Page 6 - 2018 Apple Annual Report

The challenges facing foodservice distributors today are unprecedented, and they are impacting the entire restaurant
industry. The national shortage of truck drivers complicated by new transportation regulations and the lack of available
warehouse labor is harming service levels and increasing costs. Available distribution capacity across the industry is tight
as distributors are right-sizing their businesses and being very selective with whom they choose to do business. We need
to do everything we can to continue to foster partnerships with our distributors that are both fair and transparent and that
position us as a customer of choice.

Paul Allegri, Vice President of Logistics, and I are leading the effort to engage differently with our distributors. We are
implementing multiple initiatives to position the system appropriately, and we are working closely with the Apple Co-op
Board of Directors to assess our long-term distribution strategy.

Mark Smith, Chief Procurement Officer, and his team were critical to delivering the $30MM in savings identified through
the new RPM process. In the non-food area, they sourced and supported the implementation of new ToGo packaging and
negotiated other contracts that provided significant value. The team also sourced alternative suppliers for disposable items
produced in China to avoid implications of newly implemented tariffs. This work averted increases of 25% on some items.
The Applebee’s market basket was up 1.2% versus the prior year, primarily based on unfavorable poultry contracts versus
the prior year.

Under the leadership of Chris McNutt, Vice President of Brand Program Management, our Brand Programs team had
a strong year. They managed dozens of product transitions to support RPM, coordinated transitioning the system from
in-restaurant-cut steaks to a supplier-cut steak program, and directed supply for nine campaigns, four new core menus,
twelve neighborhood drink promotions and sixteen tests. Our Brand Programs and Procurement teams also worked
closely with Applebee’s Culinary and Dine Brands Quality Assurance to develop a supply base to support multiple All-You-
Can-Eat promotions. In line with our Driving Change theme, Chris restructured the Brand Programs team to better align
our inventory managers with specific distributors to improve communication and execution. These changes should result
in better inventory coordination with our distributors.

On the administrative front, our Chief Financial Officer, Dustin Pittman, and his team continue to make tremendous strides
executing our technology road map. They are implementing automated supply planning tools that will help us better
manage distributor inventories across the system as well as other capabilities to drive more efficiencies within CSCS. This
work will help us make better and timelier business decisions on your behalf. Under his leadership, we also earned our 9th
clean audit in a row from our third-party auditor, Crowe LLP.

Of our six Core Values, we believe that our Member Focused core value recognizes the uniqueness of CSCS. We again
celebrated this value by conducting Member Maniac Week, a week of team building that included attempting to contact
every Member of the Apple and Pancake Co-ops to find out how we could improve and add greater value to your

continuous

improvement

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