% 32% Recipe dev. 13 21

Food costing 11 44

Nutritional info 9 31

% who do not use any services 60%

Note: % have used service in past 12 mos.; top box strong positive impact

Promote (and develop) those that have the biggest impact.Promote (and develop) those that have the biggest impact.

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Preferred way to learn about new products

59%

55%

48%

38%

26%

20%

13%

7%

1%

Food show

DSR

Email

Broker/MSR

Trad. mail

Trade pubs

DVD

Peers

Podcasts

% 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.

Outlook

20

Independent operator expectations for the future

35%

24%15%

49%44%

16%

39% 41%37%

Check Average Traffic Margins

Go up Stay the same Go down

Q: What do you expect to happen in the next 12 months?

Operator forecasts for ’09: hope for steady-state

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What to expect from independents

More efficient operations, including purchasingBetter asset utilization and cost managementMore focus on enhancing the customer

experienceFurther leveraging their local status

22

We do not anticipate any growth until 2011

Annual sales growth Menu prices

2008 -2% +3.5-4.5%

2009 -5 +3-4

2010 -2 +2-3

2011 +2 +2-3

Independent restaurant market

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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%

Implications

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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

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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.

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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

Questions?