Background andobjectives

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1 USAGE AND VOLUMETRIC ASSESSMENT OF BEEF IN FOODSERVICE 2016 Edition Prepared for: December 2016 Project #17237

2 Every year since 2003, Technomic has conducted studies to investigate the usage of Beef and Chicken in the foodservice industry. In 2016, Technomic was again engaged to update the previous studies. Background andobjectives The primary objectives of this 2016 study edition were to: Determine the penetration of Beef usage in various foodservice segments. Provide an updated volumetric situation of the foodservice Beef market by major product categories, including estimated volume in pounds and dollars. Assess the foodservice market for a variety of Chicken products, including both penetration and volumetric statistics. Understand Beef and Chicken category usage trends, including volume trends, menu position and rationale for offering Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 2

3 Methodology summary 1 2 Program initiation meeting Questionnaire development 3 Top 250 chain operator headquarters internet survey 4 Unit level data gathering from foodservice operators 5 Initial analysis 6 Market size validation/finalization including interviews with 20 distributors (both broadliners and meat specialists) and 4 processors of proteins serving the foodservice industry 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 3

4 Methodology: Operator unit level quantitative respondent base (Step 4) Technomic used the following approach to gather information from non-chain restaurants and other segments. Prescreening: Non-chain and independent operators were recruited to participate in the survey via telephone. Operator Internal Data Gathering: Operators reviewed their actual invoices to obtain typical monthly volumes of relevant products. Reporting: Operators reported data back to Technomic. A total of 725 operators responded from various segments. Adding in the chain level respondents, a total of 760 operators participated in this research. The segments of Bars & Taverns, Recreation, Military, Corrections, and Continuous Care Retirement Centers were not surveyed for this 2016 research wave data was used as a surrogate for 2016 numbers. Segment Restaurants & bars # Of respondents Full service restaurants (small chains/independents) 145 Limited service restaurants (small chains/independents) 130 Subtotal 275 Beyond restaurants Healthcare (hospital, long term care) 75 Lodging 75 Retailers (convenience stores, supermarket foodservice) 75 Business & industry 75 Colleges 75 Schools 75 Subtotal 450 Total Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 4

5 Market size estimation approach To develop market size estimates using volumetric data, Technomic used a build-up approach. Each operator interviewed provided their average monthly volume of each of the relevant products. In addition, these operators also provide Technomic information on their total food and non-alcoholic beverage purchases on an annual basis. Once all interviews were completed, Technomic was able to conduct ratio analyses on the sample to develop the initial market size estimates. An example of the methodology is provided for the Healthcare segment. The total monthly pounds of Sirloin Steak used in the sample of 75 Healthcare locations is 7,372. The total annual food & beverage purchases by the 75 locations in the sample is $94 million annually. Technomic tracking data on the foodservice industry shows that the total food and beverage purchases of the entire Healthcare segment of the industry is $8.35B. Therefore, our sample represents 1.1% of the total industry purchases. Applying the 1.1% number to our 7,372 pounds, this suggests that total Healthcare segment Sirloin Steak volume is 670,000 pounds monthly, or 8 million pounds annually. This same exercise was applied to all segments, formats and forms to develop the market size estimates. In addition, operators were asked to indicate if their usage of each product increased, decreased or stayed the same versus last year. If increased or decreased, they were asked to indicate by what percentage and what was the rationale for the increase or decrease. This provided additional data points from which to conduct triangulation analysis. Once operator research is completed, Technomic conducts interviews with distributors and protein suppliers to obtain further insights and solidify market size estimates. The approach is charted on the next page Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 5

6 Technomic sizing process Technomic employs the following steps in its market sizing process. It uses a triangulation approach to develop its numbers, obtaining feedback not just for operators, but from suppliers and distributors as well. Data obtained Unit level operators National accounts What is used? Formats? Usage change? Business size? Clean, tabulate, analyze data by segment Compare to previous report Develop rough market estimates Final sizing Confirm growth Obtain pricing data Obtain volume Supplier and distributor interviews 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 6

