Paul Leinwand

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Paul Leinwand
Booz Company(N.A.) Inc.
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Weathering the Economic Storm
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Booz Company
Firm Profile

• Founded in 1914
• 3,300 professionals based in more than 60 offices
  covering all continents
• Private company, 100 partner owned
• Revenues exceeding US1.3Bn
• Focus on serving the senior agenda of the worlds
  leading institutions, public and private

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The foodservice industry is undergoing major
transformations as it approaches maturity
Market Life-Cycle
Embryonic
Growth
Mature
Declining
Foodservice 2008
Women entering the workforce by 2007 they
represent 48 of workforce No growth driver here
Consumer spending for FAFH is now 50 of the food
dollar
Unit expansion today the density of units is
300 people/unit
Strategic Emphasis
Getting It Right
Segment Mkt Operating Efficiencies
Financial Mgt
Gain Share
Market Focus Foodservice
Early Adaptors 1960s
Retain Existing Business
Product Focus 1970-1990s
Customer Focus (2000s)
Source The Hale Group, Ltd.
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These challenges are exacerbated by the current
economic crisis
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Lower traffic

• Only 16 of restaurant operators showed increase
  in traffic
• 82 of restaurant operators do not expect sales
  to increase in the next six months

Trading down

• Fine-dining declined 8
• Limited-service segment increased sales by 4.0
  in 08

• Even in limited-service / fast-food outlets,
  customers are trading down to value menu items
• Check average is flat to negative

Ordering less

• All exacerbated by the drop in business travel

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Underlying this - consumers are doing more at
home and eating out far less

Top 20 Changes Consumers Have Made
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Eat outside the home less
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Eat at less expensive restaurants
Eat at fast food restaurants less frequently
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Pack lunch for work
35
Eat more leftovers
32
Order less food when you go out to eat
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Reduce number of vacations
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Take cheaper vacations e.g., closer to home
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Attend more free activities (e.g., hiking,
beach)
28
Entertain friends at home instead of going out
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Eating out will rebound faster than the other
changes that consumers have made
Activities Consumers are More Likely to Undo
Eat outside the home less
Spend more time at home
Eat at less expensive restaurants
Reduce number of vacations
Take cheaper vacations (e.g., closer to home)
Frugal shopping
Buy more store-label groceries
Change to less expensive versions
Drive Less Overall
Reducing driving
Cut down on non-work driving
People who will undo changes they have made
People who have made significant changes in the
past six months (some proportion of them have
made additional changes)
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Those that capture in-home trends have
outperformed the market
Stock Performance of Leading CPG Firms v. DJI and
SP 500 End of Feb 2009
Stock price of two leading CPG firms
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Required -- a level headed response

• Concentrate your portfolio of businesses
• Target your most valuable customers

• Lower your breakeven, profitability under the
  worst case scenario
• Reduce capacity, complexity and fixed costs
• Conserve your balance sheet

Prepare to

• Create a view on how the industries should
  restructure
• Recognize in some industries governments will
  likely play a role

• If the industry needs to consolidate, decide on
  whether you are a buyer or a seller
• Allow for selective share increase through smart
  pricing
• Prioritize, do not sacrifice RD or Capex -- use
  these investments offensively

• Prepare for the upturn
• Watch-out and prepare for a rekindling of price
  increases, particularly on commodities
• Prepare to recapitalize your debt if we
  over-shoot on the stimulus

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Disproportionate focus on value --
Differentiation matters
Direction of shifting consumer demand
High
Distinctness of Experience
Low
Low
High
Focus on Value Offerings
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Long-term consumer trends have slowed, not stopped
Health Wellness
Convenience
Premiumization
Green
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Winning will require tailored strategies
High
Steal Share
Focus and Grow
Competitive Intensity

• Cost Play

Expand the Category
Low
High
Low
Category Demand Elasticity
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Focus on the coherent elements of your portfolio
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Summary Thoughts

• Players in the food service industry will need to
  move beyond the obvious protect, conserve and
  promote tactics and invest in the right
  capabilities to win
• The challenges of the present downturn are not
  all transitory - consumer behavior has changed in
  a number of ways that will outlast the crisis
• Broader definition of what value is (i.e., not
  just price)
• Desire for new experiences / services
• Collaborating across the supply chain is old news
  - the focus now is how to either take out
  significant cost or build in real value
• Finally, the industry structure and defining
  winning will likely shift - will you be part of
  the solution or a victim of it?

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Thank You!