BIF – How to satisfy the 21 st century beef consumer!

1. BIF – How to satisfy the 21st century beef consumer! Paul Heinrich SYSCO Corporation April 19, 2006

2. Agenda • Background on SYSCO • State of the Food Service Industry • How to satisfy the 21st century beef consumer • Identify • Trends • Needs • How you can deliver

3. SYSCO Corporation • Founded over 35 years ago • Mission Statement: Helping our Customers Succeed • FY 05 Sales: $30.28 B, $4.0 B Meat • 47,500 Employees • 8000 Sales men & women

4. SYSCO Corporation • 400,000 Customers • White Table Cloth • QSR • Health Care • Schools • Casual Dining * We offer the widest variety of beef products in the industry*

5. SYSCO Corporation • 166 Distribution locations throughout North America • 18 dedicated meat processing facilities throughout the USA and Canada

7. State of the Food Service Industry $483 billion market

8. State of the Food Service Industry • Since SYSCO’s existence, we have seen tremendous growth from families spending more time and money eating away from their home. • In 1970 less than half of women worked outside the home. That number has changed to 2 out of every 3. Federal Reserve Bank of Kansas City

9. State of the Food Service Industry • More disposable income • Less time to prepare meals

10. State of the Food Service Industry • Last year was the first year on record that more independent restaurants closed their doors rather than opening them. • Alarming trend in the wrong direction.

11. State of the Food Service Industry • High fuel cost and more consumer debt has reduced the amount of disposable income in our customers pocket book. • Disposable income spent on food has declined from 14% in 1970 to 11% more recently. Center for the Study of Rural America

12. State of the Food Service Industry • An article appearing in USA Today on March 1, 2006 claimed that on average families spent $568 more than they earned in January 2006.

13. State of the Food Service Industry • High food cost have hurt as well. FY 05 SYSCO saw 7% inflation overall. • Over the past three years, our inflation for beef has been closer to 15%

14. State of the Food Service Industry • Trend moving away from mid-level restaurants and going towards the QSR’s (cheaper meal). • White table cloth continues to do well as more and more entertainment is occurring.

15. SYSCO Goals For The Beef Industry (Stated at NCBA Strategy Workshop) • Improve Eating Quality of Beef • Improve Consistency of Beef • Reduce Cost • Reduce Size • Reduce Fat • Reinforce Safety

16. Who is the 21st century consumer? • Matures >60 yrs (45.8 million) • 72.2% know before 3 pm “what’s for dinner.” • 67% say that they are making a sustained effort to eat healthy • 73.1% say they usually stick with familiar choices. New American Diner Study

17. Who is the 21st century consumer? • Baby Boomers 40 – 59 yrs (73.6 million) • Harshest judge of food quality • Less likely to use the drive-thru • 26.7% say they always tell management if they are dissatisfied with a meal. NADS

18. Who is the 21st century consumer? • Gen X 30 – 39 yrs (43.2 million) • More value conscious. • 56.1% described themselves as adventurous • 40.4% describe leisure dining as “quality time” NADS

19. Who is the 21st century consumer? • Gen Y < 29 yrs (118.8 million) • 47.5% know before 3 pm “what’s for dinner.” • Nearly 3 out of 10 prefer eating away from restaurant. • 39.5% use the internet to make eating choices NADS

20. Comparing the Generations“Amount spent on food” • $75 (> 60 yrs) • $102 ( 30 - 39 yrs) • $123 ( 40 – 59 yrs) NADS

21. CattleNetwork.com • While the largest financial spot for new food products is the aging baby boomers, the biggest demographic change is the browning of America. The fast growing population of Latinos and Asians are bringing their own taste of foods that will soon become standard American fare.

22. CattleNetwork.com • Consumption of food labeled as “Mexican” has jumped 400% in the last 20 years. • Sales of salsas surpasses ketchup! • Tortillas will soon outsell white bread!

23. CattleNetwork.com • Tyson Fresh Meats, Inc. introduced a new premium thin sliced beef product (rebanado delgado). This product is produced from the chuck, round, sirloin, skirt and sirloin flap. • Four, six and eight millimeter slices

24. The Land of the Clueless Shopper Andrew Zimmerman, a Minnesota based chef and TV personality stated that “the meat counter at the supermarket confuses 99percent of the people, in my estimation.” Cargill took that statement to heart releasing their consumer friendly labeling that informs whether or not the cut is right for the grill, skillet or oven. Yahoo.com

25. Trends Why is the meat industry changing? Consumer demand is shifting toward food products that are easy to prepare while also promising safe eating, improved nutrition and greater consistency. Center for the Study of Rural America

26. Trends • “Natural and/or Organic” • Convenience • Take-out, Catering • Pleasure • Cost • Diet • Menu Changes • Labor Force

27. Natural and/or Organic • National Beef’s research shows that close to 70% of American households are interested in some kind of wholesome, healthy and natural food products. • Cattle Buyer’s Weekly estimates that the natural beef segment is now worth over $1 billion.