7 Category scope The following 38 categories are included in this study (34 Beef/4 Chicken). Pre-cut Beef steak Whole/subprimals/roasts Pre-cooked roast Beef All other Beef Chicken Chuck eye/delmonico 1116D, PS01 Denver steak/cut (underblade) 1116G Flank/skirt (flank), 121C, 121D (skirt) Flat iron 114D, PS01 or 1114D, PS01 Hanger steak 6 140, 1140D Petite tender medallions/ portioned (teres major) 1114F Porterhouse/ t-bone (porterhouse); 1174 (tbone) Ranch steak/cut 1114E, PS01 Ribeye/rib/ribeye cap C (ribeye/rib); 112D 1112D (ribeye cap); Sirloin (top, butt, bottom, cap/coulotte) B Strip (top loin) B Tenderloin/filet (includes pre-cut for steaks) C Tri-tip C, 1185D Other steak (round, cubed, chuck, other steaks) Brisket C 3 Chuck eye/underblade 5 116D 116E, 116G Chuck/shoulder (excluding petite tender, chuck eye, underblade) 113, 114C-E, 115, 116A, 116B, 116K Petite tender (teres major) 1 114F Rib, ribeye, prime rib or ribeye cap D excluding 109B Sirloin B Strip loin/top loin Round 166A 171G Tenderloin roast Pre-cooked roast Beef (whole muscle) Patties 6 Bulk 6 Ground Beef Preparations (meatloaf, meatballs, chili, lasagna, etc.) Ribs Back ribs 124 Boneless country-style ribs D, PS02 Short ribs 123, 123B, 130, 130A All Beef hot dogs/brats/sausage Strips/cubes/shreds or shaved/philly Beef including lifter meat, blade meat or pectoral meal 4,7 109B (Blade meat); 115D (Pectoral meat) Specialty deli meats (pastrami, corned Beef, roast Beef) Other Beef (liver, offal, organ, and all other Beef not accounted for previously. Excludes veal) 7 Bone-in (wings, whole fryers, and parts) 6 Boneless Chicken (all forms) 6 Further processed Chicken (patties, nuggets, tenders, strips, breaded, formed and dices) 5 All other 6 Tri-tip 1 185D 1 New category breakout in Porterhouse/T-Bone combined into 1 category in New category in Strips/Cubes combined with Philly/Shaved and Shreds in Category redefined in New breakout category in Category redefined in Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 7

8 Notes/clarifications The following notes and clarifications will assist in interpreting the results of this report. All volumetric pound estimates are subject to a range of +10%. Volume data shown is for 12 months ending September of the respective year. Dollar volumes shown are based on reported pricing in September of each respective year. Pricing reflects price paid by the foodservice operator (operator purchase level). Price data are reported by distributors. In 2015, the Beef market continued its inflationary trend until pricing started to fall in August/September. Since market value is based on pricing reported in September, the total dollar value of Beef market in 2015 may be understated. MM = millions. Min = minimal or less than 500,000 in annual pound volume. Numbers may not add due to rounding. In 2012, bars/taverns, retailers, corrections, military and continuous care retirement centers were not specifically researched data are used as surrogates in these segments. In 2014 and 2016, bars/taverns, recreation, corrections, military and continuous care retirement centers were not specifically researched and 2015 data are used as surrogates in these segments for these years respectively Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 8

9 II. KEY OBSERVATIONS, INTERPRETATIONS, IMPERATIVES AND RECOMMENDATIONS 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 9

