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

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

Paul HeinrichPaul Heinrich

SYSCO CorporationSYSCO Corporation

April 19, 2006April 19, 2006

AgendaAgenda

• Background on SYSCOBackground on SYSCO• State of the Food Service IndustryState of the Food Service Industry• How to satisfy the 21How to satisfy the 21stst century beef century beef

consumerconsumer– IdentifyIdentify– TrendsTrends– NeedsNeeds– How you can deliverHow you can deliver


• Founded over 35 years agoFounded over 35 years ago• Mission Statement: Helping our Mission Statement: Helping our

Customers SucceedCustomers Succeed• FY 05 Sales: $30.28 B, $4.0 B MeatFY 05 Sales: $30.28 B, $4.0 B Meat• 47,500 Employees47,500 Employees• 8000 Sales men & women8000 Sales men & women


• 400,000 Customers400,000 Customers– White Table ClothWhite Table Cloth– QSRQSR– Health CareHealth Care– SchoolsSchools– Casual DiningCasual Dining

* We offer the widest variety of beef * We offer the widest variety of beef products in the industry*products in the industry*


• 166 Distribution locations 166 Distribution locations throughout North Americathroughout North America

• 18 dedicated meat processing 18 dedicated meat processing facilities throughout the USA and facilities throughout the USA and CanadaCanada

State of the Food Service State of the Food Service IndustryIndustry

$483 billion market$483 billion market


- Since SYSCO’s existence, we have seen Since SYSCO’s existence, we have seen tremendous growth from families tremendous growth from families spending more time and money eating spending more time and money eating away from their home.away from their home.

- In 1970 less than half of women In 1970 less than half of women worked outside the home. That worked outside the home. That number has changed to 2 out of every number has changed to 2 out of every 3.3.

Federal Reserve Bank of Kansas Federal Reserve Bank of Kansas CityCity


- More disposable incomeMore disposable income- Less time to prepare mealsLess time to prepare meals


- Last year was the first year on Last year was the first year on record that more independent record that more independent restaurants closed their doors restaurants closed their doors rather than opening them.rather than opening them.

- Alarming trend in the wrong Alarming trend in the wrong direction.direction.


- High fuel cost and more consumer debt has High fuel cost and more consumer debt has reduced the amount of disposable income reduced the amount of disposable income in our customers pocket book.in our customers pocket book.

- Disposable income spent on food has Disposable income spent on food has declined from 14% in 1970 to 11% more declined from 14% in 1970 to 11% more recently.recently.

Center for the Study of Rural AmericaCenter for the Study of Rural America


- An article appearing in USA Today An article appearing in USA Today on March 1, 2006 claimed that on on March 1, 2006 claimed that on average families spent $568 more average families spent $568 more than they earned in January 2006.than they earned in January 2006.


- High food cost have hurt as well. High food cost have hurt as well. FY 05 SYSCO saw 7% inflation FY 05 SYSCO saw 7% inflation overall.overall.

- Over the past three years, our Over the past three years, our inflation for beef has been closer to inflation for beef has been closer to 15%15%


- Trend moving away from mid-level Trend moving away from mid-level restaurants and going towards the restaurants and going towards the QSR’s (cheaper meal).QSR’s (cheaper meal).

- White table cloth continues to do White table cloth continues to do well as more and more well as more and more entertainment is occurring.entertainment is occurring.

SYSCO Goals For The Beef SYSCO Goals For The Beef Industry Industry (Stated at NCBA (Stated at NCBA

Strategy Workshop)Strategy Workshop)1.1. Improve Eating Quality of BeefImprove Eating Quality of Beef

2.2. Improve Consistency of BeefImprove Consistency of Beef

3.3. Reduce CostReduce Cost

4.4. Reduce SizeReduce Size

5.5. Reduce FatReduce Fat

6.6. Reinforce SafetyReinforce Safety

Who is the 21Who is the 21stst century century consumer?consumer?

• Matures >60 yrs (45.8 million)Matures >60 yrs (45.8 million)– 72.2% know before 3 pm “what’s for 72.2% know before 3 pm “what’s for

dinner.”dinner.”– 67% say that they are making a 67% say that they are making a

sustained effort to eat healthysustained effort to eat healthy– 73.1% say they usually stick with familiar 73.1% say they usually stick with familiar

choices.choices.

