Confidential - For Members Only. Do not Duplicate or Distribute. AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV UFPC Business and Supply Chain Update Upper Midwest / Great Lakes / Southwest Regional Conference Scottsdale, Arizona October 11, 2011
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Confidential - For Members Only. Do not Duplicate or Distribute.AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas,
Confidential - For Members Only. Do not Duplicate or Distribute.AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas,
NV8
Commodity Outlook Corn
Demand cutbacks are occurring and likely will become the focus of the market this fall. Because of low corn yields, the prospects for lower corn price opportunities are limited until Q3 2012.
Soybean meal Soybean meal prices are expected to trade in a sideways range unless soybean yields are above expectations.
Soybean oil The USDA projects biodiesel demand will increase by 63 percent in 2012 due to a larger government mandate. This is expected to lead to tighter soybean oil inventories next year.
Wheat Record drought conditions in the Plain states has contributed to lower than expected production. Global wheat inventories, however, are at normal levels. This should limit wheat inflation risk.
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Commodity Q1-Q2 2012 Q3-Q4 2012 2013
Corn
Soybean Meal
Soybean Oil
Wheat
Market Price Expectations
Note: price arrows reflect market price changes from the same period of the year prior (example: Q3-Q4 2012 arrows reflect market price changes from Q3-Q4 2011.
Confidential - For Members Only. Do not Duplicate or Distribute.AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas,
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Key Variables Federal Reserve Policies
Another Quantitative Easing program will spur inflation. Movement of the U.S. Dollar
Elevated money supply leads to a weaker U.S. dollar and stronger commodity exports.
Ethanol and Biodiesel Subsidies The ethanol and biodiesel tax credits are scheduled to terminate at the
end of 2011. This should lead to slowing ethanol production growth unless Congress
extends these supports. General Economic Conditions
Consumer confidence is eroding Gasoline demand is declining Manufacturing is slowing All of these indicators point to slowing economic growth or a recession. It is unlikely that strong commodity demand (and historically high prices)
can persists in this environment.
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Results
The KFC commodity committee and UFPC have mitigated cost below levels that would have existed in absence of risk management.
As of October 6, realized and unrealized cost mitigation has totaled:
$17.1 million dollars
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Cost of Goods Update
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KFC Concept2011 Cost of Goods (COGS)
Q4 ForecastTim Mueller
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2011 COGS Forecast vs. PlanKey Item Detail (as of P9)
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2011 COGs Forecast by Category; by Quarter (as of P9)
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2011 COGS ForecastBy Period (as of P9)
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2012 COGS Plan KFC Concept Summary (Round 2 of 3)
KFC COGS inflation is projected at 3.2% on increased fresh poultry, packaging (reusable containers), potato and oil costs.
Milk & egg mix reformulation to extend hold time adds $2.0MM.
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Restaurant Margin ImprovementPwC (PRTM) Update
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Program Objectives
Phase Two ObjectivesPhase One Objectives
Target Setting & Prioritization
Identify and quantify major savings opportunities
Define principles for customization of processes for KFC
Set category priorities based on size of opportunity and timeline to savings
Build plan and align resources for Phase Two
Margin Improvement & Process Customization
Drive rapid savings on Wave 1 categories with PRTM resources/expertise
– Fast track sourcing process for near term opportunities
Train/coach KFC organization through launch of Wave 2 categories
– Position KFC to achieve remaining savings opportunities
Define/implement margin focused modifications to KFC development/LTO processes and system incentives
Customize sourcing process governance to fit KFC
Overall Objective: Rapidly Deliver Savings to the KFC System and Establish Processes for Ongoing Margin Management While Maintaining Or Improving The Consumer Experience
Confidential - For Members Only. Do not Duplicate or Distribute.AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas,
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Phase One – Target Setting & Prioritization
Interviews
Document Reviews
BOH Observations
Competitive Research
Data Gathering Analysis & Solution Development
Category Workshops
Process/Incentive Review
Benchmark Comparisons
Cost in Use Analysis
Value Proposition
Where And How To Achieve
+
Sourcing Category Profiles
Phase Objective: Define the value proposition/savings targets and prioritize the approach
Spend Analysis
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(8 wks) (5 Months)
Overall Program Timeline
Initial Savings Estimates
Integrated Program Plan
Cross Functional Workshops
Build Category Spend Profiles
Process Customization Principles
Phase One – Target Setting and Prioritization
Phase Two – Category Margin Improvement and Process Customization
• Day To Day Program Guidance (Issue Resolution, Resource Allocation, etc.)
• Recommend Solutions To Steer Comm• Provide Facts/Trade-offs For Steer Comm To
Make Decisions
• Develop Optimal Cross-Functional Solutions• Support Solutions With Facts• Define Sustainable Processes
• Decision Making Body• Ensure Resource Availability• Remove Barriers/Roadblocks
Category Teams
MarketingFinanceR&D
OperationsFranchiseUFPC
Process Customization
MarketingFinanceR&D
OperationsFranchiseUFPC
Scott Haner*Dave EvansTim Mueller*Mike Ledford
John Cywinski
Dave Evans
Doug Hasselo
Jim Metevier
Roles/Responsibilities
** UFPC/KFC Program Leads
Phas
e 2
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Financing Programs Update
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MERIT/Drive Thru Timer, Holding Cabinets Program Milestones*
Financing secured for two separate programs Complete Review financing program with operators Complete Financing program approved by Concept & UFPC Boards Complete Pre-qualification process Complete Complete cabinet & timer negotiations October 14 Mail financing & equipment order packets October 17 Launch on line equipment reservation system October 17 AIP/supplier commitment for cabinets October 17 Financing window Oct 17 – Nov 30 MERIT supplier summit October 26 Complete MERIT negotiations November 4 Cabinet production & installations** Mar 2012 – Mar 2013 MERIT/Drive Thru Timer production & installations Mar 2012 – Mar 2015 Financing Fee applied to mashed potatoes & biscuits Sept 2012 – Sept 2016
* Assumes approval of NCAC/KFC operator agreement** Cabinet installations target one year ; however operator agreement states compliance by 2015. Operators responsible for scoping and permitting
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Resource Services
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Resource Services
Resource Services: Started at UFPC in 2002: Programs selected based on 3 criteria Large returns, Low barriers to entry & growth and Effective implementation and mgmt Primary programs include: Cell phones, Parcel, Debit cards, CO2, Pest services, Gift cards
and Employee discount programs (see latest Fall 2011 Directory) Program funded by small fee – pay to play
Fees set up to offset development and mgmt costs; Avg. fee less than 1%
Energy Deregulated areas represent 30% of KFC’s total system spend of $205MM – (about $70M)
• Realized > $95MM in Yum! system energy savings since starting program in 2002 Average annual savings for a participating KFC location = $2,000 per store
2011 Energy focus: Develop programs to target $145MM spend in regulated markets• Ameresco: 3rd party outsourcing of utility bills (> 7,000 stores represented in testing)
Cost of $2.50/store per month per utility invoice• Real Win Win: rebate outsourcing to a national rebate partner (>5,000 stores on board)
No fee unless rebate granted (RealWinWin receives 25% of rebate) Gift Cards
Timeline to participate in 2011 Holiday season:• Return signed participation agreement to Andrew Now• Software download to stores Oct 31• UFPC ships materials to franchisee office Nov 7• Restaurants should train, install POP and merchandiser Nov 14
Confidential - For Members Only. Do not Duplicate or Distribute.AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas,