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Driving Down Costs for Customers and KeHE1

page 2Strategic AnchorsPre-Discussion Pump UpThere is an optional quiz after our presentation is over.Take quiz with you, complete it, and turn back in here before the end of the day. If you get 100% on the 10 question quiz, we will mail you this awesome KeHE shirt.

3Driving Down Cost for Customers and KeHEDelivery ServicesChris Sieburg4Discussion Objectives#1 Priority = Align our delivery solution w/customers needsIndustry has changed dramatically60+% of customers -> MBP ProgramsMany MBP solutions -> Delivery frequency optimizationIndependent Channel: Fairway, Duane ReadNon-Traditional: MeijerRegional Accounts: Rouses, Winn Dixie, RoundysChain Grocery: Publix, Jewel, Shaws High-level review - KeHE fleet operationsReview cost components of our delivery routesUnderstand the various strategies we can employ to optimize our outbound delivery costValue in a data-driven approach -> delivery frequencyOpportunity -> delivery windows/delivery sequencing

5Current Fleet OperationsFY 2013 $74M (Fcst 3.99% vs PY 4.24%)

Fleet Miles

Deliveries

868 Routes Per Week (45K/YR)

265 Drivers, 231 Tractors, 412 Trailers

Avg Cube Per Route = 702Optimal Cube = 1,32053% of Optimal Cubic Capacity

Did you know? Our average cost per delivery is $112Cube UtilizationA measurement of the utilization of the total storage capacity of a trailer

.6325,000/WK 17,000,000/YR12,500/WK 650,000/YR75% Transportation Is Variable20% Fixed Equipment95% of Costs = Tied to Miles/Routes16% of Freight Spend for 3rd Party CarriersCost Per Delivery includes X-Dock Deliveries6Route Costing Current Example

$28KStopsMilesDays105182Did you know? Over 92% of Delivery Cost is variable, meaning directly related to miles traveled and orders delivered.AmountExpense CategoryPct/Total$471 Driver Wages37%$318 Fuel25%$220 Tractor17%$130 Trailer9%$98 Fixed OH8%$65 Maintenance4%$1,283 4.6% 100%QuizCost per Delivery = $128

Delivery Frequency Can Impact Pallet Size/Value Per Order

Delivery Windows Increased Can Add 3 Pallets/Orders on this Route

Group QuestionsWhat are top 4 Expense Items?Why does it matter how many miles the route is?Does it matter how many days a route is? Does that change the cost structure?7Route Costing Optimized Example

$47KStopsMilesDays125362AmountExpense CategoryPct/Total$330Fuel24%$510Driver Wages37%$220Tractor16%$120Trailer9%$67Maintenance4%$98Fixed OH10%$1,3452.9%100%Did you know? At 1,066 cube, this route is only at 81% of full cubic capacity utilization Cost Per Delivery = $114

Couple More Stops than previous example, slightly more miles

Significant Increase in Average Order Size

Maxed Out Pallet Spaces on Trailer

8Optimal Distribution Solutions Delivery Services# 1 - Order Frequency

From a retailers perspective, which customer is more profitable?From KeHEs perspective, which customer is more profitable?

Retailers Measure Avg Basket SizeHigher Rec/AP transactions = Inc Indirect Labor# 1 - Order FrequencySample CustomersAve Del/WkNumber of Items OrdAve Inv Sls/DelAve Inv Sls/WkTwice Wk & AboveOnce to Twice WkEvery Other to Once Wkly0 to Every OtherLessThanWkly %SW Customer Full Svc/DSD2.04,048$11,299$22,59800133,45799.60%NE Retailer CGO/Cross-Dock5.02,090$2,736$13,678117701,74195.40%SE NF Retailer DSD2.82,481$5,169$14,21500232,45899.07%NE Retailer CGO/Cross-Dock

5.01,479$1,464$7,32004331,26897.30%Key questions to consider1. What specific value proposition are we meeting when we deliver to a store 5 times per week, and there are no SKUs being ordered even two times per week?