28. Natural and/or Organic • The Organic Trade Association says sales of organic products will increase 18% annually through 2008 • 2/3’s of American consumers have bought organic products at least once and up to 20% purchase them on a regular basis.

29. Who is buying Natural/Organic? • Consumers between 45 to 54 are most likely to purchase organic goods. • 45% of teens who find “All-Natural” motivating. (BuzzBack)

30. Convenience • 52% of drivers who say they eat while in the car. (Mason-Dixon polling and research) • 73% note that it is easier to go to a restaurant than to have a home cooked meal.

31. Convenience • Don’t know what they are having for dinner! - 89% at noon - 62% at 4 pm Technomic 05

32. Take-out • Top 10 Casual Dining Takeout Sales - $1.628 Billion (Up 17%) - - growing over twice as fast as dine-in. Takeout frequency – 2.6 times/month Next 5 years – 27% surveyed will use takeout more.

33. Take-out • Most recent type of food ordered for takeout - 2% steak - 31% burgers

34. Take-out • For some chain operators, curbside pickup now accounts for as much as 9-11% of sales.

35. The Takeout Challenge • To help items such as beef journey out of the restaurant, chefs cook the product to only rare or medium rare temperature. • Reason - Juiciness, flavor, palatability • Problem – Bacteria still present Nation’s Restaurant News

36. The Takeout Challenge • Some restaurants are starting to use better ingredients for take-out orders. • Improving packaging also helps. Nation’s Restaurant News

37. Catering • Most popular serving equipment last year was chafers. Warmers was a close second.

38. Pleasure • 3 out of every 4 consumers rank dining out among their favorite activities. North American Diner Study (NADS)

39. Restaurant Traffic • Customer traffic will be flat or down in 2006 forcing many concepts to boost menu prices to maintain growth. Menu prices are expected to grow 3.2% this year. Technomic

41. Cost • What one change would increase the number times you eat out? 55% of the respondents said “If they had more money.” NADS

42. Dieting • Three studies in the Journal of the American Medical Association showed that women who ate less fat and more fruits and vegetables did not reduce their risk of cancer or heart disease. • High protein diets of 2004 have quickly vanished. • Many big food companies that spent billions re-configuring their products to be low-carb are now doing the same thing to become low sugar. R&I

43. Menu Changes • 31% of women who say they often share a restaurant entrée with a dining companion. (R&I) • 75% of consumers who say they would like restaurants to provide information on safe storage and reheating of leftovers. (American Dietetic Association)

44. Menu Changes • 32% of men who say they always finish their restaurant entrée vs. 9% for women. (American Institute for Cancer Research) • 51% of Americans believe that portion sizes are often too large. (NADS)

45. Menu Changes • White table cloth downsizing beef entrées - Subprimals too large - Prevent increase menu cost • QSR increasing portion sizes - Taking advantage of higher menu prices • Most restaurants are featuring more pork, seafood and poultry - Not taking beef off of the menu, but redirecting focus

46. Labor Force • 32% of hospitality-industry workers who say they plan to pursue opportunities outside the industry by year-end. (Careerbuilder.com)

47. Location, location, location • Beef is more likely to be the entrée of choice in rural areas,75 lbs per person/year vs. suburban areas, 63 lbs pp/y (USDA Economic Research Center) • 14.8% of adults who say that if they were going to a restaurant tonight, chicken most likely would be their entrée of choice, versus 22% for seafood and 20% for beef. (R&I)

48. SYSCO Goals For The Beef Industry (Stated at NCBA Strategy Workshop) • Improve Eating Quality of Beef • Improve Consistency of Beef • Reduce Cost • Reduce Size • Reduce Fat • Reinforce Safety

49. Improve Eating Quality of Beef – Why? • Continue to romance customers (entertainment) • Eliminate cost aspect from consumers mind (taste buds vs. pocket book) • Eliminate “doubt!” • Keep them coming back for more!

50. Improving Eating Quality of Beef • Increase tenderness, juiciness and flavor (overall palatability). • Decrease dark cutters, poorly marbled cattle and cattle that have higher amounts of connective tissue.