George Hoffman

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The Changing Consumer Demanding but Predictable?
IAMA 15th Annual World Forum

• George Hoffman
• Restaurant Services, Inc.
• June 27, 2005

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• Burger King System Milestones
• 1954 First restaurant opens in Miami
• 1957 Whopper sandwich introduced at 37
• 1967 Burger King acquired by Pillsbury
• 1977 2,000 restaurants open in 50 states
• 1986 4,743 restaurants open in 25 countries
• 1988 Grand Metropolitan acquires Pillsbury
• 1991 Independent purchasing coop created
• 1997 Grand Met/Guinness merger creates Diageo
• 2002 BK becomes independent, privately held
• 2003 11,350 restaurants open in 57 countries

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• Burger King System Fast Facts
• 11,350 restaurants worldwide
• 91 franchised (94 in U.S.)
• 11.5 billion system sales
• 55 of business is drive-thru
• 340,000 people employed, system wide
• 15 million customers served every day
• 1,320 customers per restaurant per day
• 2.4 billion hamburgers sold system-wide,
  annually
  
• 5 million Kids Club members

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8,000 Burger King restaurants in U.S.
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Burger King Distribution
12 Distribution Companies 27 Distribution Cente
rs

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• Restaurant Services, Inc.
• Purchasing Cooperative created in 1991
• Accountable to BK restaurant operators
• Franchisees
• Burger King Corporation
• Operating Agreement with Burger King Corporation
• Negotiates commercial terms of purchase for all
• Food and Packaging
• Kitchen equipment/signs/furniture/décor/POS
• Premiums and toys
• Distribution Services

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• Burger King U.S. Supply Chain
• 120 Million cases/year
• 15,000 cases per restaurant
• 400 Primary Suppliers High commodity content
• 27 Distribution Centers (continental U.S.)
• 300 restaurants/DC (average)
• 12 Regional Distribution Companies
• 250 million toys manufacturing in China
• Factory direct kitchen equipment and supplies
• Broilers/fryers/microwaves/stainless steel
• Signs/furniture/décor/lighting/HVAV

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Purchasing Scope

• Mill
• Food Packaging 2,400
• Equipment Décor 200
• Premiums SLOs 200
• Distribution Services 200
• TOTAL 3.0 billion

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Key Products

• Mill of total
• Beef 426 18
• Chicken 285 12
• Soft Drinks 262 11
• Packaging 229 9
• Fries 222 9
• Buns 199 8
• Dairy 154 6
• Fresh Produce 77 3

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Supply Chain Value Added
Supplier Manufacturing
Freight
Freight
Warehousing
Raw Materials
15K
Delivery
250K
60K
25K
Restaurants
350K
Customers
1,100K
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• Consumer Research
• Results often (usually) ambiguous
• Lean chicken breast w/fudge overboard
• Low fat yogurt w/hot fudge toppings
• Whopper combo, large fries and diet coke
• Crispy Chicken Cobb salad w/ranch dressing
• 670 calories 53 grams fat
• What they say vs what they do
• McLean
• Veggie Burgers
• Advertising healthy food is often problematic
• Assumes compromise in taste?

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• What do they want?
• What we think we know
• Taste Rules
• High Quality
• Safe
• Consistent
• Reliable
• Fresher fewer preservatives
• Variety
• Good value

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• Emerging Consumer Attitudes
• Increasing health awareness
• Fat
• Saturated fats healthy oils
• Calories
• Additives
• But, reluctant to sacrifice flavor
• Organics and natural foods
• No compromise on food safety food security
• Biogenetics awareness
• Animal Welfare

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• Increasingly, consumers want to know more about
  their food
  
• Whats in it?
• Where did it come from?

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• Implications for food industry
• Less fat, more lean
• Less calories
• More vegetables
• More natural and organic
• More RD for healthy products that are flavorful

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• The Elusive Consumer What do they want?
• The subject of intense research by food and
  restaurant companies
  
• No easy answer no typical consumer
• Changing demographics
• Age
• Regional patterns
• Diversity of population
• Changing attitudes
• Tastes preferences
• Short term fad vs long term trends
• Changing Economics

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• Implications for food industry
• Trend for more product labeling
• Nutrition information
• Additives
• Genetic pedigree
• Country of origin
• Increasing pressure to trace raw materials in
  finished foods back to farm gate
  
• BSE
• GMOs

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Wall Street Journal - June 19, 2003
Washington Post June 19, 2003
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Saturday June 25, 2005
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• Implications for food industry
• Increased social activism
• Animal rights/animal welfare
• Food and the environment Crops
• Pesticide use
• Cropping fragile lands/wetlands
• Food and the environment Livestock
• Antibiotics
• Growth stimulants
• High density animal feeding and waste management
• Air quality
• Public pressure on food and restaurant companies

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• Implications for food industry
• Increased pressure for legislation/regulation
• Fat taxes?
• Country of origin labeling
• Increased opportunity for non-tariff trade
  barriers
  
• Increased links between food/agriculture industry
  and medical/health industry
  
• Links between obesity and food consumption
• Links between food consumption and medical costs
• Litigation

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QSR Magazine, June 2003
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• However Actual consumer spending habits change
  slowly over time

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Nations Restaurant News May 23, 2005
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• Burger King restaurant typical daily sales
• 525 soft drinks
• 500 fries and rings
• 300 Whoppers
• 220 Burgers
• 220 Chicken
• 25 Fish
• 13 Salads
• 2 Veggie Burgers

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• The future lies with the consumer
• Watch what they do where and how do they spend
  their money
  
• Not necessarily what they say their aspirations
  may be different than reality
  
• Recent trends in health and nutrition awareness
  are more significant than in the past
  
• More than lip service
• Consumers are voting with their pocketbooks
• Expect fundamental changes in food service and
  food retailing in next several years

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• However, remember - consumers will always reserve
  their right to change their minds and either
  accept or reject products without regard for
  
• Logic
• Facts

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THE END

• Restaurant Services, Inc.