10 Key observations and interpretations Observations Beef volume increased by 79 millions in 2016 to billion pounds. Despite this increase, there was a substantial decline in dollar value of over $4.2 billion dollars. Insights Significant drops in commodity prices for Beef have driven down the overall Beef purchase value in foodservice. On average, Beef prices dropped 14% at the operator purchase level compared to last year. Year Foodservice Beef volume (MM lbs.) Change vs. previous year (MM lbs.) Foodservice Beef operator purchase dollars ($ MM) Change vs. previous year ($ MM) , ,945 +2, , , , ,974 +2, , ,877-2, , ,598-4,279 Dollar value calculations based on September pricing for each representative year 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 10

11 Key observations and interpretations Observations Beef usage penetration is down slightly from 96% in 2015 to 94% in Insights Despite this slight decline overall, Beef volume increased in There is a slight increase in Roast (subprimal) and Ground Beef penetration in 2016 compared to 2015 % Operators menuing/using Beef cut Ground Beef 77% 75% 74% 72% 72% Steaks Roasts (subprimal)* Pre-cooked Roast Beef Ribs Overall Beef 94% 96% 96% 97% 96% *Category redefined in Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 11

12 Key observations and interpretations Observations Ground Beef remains the largest share of Beef volume and dollars. Roasts and Pre-cut Steaks have increased in volume most substantially. All Beef cuts have decreased in value with ground Beef taking the largest hit. 1% Ground Beef B 7% 11% 4% 1% 35% Ground Beef $ B Pre-cut Steak $9.078 B 6% Roasts (subprimal) $5.359 B 7% Other Beef $1.961 B 19% 2016 Annual total B lbs. 13% 2016 Annual total $ B 32% 64% Pre-cut Steak B Roasts (subprimal) B Other Beef B Pre-Cooked Roast Beef B Ribs B Pre-Cooked Roast Beef $1.639 B Ribs $0.466 B Insights Operators/consumers appear to be slowly returning to steaks and roasts as prices drop. Pounds change 2016 vs = 79 million lbs Roasts* Pre-cut steak Dollar change 2016 vs = $-4,297 million -$8 -$22 -$ Pre-Cooked Roast Beef Ground Beef -$402-5 Ribs -$1, Other Beef -$2,502 Pre-Cooked Roast Beef Ribs Other Beef Roasts* Pre-cut Steak Ground Beef Dollar value calculations based on September pricing. *Sub-primal Note: Numbers may not add due to rounding Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 12

13 The volume decline of the foodservice Beef category which started in 2013, began to reverse itself in Despite increases in Beef volume, it appears that operators have not yet returned to offering higher end cuts as of yet. Rather, value-cut products have gained share in both Steaks and Roasts. Overall conclusions Market deflation has certainly helped firm up volume, but has had a negative impact on total market value. Despite Beef s gains, Chicken continues to gain volume share based on popularity of Wings and deflation in this market as well Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 13

14 III. MARKET OVERVIEW 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 14

15 Total protein market in foodservice The total foodservice protein market represents billion pounds in Foodservice protein volume is up 335 million pounds over the past year and 855 million pounds since Beef increased by 79 million pounds (1% in 2016), but has declined over that past four year period by 178 million pounds total. Chicken and Pork both have gained significantly over the past 4 years (433 and 478 million pounds respectively). Chicken volume has been driven by the wing trend and pork has been driven by breakfast growth (bacon and breakfast sausage). Additionally, both have also benefitted from high Beef prices over the past few years. Segment MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs Chicken 7, , , , , Beef 7,816 30% 7,737 30% 7,920 31% 8,072 32% 7,994 32% -178 Pork 5, , , , , Seafood 2, , , , , Turkey 1, , , , , Veal 73 <1 75 <1 80 <1 85 <1 89 <1-16 All Others* 68 <1 70 <1 67 <1 65 <1 65 <1 +3 Total 25, % 25, % 25, % 25, % 24, % +855 *Game, Cornish hen, duck, buffalo, etc. Note: Numbers may not add due to rounding. Source: Technomic 2016 Technomic. Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 15