New American Diner New American Diner StudyStudy


• Baby Boomers 40 – 59 yrs (73.6 Baby Boomers 40 – 59 yrs (73.6 million)million)– Harshest judge of food qualityHarshest judge of food quality– Less likely to use the drive-thruLess likely to use the drive-thru– 26.7% say they always tell management 26.7% say they always tell management

if they are dissatisfied with a meal.if they are dissatisfied with a meal.

NADSNADS


• Gen X 30 – 39 yrs (43.2 million)Gen X 30 – 39 yrs (43.2 million)– More value conscious.More value conscious.– 56.1% described themselves as 56.1% described themselves as

adventurousadventurous– 40.4% describe leisure dining as 40.4% describe leisure dining as

“quality time”“quality time”

NADSNADS


• Gen Y < 29 yrs (118.8 million)Gen Y < 29 yrs (118.8 million)– 47.5% know before 3 pm “what’s for 47.5% know before 3 pm “what’s for

dinner.”dinner.”– Nearly 3 out of 10 prefer eating away Nearly 3 out of 10 prefer eating away

from restaurant.from restaurant.– 39.5% use the internet to make eating 39.5% use the internet to make eating

choiceschoices

NADSNADS

Comparing the GenerationsComparing the Generations“Amount spent on food”“Amount spent on food”

– $75 (> 60 yrs)$75 (> 60 yrs)– $102 ( 30 - 39 yrs)$102 ( 30 - 39 yrs)– $123 ( 40 – 59 yrs)$123 ( 40 – 59 yrs)

NADSNADS

CattleNetwork.comCattleNetwork.com

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


- Consumption of food labeled as Consumption of food labeled as “Mexican” has jumped 400% in the “Mexican” has jumped 400% in the last 20 years.last 20 years.

- Sales of salsas surpasses ketchup!Sales of salsas surpasses ketchup!- Tortillas will soon outsell white Tortillas will soon outsell white

bread!bread!


- Tyson Fresh Meats, Inc. introduced Tyson Fresh Meats, Inc. introduced a new premium thin sliced beef a new premium thin sliced beef product (rebanado delgado). This product (rebanado delgado). This product is produced from the chuck, product is produced from the chuck, round, sirloin, skirt and sirloin flap.round, sirloin, skirt and sirloin flap.

- Four, six and eight millimeter slicesFour, six and eight millimeter slices

The Land of the Clueless The Land of the Clueless ShopperShopper

Andrew Zimmerman, a Minnesota based chef and Andrew Zimmerman, a Minnesota based chef and TV personality stated that “the meat counter at TV personality stated that “the meat counter at the supermarket confuses the supermarket confuses 9999 percentpercent of the of the people, in my estimation.”people, in my estimation.”

Cargill took that statement to heart releasing their Cargill took that statement to heart releasing their consumer friendly labeling that informs whether consumer friendly labeling that informs whether or not the cut is right for the grill, skillet or oven.or not the cut is right for the grill, skillet or oven.

Yahoo.comYahoo.com

TrendsTrends

Why is the meat industry changing? Why is the meat industry changing? Consumer demand is shifting toward Consumer demand is shifting toward food products that are easy to prepare food products that are easy to prepare while also promising safe eating, while also promising safe eating, improved nutrition and greater improved nutrition and greater consistency.consistency.

Center for the Study of Rural Center for the Study of Rural AmericaAmerica

TrendsTrends

• ““Natural and/or Organic”Natural and/or Organic”• ConvenienceConvenience• Take-out, CateringTake-out, Catering• PleasurePleasure• CostCost• DietDiet• Menu ChangesMenu Changes• Labor ForceLabor Force

Natural and/or OrganicNatural and/or Organic

• National Beef’s research shows that National Beef’s research shows that close to 70% of American close to 70% of American households are interested in some households are interested in some kind of wholesome, healthy and kind of wholesome, healthy and natural food products. natural food products.

• Cattle Buyer’s Weekly estimates that Cattle Buyer’s Weekly estimates that the natural beef segment is now the natural beef segment is now worth over $1 billion.worth over $1 billion.

Natural and/or OrganicNatural and/or Organic

- The Organic Trade Association says The Organic Trade Association says sales of organic products will sales of organic products will increase 18% annually through 2008increase 18% annually through 2008

- 2/3’s of American consumers have 2/3’s of American consumers have bought organic products at least bought organic products at least once and up to 20% purchase them once and up to 20% purchase them on a regular basis.on a regular basis.