2. Are we at risk to competitive threats when we build this expense into our customers solution?

3. Retailer inventory increase is a potential hot button - Optimizing Delivery Frequency to these Stores:= $60K Delivery Cost Reduced/YR= $ 2.6K Increased Capital Carrying CostsCustomer Sampling# 1 - Order FrequencyUsing the Order Frequency Tool (Oak Reports) which is a detailed analysis of store/sku velocity, we could eliminate 50+% of deliveries without adversely impacting sales.Reducing only 20% of our 12,500 orders/WK (40% of opportunity) have an estimated savings of $14.9M/YearCUSTOMER SAMPLING # LOCDEL/WKNo A-B Changes PUBLIX (DSD) 1,0652,0231,081ALBERTSONS SOCAL (DSD) 228254228ROUSES (DSD) 376037FAIRWAY (DSD) 122114Total of 20 Customer Chains2,7395,5982,793ORD REDUCTION2.0 Del/Store/WK 50%DFR Snapshot 12 18 2012 (Delivery Frequency Data)

12,500 Deliveries/week = 20% Reduction is -2,500 X 114 Per Delivery = $14.9M

12# 2 - Delivery WindowsDCRec HrsStops/RtNew Stops/RtBenchmark GroupDAL/BLO/ATL/STA14.513.013.0LOS 7.012.013.0FTL 9.011.113.0LHV 7.09.613.0POR 12.05.013.0RMV 7.011.413.0SUBTOTALS8.49.813.0ENTERPRISE11.111.813.0Total Routes652591REDUCED ROUTES-61If we were able to achieve the same average delivery window expectations with our customers as the Benchmark Group, we could eliminate nearly 10% of our DSD routesSavings through expanding delivery windows is estimated at $2.5M/YearREDUCED ROUTES: LA 2, FTL 10, LHV 26, POR 2, RMV 22

AVG COST PER ROUTE 1,32413# 3 - Delivery Sequence

10 Stops, 302 Miles10 Stops, 276 MilesTodays Key Challenges:1. Customer delivery windows2. Customer delivery day requirementsEx. No Wednesday deliveries3. Sales schedule full service accounts9% Less MilesSaving 4.5% of DSD miles through better delivery sequencing = $1.1M/Year225,973 dsd miles per week 10,169 out of route 4.50% 2.25 cost/mile22,880 cost/wk1,189,747 cost/yr 14Optimal Distribution Solutions - DeliveryWhy optimize our delivery model?Customer Value:Lower cost of goods @ retailFewer transactions Back doorAccounts payableEasier to do business withReduces retailers indirect costsProactive supplier who provides solutionsAre retailers pushing us to provide a more efficient supply chain or are we proactively driving the conversation?Supplier who recognizes that store-specific solutions drives optimal retail performanceCompetitive advantage that will win in the marketKeHE Value:Priced to win new businessMarginalize competitors price advantageReduce customers going direct to manufacturerSavings generated can be used to invest in; AcquisitionsTechnologyAggressive pricing Equipment (trailers/liftgates)Ownership value:$18.5 X 7.5 Multiple = $110M

16Discussion RecapDelivery operations can be a competitive advantage when optimally engineered to customer needs

Driver wages, fuel, equipment = 92% of delivery cost

Strategies we can employ to optimize our delivery expense:Delivery frequency optimized to customers needsMaximize time we can deliver to customers

DC cross-functional teams will prioritize delivery cost optimizationUtilize order frequency tool to optimize delivery frequency Key Success Measure: Sales/DeliveryLook for opportunities to expand delivery windows Key Success Measure: Avg Del Hours/Store

#1 Priority = Balanced approach to creating Great Customer Experience and a Smart Supply Chain

17Driving Down Cost for Customers and KeHEOperational EfficienciesCraig Turner18Current KeHE Operations DataFY 2013 $80M (Fcst 4.39% vs PY 4.52%)

