KFC National Purchasing Co-op - Upper Midwest KFC Franchisee

Report
UFPC
Business and Supply Chain Update
Upper Midwest / Great Lakes / Southwest
Regional Conference
Scottsdale, Arizona
October 11, 2011
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Agenda
Commodities Update
Cost of Goods Update
PRTM (PWC) Update
Financing Update
Resource Services
Other
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
2
Commodity Update
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Low Corn Yields are Expected
 Hot temperatures during July across the Midwest has led to
deteriorating corn production prospects.
 2010 and 2011 will mark the first time since 1944 and 1945
where corn yields were 5 percent below trend (normal) levels in
consecutive years.
 Conditions are variable from state to state and field to field.
 Hot temperatures
impact pollination.
Corn does not fill
to the end of the
ear due to
pollination
problems.
 Example: Indiana
corn
 While overall
corn yields will
be low, some
farmers will
experience large
corn yields.
 Example:
Nebraska corn
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
4
Corn Prices are Extremely Volatile
 Corn prices reach record
highs due to poor crop
yields and historically low
corn inventories.
 Corn prices have recently
declined due to slowing
economic fears, but prices
remain historically elevated.
Corn Prices (Cents per Bushel)
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
5
Demand Rationing is Occurring
Chicken Producers are Cutting Production.
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
6
But Ethanol Margins Remain Favorable
 Despite corn prices doubling, ethanol margins remain
elevated.
Source: The LaSalle Group
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
7
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.
Market Price Expectations
Commodity
Q1-Q2 2012
Q3-Q4 2012
2013
Corn
Soybean Meal
Soybean Oil
Wheat
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.
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
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8
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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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
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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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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
10
Cost of Goods Update
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
KFC Concept
2011 Cost of Goods (COGS)
Q4 Forecast
Tim Mueller
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
12
12
2011 COGS Forecast vs. Plan
Key Item Detail (as of P9)
 Key items driving inflation include Oil, Biscuits, Fresh Chicken,
(COB), packaging, Flour, Breading, Potato Wedges
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
2011 COGs Forecast
by Category; by Quarter (as of P9)
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
2011 COGS Forecast
By Period (as of P9)
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
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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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Restaurant Margin Improvement
PwC (PRTM) Update
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Program Objectives
Overall Objective: Rapidly Deliver Savings to the KFC System and Establish
Processes for Ongoing Margin Management While Maintaining Or Improving The
Consumer Experience
Phase One Objectives
Phase Two Objectives
Target Setting & Prioritization
Margin Improvement & Process Customization

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

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

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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Phase One – Target Setting & Prioritization
Phase Objective: Define the value proposition/savings targets and prioritize the
approach
Data Gathering
Analysis & Solution
Development
Interviews
Sourcing Category
Profiles
Document Reviews
BOH Observations
Category Workshops
Value Proposition
Benchmark
Comparisons
Cost in Use Analysis
Spend Analysis
Competitive Research
+
Where And How
To Achieve
Process/Incentive
Review
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Overall Program Timeline
Phase Two – Category Margin Improvement and
Process Customization
Phase One – Target Setting
and Prioritization
(8 wks)
(5 Months)
Spend
Analysis
Category Margin Management - Wave 1 Categories
(PRTM Led, Training KFC)
Stakeholder
Interviews
Kick
Off
Store Visits &
Product Training
Ideation
Workshops
Define Item
Strategy
Testing and Market Validation
(If Necessary)
Feasibility
Assessment
Map Cost in Use
Sourcing Process
Category Platform Plan
Build Category
Spend Profiles
Transition
Category Margin Management - Wave 2 Categories
(KFCl Led, PRTM Coaching)
Cross Functional
Workshops
Kick
Ideation
Item
Off
Workshops
Strategy
Feasibility
Assessment
Initial Savings
Estimates
Process Customization
Principles
Integrated
Program Plan
Testing & Market Validation
(If Necessary)
Sourcing Process
Category Platform Plan
Process Customization/Sustainability
Incentives, Sourcing, Category Margin Management and
Development/LTO Processes
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
20
Program Leadership & Roles/Responsibilities
Roles/Responsibilities
Steering Committee
John Cywinski
Tim Mueller
Dave Evans
Jim Olson
Doug Hasselo
Trip Vornholt
Jim Metevier
Dan Woodside
Core Team
Jud Bell
Fred Bauer
Teresa Crawford
Sandy Chastain-Brough
Phase 2
Category Teams
Marketing
Finance
R&D
Operations
Franchise
UFPC
• Decision Making Body
• Ensure Resource Availability
• Remove Barriers/Roadblocks
Enrique Ramirez
Scott Haner*
Pat Murtha• 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
Dave Evans
Tim Mueller*
Mike Ledford
Process Customization
Marketing
Finance
R&D
Operations
Franchise
UFPC
• Develop Optimal Cross-Functional Solutions
• Support Solutions With Facts
• Define Sustainable Processes
** UFPC/KFC Program Leads
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Financing Programs Update
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
MERIT/Drive Thru Timer, Holding Cabinets
Program Milestones*














Financing secured for two separate programs
Review financing program with operators
Financing program approved by Concept & UFPC Boards
Pre-qualification process
Complete cabinet & timer negotiations
Mail financing & equipment order packets
Launch on line equipment reservation system
AIP/supplier commitment for cabinets
Financing window
MERIT supplier summit
Complete MERIT negotiations
Cabinet production & installations**
MERIT/Drive Thru Timer production & installations
Financing Fee applied to mashed potatoes & biscuits
Complete
Complete
Complete
Complete
October 14
October 17
October 17
October 17
Oct 17 – Nov 30
October 26
November 4
Mar 2012 – Mar 2013
Mar 2012 – Mar 2015
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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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
Resource Services
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
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
Software download to stores
UFPC ships materials to franchisee office
Restaurants should train, install POP and merchandiser
Now
Oct 31
Nov 7
Nov 14
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV
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Other
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AKFCF Upper Midwest / Great Lakes / Southwest Conference– October11, 2011/ Las Vegas, NV

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