Page 5 - Pancake_Supply_Chain_Co-op_Inc._2016_Annual_Report

Message

Peter DeGast

Board Chairman
pancake supply chain co-op

As the saying goes, there is strength in numbers. And our numbers are a source of strength for
CSCS, your Member-owned Co-op. The CSCS team, led by CEO Mike Leikam, strives to create a competitive advantage
for every Member every day. That advantage is delivered through achieving the lowest possible sustainable prices,
ensuring continuity of supply, and coordinating with IHOP in development and innovation. While our leadership in the
restaurant category translates to strength in numbers, paradoxically the vision of CSCS can only be achieved by treating
every Member as if they aren’t just a number.

We are coming off a year in 2015 dominated by the Avian Influenza which devastated a marketplace that lost over 11%
of its production, or 35 million egg laying hens. The Co-op was truly a source of strength during this unprecedented
event, mitigating our cost increases and avoiding any product shortages. This event bled over into 2016, creating
deflation in the egg markets as they came crashing down during the recovery. Mark Smith, Chief Procurement Officer,
and the rest of the CSCS team took advantage of a generally deflationary environment to deliver a market basket with
costs down 3.2% compared to 2015. This performance was primarily driven through savings in the eggs, beef, and
coffee categories which were offset by increases in pork and general groceries.

Numbers are also a source of strength in unlocking value in the distribution network. The Logistics team, led by Paul
Allegri, created record savings of over $5M last year through the implementation of creative strategies including
distributor freight programs, redistribution, and 3PL. As I mentioned in last year’s letter, strengthening our partnerships
in this area is critical as our distributors face mounting challenges to labor, capacity, industry mandates, and other
input costs. CSCS delivered on this promise in 2016 by developing a real-time price variance tool that sends alerts to
distributors when incorrect prices are being charged. This new approach helps distributors avoid sizeable settlements on
a periodic basis that were a financial strain on their businesses.

The Brand Program team, led my Don Ikemoto, is responsible for managing the supply chain elements of menu changes.
This team had another outstanding year as they were directly involved in nineteen different tests, seven limited time
offers, and two core menu changes. Brand program management performance is based on objective scorecard criteria,
and the team delivered by meeting or exceeding expectations on all seven scorecards. The Brand Program team was
also restructured in 2016 to improve consistency in execution, consolidating the inventory management function in
Kansas City while maintaining a brand liaison presence in Glendale. The Administration team, led by Dustin Pittman,
produced the eighth consecutive clean financial audit, made continued improvements to our technology platform,
expanded the role of data analytics throughout the organization, and maintained a focus on increased efficiency and
internal controls.

Thank you to the other Pancake Co-op Board Members Dan Campbell, Dan Enea, Mark Justice, Darren Rebelez, Bob
Sharp, Joe Scripture, Mohammad Khadar, and Russ Powell for their leadership, governance and counsel required for the
CSCS team to stay focused on results, and for building a healthy and collaborative environment between the Pancake and
Apple Co-op Members. As a Member of the Pancake Co-op, you should be confident in its leadership, strategic direction,
and passion as a source of strength for our restaurants. There’s no question that we are better off by having CSCS focus
on such a critical part of our collective businesses. Congratulations to the CSCS team for a job well done, and thank you
for your continued feedback and commitment to system excellence.

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