1.8M Picks Per Week

$37M Gross Sales Per Week

16,500 Orders Per Week

9 Facilities, 3M sq ft, 1150 Employees

$11,500 Avg Sales per SKU

page 19General Operational Stats19

Current KeHE Operations Datapage 20Engagement Slides1,800,000 cases a week60,000,000 year S Zone20 between picks20

Current KeHE Operations Data227,000 Miles Traveled9X$60M page 21Engagement Slides1,800,000 cases a week60,000,000 year S Zone20 per pick = 227k miles to pick all S zone cases per yearStarted picking @ age 18 would be 108 years old before he finished

21KeHE Cost Driverspage 22Order ValueOrder FrequencySKU Productivity -Product Portfolio Perfection

SKU Productivity Sustainable Inventory ReductionCreating disciplines to optimize the (mix/sales) SKU and Brand profitability going forward is now a Company priority.page 23MergerPost Warehouse ConsolidationYEFY12Current225K$8.7K205K$9K163K$11.1K160K$11.5KTTMSKUMovementPPD/Yr.SKU Stratificationpage 24$44,943

$0.45$1.40$0.75$8,810$2,020Cost/CaseSKU ProdSKU productivity$11,500 SKU Prod38,00035,000$52,000SKU CountA=80%B=15%C=5%Overall SKU Prod blends out to $11,50060% change from A B and 200% A CCurrent Stratification cost us $60M in variable costWhat Happens if everyone upgraded 1 C Sku for a B sku? (next slide)

24A SKU vs. C SKU

page 25

ACA SKU vs. C SKUpage 26

A SKU vs. C SKUpage 27

SKU Stratificationpage 28$44,943

$0.45$1.40$0.75$8,810$2,020Cost/CaseSKU ProdSKU productivity$11,500 SKU Prod38,00035,000$52,000SKU CountA=80%B=15%C=5%Overall SKU Prod blends out to $11,50060% change from A B and 200% A CCurrent Stratification cost us $60M in variable costWhat Happens if everyone upgraded 1 C Sku for a B sku? (next slide)

28SKU Stratificationpage 29

12 C SKUs Upgrade to B = $2.0M in EBITDA142,5258 C SKUs Upgrade to A = $2.0M in EBITDASKU productivity$13,000 SKU Prod$4M in Inventory ReductionVariable Cost drops $2.0M for C-B and C-A ($1M in labor, $600K spoils, $400k cost of capital)Enterprise SKUs drops to 142k$2B in sales stays the same but SKU Prod increases to 13k

29Dallas DCpage 30

SKU productivity327,000 SF30,000 SKU$300M in SalesFixed & Variable Cost Impact Slides327,000 sf30,000 SKUs$300M in SalesHow many skus never sold 1 case in the last week? 10k (1/3)30Central Market #61page 31 DALLAS (22) TODAY1/17/13 3:54 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productivityFixed & Variable Cost Impact Slides$5,015 Total order121 cases in S Zone$182424 aisles traveled @ 6,480 feet (1.25 miles)53 per pick (17 yards)31Cox Farmspage 32 DALLAS (22) TODAY1/17/13 3:54 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productivityFixed & Variable Cost Impact Slides$2,086 Total order38 cases in S Zone$70222 aisles traveled @ 5,940 feet (1.15 miles)156 per pick (52 yards)

32Why is SKU Productivity Important?Increased SKU Productivity Benefits - KeHE:Lowers Operational Labor Cost

Lowers Working Capital

Lowers KPD impact

Increases Warehouse Capacity

Increases Company ProfitIncreases Company ValuationIncrease Share ValueIncreased SKU Productivity Benefits - Customer:Lowers financial impact allowing us to offer better pricing and compete against competition

Allows you to introduce new items

Upgrading can increase customers sales

33Key TakeawaysPerfect your product portfolioKnow your SKU Productivity impactEliminate dead/stagnant itemsUpgrade items when possible

CollaborationUtilize your cross functional teams to improve SKU ProductivityMetricsThink Big Picture page 3434