Who is buying Who is buying Natural/Organic?Natural/Organic?

- Consumers between 45 to 54 are Consumers between 45 to 54 are most likely to purchase organic most likely to purchase organic goods.goods.

• 45% of teens who find “All-Natural” 45% of teens who find “All-Natural” motivating. (BuzzBack)motivating. (BuzzBack)

ConvenienceConvenience

• 52% of drivers who say they eat 52% of drivers who say they eat while in the car. (Mason-Dixon while in the car. (Mason-Dixon polling and research)polling and research)

• 73% note that it is easier to go to a 73% note that it is easier to go to a restaurant than to have a home restaurant than to have a home cooked meal.cooked meal.

ConvenienceConvenience

• Don’t know what they are having for Don’t know what they are having for dinner!dinner!

- 89% at noon- 89% at noon

- 62% at 4 pm- 62% at 4 pm

Technomic 05Technomic 05

Take-outTake-out

• Top 10 Casual Dining Takeout SalesTop 10 Casual Dining Takeout Sales

- $1.628 Billion (Up 17%) - - - $1.628 Billion (Up 17%) - - growing over twice as fast as dine-in.growing over twice as fast as dine-in.

Takeout frequency – 2.6 times/monthTakeout frequency – 2.6 times/month

Next 5 years – 27% surveyed will use Next 5 years – 27% surveyed will use takeout more.takeout more.

Take-outTake-out

• Most recent type of food ordered for Most recent type of food ordered for takeouttakeout

- 2% steak- 2% steak

- 31% burgers- 31% burgers

Take-outTake-out

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

The Takeout ChallengeThe Takeout Challenge

- To help items such as beef journey out of To help items such as beef journey out of the restaurant, chefs cook the product to the restaurant, chefs cook the product to only rare or medium rare temperature.only rare or medium rare temperature.

- Reason - Juiciness, flavor, palatabilityReason - Juiciness, flavor, palatability- Problem – Bacteria still presentProblem – Bacteria still present

Nation’s Restaurant Nation’s Restaurant NewsNews

The Takeout ChallengeThe Takeout Challenge

- Some restaurants are starting to use Some restaurants are starting to use better ingredients for take-out better ingredients for take-out orders.orders.

- Improving packaging also helps.Improving packaging also helps.

Nation’s Nation’s Restaurant NewsRestaurant News

CateringCatering

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

PleasurePleasure

• 3 out of every 4 consumers rank 3 out of every 4 consumers rank dining out among their favorite dining out among their favorite activities.activities.

North American Diner Study North American Diner Study (NADS)(NADS)

Restaurant TrafficRestaurant Traffic

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

TechnomicTechnomic

CostCost

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

NADSNADS

DietingDieting

• Three studies in the Journal of the American Three studies in the Journal of the American Medical Association showed that women who Medical Association showed that women who ate less fat and more fruits and vegetables did ate less fat and more fruits and vegetables did not reduce their risk of cancer or heart disease.not reduce their risk of cancer or heart disease.

• High protein diets of 2004 have quickly High protein diets of 2004 have quickly vanished.vanished.

• Many big food companies that spent billions re-Many big food companies that spent billions re-configuring their products to be low-carb are configuring their products to be low-carb are now doing the same thing to become low sugar.now doing the same thing to become low sugar.

R&IR&I

Menu ChangesMenu Changes

- 31% of women who say they often 31% of women who say they often share a restaurant entrée with a share a restaurant entrée with a dining companion. (R&I)dining companion. (R&I)

- 75% of consumers who say they 75% of consumers who say they would like restaurants to provide would like restaurants to provide information on safe storage and information on safe storage and reheating of leftovers. (American reheating of leftovers. (American Dietetic Association)Dietetic Association)

Menu ChangesMenu Changes

- 32% of men who say they always 32% of men who say they always finish their restaurant entrée vs. 9% finish their restaurant entrée vs. 9% for women. (American Institute for for women. (American Institute for Cancer Research)Cancer Research)

• 51% of Americans believe that 51% of Americans believe that portion sizes are often too large. portion sizes are often too large. (NADS)(NADS)

Menu ChangesMenu Changes• White table cloth downsizing beef entréesWhite table cloth downsizing beef entrées

-- Subprimals too largeSubprimals too large-- Prevent increase menu costPrevent increase menu cost

• QSR increasing portion sizesQSR increasing portion sizes-- Taking advantage of higher menu pricesTaking advantage of higher menu prices

• Most restaurants are featuring more pork, seafood and Most restaurants are featuring more pork, seafood and poultrypoultry-- Not taking beef off of the menu, but redirecting Not taking beef off of the menu, but redirecting focusfocus

Labor ForceLabor Force

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

Location, location, Location, location, locationlocation

• Beef is more likely to be the entrée of Beef is more likely to be the entrée of choice in rural areas,75 lbs per choice in rural areas,75 lbs per person/year vs. suburban areas, 63 lbs person/year vs. suburban areas, 63 lbs pp/y (USDA Economic Research Center)pp/y (USDA Economic Research Center)

• 14.8% of adults who say that if they 14.8% of adults who say that if they were going to a restaurant tonight, were going to a restaurant tonight, chicken most likely would be their chicken most likely would be their entrée of choice, versus 22% for seafood entrée of choice, versus 22% for seafood and 20% for beef. and 20% for beef. (R&I)(R&I)

SYSCO Goals For The Beef SYSCO Goals For The Beef Industry Industry (Stated at NCBA (Stated at NCBA

Strategy Workshop)Strategy Workshop)1.1. Improve Eating Quality of BeefImprove Eating Quality of Beef

2.2. Improve Consistency of BeefImprove Consistency of Beef

3.3. Reduce CostReduce Cost

4.4. Reduce SizeReduce Size

5.5. Reduce FatReduce Fat

6.6. Reinforce SafetyReinforce Safety

Improve Eating Quality of Improve Eating Quality of Beef – Why?Beef – Why?

1.1. Continue to romance customers Continue to romance customers (entertainment)(entertainment)

2.2. Eliminate cost aspect from Eliminate cost aspect from consumers mind (taste buds vs. consumers mind (taste buds vs. pocket book)pocket book)

3.3. Eliminate “doubt!”Eliminate “doubt!”

4.4. Keep them coming back for more!Keep them coming back for more!

Improving Eating Quality Improving Eating Quality of Beefof Beef

• Increase tenderness, juiciness and Increase tenderness, juiciness and flavor (overall palatability).flavor (overall palatability).

• Decrease dark cutters, poorly Decrease dark cutters, poorly marbled cattle and cattle that have marbled cattle and cattle that have higher amounts of connective tissue. higher amounts of connective tissue.

Improving Eating Quality Improving Eating Quality of Beefof Beef

• Hot TopicsHot Topics– Still seeing USDA Standard carcassesStill seeing USDA Standard carcasses– Lack of USDA Prime beefLack of USDA Prime beef– Lack of predictable tenderness scoreLack of predictable tenderness score– New cuts of beefNew cuts of beef

• Warm TopicsWarm Topics– Bruising on subprimalsBruising on subprimals– Injection site blemishesInjection site blemishes

Improve Consistency of Improve Consistency of BeefBeef

• Accurately predict eating experienceAccurately predict eating experience• Accurately determine the proper Accurately determine the proper

way to cookway to cook

Improve Consistency of Improve Consistency of Beef – Why?Beef – Why?

1.1. Customers don’t want to take Customers don’t want to take chances.chances.

2.2. Better educate Better educate consumers/chef’s/cooks on cooking consumers/chef’s/cooks on cooking mechanisms, quality and cut. mechanisms, quality and cut. (Make it fail-proof)(Make it fail-proof)

Improve Consistency of Improve Consistency of BeefBeef

• Hot TopicsHot Topics– More accurately label “No Roll” beefMore accurately label “No Roll” beef– Lack of uniformity in the box (size, Lack of uniformity in the box (size,

yield, marbling, tenderness, juiciness, yield, marbling, tenderness, juiciness, flavor)flavor)

• Warm TopicsWarm Topics– ““Guaranteed tender” claimsGuaranteed tender” claims– Genetic markers for tendernessGenetic markers for tenderness

Reduce CostReduce Cost

• Keep profit margins intact for all Keep profit margins intact for all parties and focus on reducing the parties and focus on reducing the inefficiencies that is costing our inefficiencies that is costing our industry money.industry money.

• Businesses losing money generally Businesses losing money generally cut corners!cut corners!– Product quality, service sufferProduct quality, service suffer

Reduce Cost – Why?Reduce Cost – Why?

1.1. Beef cost considerably higher than Beef cost considerably higher than either pork or poultry.either pork or poultry.

