Page 5 - 2019 Apple Supply Chain Co-op, Inc. Annual Report

Mike Leikam

President & CEO, Centralized Supply Chain

Services, LLC

February 16, 2019 marked the 10-year anniversary of the founding
of CSCS. Over the past decade the Co-op has delivered hundreds of
millions of dollars in value to the system, and those results were delivered
through the relationships we have developed across our vast supply
chain. Relationships with our suppliers, distributors, Applebee’s and IHOP,
trade associations, industry experts, academia, and most importantly,
our Member-owners, have been founded on the principles of integrity,
accountability, fairness, and transparency. Results through Relationships
became a fitting theme for the 2019 Apple Supply Chain Co-op annual report.

The Restaurant Profit initiative we launched in 2017 continued to pay dividends in 2019. The
cross-functional team of CSCS and Applebee’s team members delivered $59MM in value or $34.9K per
restaurant. Backed by a governance process that includes a Steering Committee of Applebee’s and CSCS
leadership and franchisees, David Paradise, Jeff Warden and Brad Pettinger, all the work and results were
reviewed to ensure alignment. We have fundamentally changed how CSCS and Applebee’s work together to
drive cost management projects through this approach. Results through Relationships.

The 2019 Applebee’s Market Basket was 2.6% favorable versus full-year 2018. During the same
period, the market, as measured by Producers Price Index modified for the products we buy, was
unfavorable 2.7%. This is a result of effective procurement strategies from Chief Procurement Officer,
Mark Smith’s team, combined with the benefit realized from the Restaurant Profit work. Results through
Relationships.

High operating costs and labor shortages persist in the food service distribution industry. Capacity is
tight. Consolidation continues, highlighted by US Foods acquisition of FSA/SSA, which services most of
the western part of the US for us. Paul Allegri, Vice President of Logistics, and I continued to implement
our multi-point plan to position Applebee’s and IHOP as “Customers of Choice” with distributors. One of
our 2019 WIGs, our Wildly Important Goals, was to formulate a long-term strategy to ensure distribution
solutions at acceptable service levels and economics. We engaged a consultant to understand how
distributors see us as a customer, to learn how our franchisees define a good distributor, and
to recommend near and long-term strategies. We have aligned with the Apple Board on
a distributor partner strategy that will help us achieve these goals. Results through
Relationships.

Our Brand Program Management (“BPM”) team under the direction of Vice
President, Chris McNutt, delivered strong results. They managed dozens of
Restaurant Profit product implementations, bettered processes and tools for
improved information sharing with distributors during promotions, and supported
supply for numerous new product tests.

Cost management isn’t the only way CSCS delivers value to its Members. That was
never more evident than with the BPM team’s support of Applebee’s value disrupter
promotion, $0.25 boneless wings. With only ten days notice prior to the start of the
promotion, the BPM team coordinated production, allocation, and shipment of 2.6MM pounds of boneless
wings across the entire system. This required immediate coordination across numerous supplier, distributor
and freight partners to make it all happen. It was a monumental effort. They demonstrated our ability to be
NIMBLE and deliver against an immediate speed-to-market business need. Results through Relationships.

Chief Financial Officer, Dustin Pittman, and his Administration team delivered our other organizational WIG,
the development of role driven dashboards to speed decision making and the implementation of Microsoft
Results through Teams as a platform for enterprise collaboration. His team also implemented a new enterprise IT network 5
Relationships