16 Beef volume by foodservice operator segment Beef volume continues to be highest in LSRs, where Ground Beef usage is very high. Looking at individual segments, Retailers experienced very strong growth in 2016 with an additional 48 million pounds while FSRs added 30 million pounds of Beef. The biggest decliner was the Business & Industry segment which lost 25 million pounds. Since 2012, however, Beef is down 178 million pounds total or 2% total Change Change Segment MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % MM Lbs. % LSR 3,487 45% 3,492 45% 3,597 45% 3,591 44% 3,556 44% -5 0% -69-2% FSR 1,743 22% 1, , , , Bars/Taverns 1, % Total Restaurants & Bars 5,338 69% 5,313 69% 5,484 69% 5,516 68% 5,488 69% 25 <1% % Lodging 363 5% 337 5% 360 4% 422 5% 372 5% 26 8% -9-2 Retail % Recreation % Healthcare 249 3% Colleges 335 4% Schools 466 6% Business & Industry 263 4% Military 1, % Corrections 1,2 46 1% CCRCs 1, % Total Beyond Restaurants 2,478 31% 2,424 31% 2,436 31% 2,556 32% 2,506 31% 54 2% -28-1% Total 7, % 7, % 7, % 8, % 7, % 79 1% % 1 Segment not researched in data used as surrogate for 2012 in this segment 2 Segment not researched in 2014 and and 2015 data used as surrogates respectively for this segment Numbers may not add due to rounding Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 16

17 2016 vs change in Beef poundage (in lbs. millions) *Steaks **Roast Segment Pre-cut Steaks* Roasts (subprimal)** Pre-Cooked Filets $ $ $4.00-$5.32 Premium Mid-Tier Roast Beef $ : Porterhouse/T-Bone, Ribeye/Rib/Ribeye Cap, Strip $ : Denver Steak, Flat Iron, Petite Tender, Sirloin, Chuckeye/Delmonico, $ Flank/Skirt, Ranch Cut, Tri-Tip, Hanger, Other Steak Premium: Prime Rib, Tenderloin, Strip/Top Loin Mid-Tier: Chuckeye/Underblade, Chuck/Shoulder, Round, Tri-Tip, Petite Tender, Brisket, Sirloin Roast Ground Beef LSR FSR Bars/Taverns 1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Total Restaurants & Bars Lodging Retailers Recreation 1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Healthcare Colleges Schools Business & Industry Military 1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Corrections 1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a CCRCs 1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Total Beyond Restaurants Total ***All Other Beef, Hot Dogs/Brats/Sausage, Strips/Cubes/Shreds/Shaved, Specialty Deli Meats, All Other Beef Numbers may not add due to rounding Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 17 Ribs 1 Segment not researched data used as surrogates for this segment All Other Beef***

18 Beef cut pound and market value trends Overall Beef is up 1% in volume but down 13% in value. Deflation in the Beef market overall drives down market value of all Beef products. On a volume basis, Roasts, Pre-cut Steaks and Pre-Cooked Roast all have grown in Category Lbs. MM $MM '16 vs '16 vs. 15 Ground Beef 5,022 5,020 5,093 5,123 5,102 0% $10,094 $12,596 $13,535 $11,826 $12, % Pre-cut Steaks 1, ,106 1,160 1, ,078 10,365 11,429 11,124 11, Roasts (subprimal)* ,359 5,761 5,782 5,159 5, Other Beef ,961 2,020 1,738 1,732 1, Pre-Cooked Roast Beef ,639 1,647 1,958 1,762 1, Ribs Total 7,816 7,737 7,920 8,072 7, % $28,598 $32,877 $34,974 $32,061 $32, % Dollar value calculations based on September pricing for each representative year *Strip/Top Loin was added as a separate category in 2015, which may be artificially inflating volume in roasts, and deflating steak category volume in that year Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 18

19 2016 Pre-Cut Steak Summary Other Steaks gained 65 million pounds and $316 million in value in All of the other Pre-cut Steak cuts lost value in 2016, and only 4 others gained in poundage. Total traditional cuts held up well volume wise, while emerging cuts showed evidence of erosion in pounds Change vs Pre-cut Steak Cuts MM Lbs. $ MM MM Lbs. $ MM MM Lbs. $ MM Rib/Ribeye/Ribeye Cap 155 $1, $1, $215 Filets 157 2, , Flank/Skirt Strip/Top Loin Porterhouse/T-Bone Total Traditional Cuts 572 $6, $7, $1,214 Sirloin 214 $1, $1, $225 Flat Iron Petite Tender Medallions Hanger Tri-Tip Chuck Eye/Delmonico Ranch Cut Denver Steak/Underblade Total Emerging Cuts 341 $2, $2, $389 Other Steaks 99 $ $ $316 Total 1,012 $9, $10, $1,287 Dollar value calculations based on September pricing of respective year Numbers may not add due to rounding 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 19

20 2016 Roast (Subprimal) Summary Looking at Roasts specifically, Strip/Top Loin has gained the most volume and dollars in 2016, at 29 million pounds and $107 million respectively. Brisket and Sirloin Roast are the other Roast cuts that gained volume and value in Change vs Roast (Subprimal) MM Lbs. $ MM MM Lbs. $ MM MM Lbs. $ MM Tenderloin 198 $2, $2, $163 Rib, Ribeye, Prime Rib or Ribeye Cap 183 1, , Chuck/Shoulder Round Total Traditional Cuts 572 $4, $4, $524 Chuckeye/Underblade 22 $93 28 $ $52 Tri-Tip Petite Tender (teres major) Total Emerging Cuts 47 $ $ $64 Brisket 73 $ $ $70 Strip Loin/Top Loin Sirloin Roast Other Roasts 218 $ $ $179 Total 838 $5, $5, $402 Dollar value calculations based on September of respective years Numbers may not add due to rounding 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 20

21 2016 Ground Beef, Pre-Cooked Roast Beef, Ribs, and Other Beef Summary Ground Beef Preparations gained 13 million pounds, and Pre-cooked Roast Beef volume rose by 10 million pounds. Ground Beef Patties & Bulk, the largest pound volume category tracked, was down by only 0.2% Change vs Ground Beef MM Lbs. $ MM MM Lbs. $ MM MM Lbs. $ MM Patties & Bulk 4,825 $9,649 4,835 $12, $2,437 Preparations Total Ground Beef 5,023 $10,094 5,020 $12, $2,502 Total Pre-Cooked Roast Beef 321 $1, $1, $11 Ribs Boneless Country-style 9 $36 12 $48-3 -$12 Back Short Total Ribs 117 $ $ $22 Other All Beef Hot Dogs/Brats 214 $ $ $-36 Strips/Cubes/Shaved/Shreds* Specialty Beef Deli Meats All Other Beef Total Other 505 $1, $2, $-59 *Including pectoral, lifter and blade meat Numbers may not add due to rounding Dollar value calculations based on September pricing in respective years Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 21

22 Beef market volume and value In 2016, the Beef industry gained 1.0% of volume, but lost 13% of total market value. This discrepancy suggests overall deflation in the Beef market has averaged around 14% in In MM Lbs. In $MM* Change +1.0% +78 Change -1.9% -152 Change -2.3% -183 Change +1.0% +79 Change -2.7% -$884 Change +9.1% +$2,913 Change -6.0% -$2,097 Change -13.0% -$4,279 7,994 8,072 $34,974 7,920 $32,945 $32,061 $32,877 7,737 7,816 $28, *At the operator purchase, or distributor sales level. Dollar value calculations based on September pricing for each representative year. Source: Technomic, Inc Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study 22

23 technomic.com 2016 Technomic Inc. Source: 2016 Usage and Volumetric Assessment of Beef in Foodservice Study