2.2. Beef has more variability in eating Beef has more variability in eating quality versus pork or poultry.quality versus pork or poultry.

3.3. Imported Beef, considerably Imported Beef, considerably cheaper.cheaper.

4.4. Other protein categories growing Other protein categories growing twice as fast as beef in foodservice.twice as fast as beef in foodservice.

Reduce CostReduce Cost

• Hot TopicsHot Topics– Survivability of food service Survivability of food service

establishmentsestablishments– Prevent an erosion of purchasing lower Prevent an erosion of purchasing lower

grade products, thus reducing product grade products, thus reducing product quality and dissatisfying customers.quality and dissatisfying customers.

– South America, Australia, New Zealand, South America, Australia, New Zealand, Mexico & Canadian imports. Lower Mexico & Canadian imports. Lower quality but cheaper!quality but cheaper!

Reduce SizeReduce Size

• Reward for smaller weightsReward for smaller weights• Give the customer what they wantGive the customer what they want

Reduce Size – Why?Reduce Size – Why?

1.1. Product too inconsistent in size.Product too inconsistent in size.

2.2. Hard for food service establishment Hard for food service establishment to gauge portion sizes. Lowers to gauge portion sizes. Lowers profit. Labor force is an issue in profit. Labor force is an issue in our industry.our industry.


* For five years now, Sysco has been * For five years now, Sysco has been sending a strong signal back through sending a strong signal back through the packer that we want smaller the packer that we want smaller product. Our customers will only pay a product. Our customers will only pay a slight premium. If we aren’t giving the slight premium. If we aren’t giving the customers what they want and they customers what they want and they won’t pay enough for that difference, won’t pay enough for that difference, let’s face the facts and start doing let’s face the facts and start doing something as an industry to cut and something as an industry to cut and market meat differently *market meat differently *


• We are seeing a growing trend of We are seeing a growing trend of restaurants, particularly high end restaurants, particularly high end establishments reducing portion sizes on establishments reducing portion sizes on steaks and roast.steaks and roast.

• If the food service industry reduces If the food service industry reduces portion sizes of beef, we need customers portion sizes of beef, we need customers eating beef more often to maintain eating beef more often to maintain consumption.consumption.

• May be able to maintain menu price May be able to maintain menu price levels thus increasing profitability.levels thus increasing profitability.

Reduce FatReduce Fat

• Reward For Less External/Seam Fat Reward For Less External/Seam Fat – Eliminate the YG 4’s & 5’s– Eliminate the YG 4’s & 5’s

Reduce FatReduce Fat

1.1. Restaurants are yielding considerably Restaurants are yielding considerably less than they have in the past five-ten less than they have in the past five-ten years meaning lower profits.years meaning lower profits.

2.2. Increasing external fat also increasing Increasing external fat also increasing seam fat thus making the product less seam fat thus making the product less desirable. Ex. Kernel fat.desirable. Ex. Kernel fat.

3.3. Lean trend, especially at Universities, Lean trend, especially at Universities, Colleges and upscale neighborhoods.Colleges and upscale neighborhoods.

Reinforce Safety - Why?Reinforce Safety - Why?

• Customers need to consistently be Customers need to consistently be aware that beef is safe. Words like aware that beef is safe. Words like BSE, Foot & Mouth should be used BSE, Foot & Mouth should be used frequently to alleviate fears within frequently to alleviate fears within our population.our population.

• Consumers 50 and over have 70% Consumers 50 and over have 70% wealth in the U.S. This trend is wealth in the U.S. This trend is fueling the healthy, organic and fueling the healthy, organic and natural products. natural products.

New Kind of Producer New Kind of Producer AlliancesAlliances

• New generation alliancesNew generation alliances• Fixed membershipFixed membership• Everyone agrees on exactlyEveryone agrees on exactly

- what product will be produced- what product will be produced

- how it will be produced and - how it will be produced and marketedmarketed

- and in some cases how it will be - and in some cases how it will be processed and sold.processed and sold.

In conclusionIn conclusion

• What we need from you (beef What we need from you (beef industry)industry)

1.1. Increase qualityIncrease quality

2.2. Make the product more predictableMake the product more predictable

3.3. Position yourself ahead of the curve to Position yourself ahead of the curve to capture market sharecapture market share

4.4. Maintain positive margins for all Maintain positive margins for all partiesparties

5.5. Reduce inefficienciesReduce inefficiencies

Documents

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