Pepsico Foodservice Insights COVID Insights JULY 10, 2020 After Weeks of Confinement and Cocooning, the Country Is GRAPPLING with How to Move Toward a “New Normal”

PepsiCo Foodservice Insights COVID Insights JULY 10, 2020 After weeks of confinement and cocooning, the country is GRAPPLING with how to move toward a “new normal”

Possible return to restricted living if COVID-19 cases spike

HORIZON 0 HORIZON 1 HORIZON 2 HORIZON 3 Prevention & Preparation Confinement & Cocooning Restricted Recovery New Normal

Feb-Mar 2020 Mar-Jun 2020 (est.) Jun-Dec 2020 (est.) 2021+

Rapid shift to fear and Going through stages of Cautiously optimistic and New behaviors form if uncertainty about the seriousness adapting to a new, stressful taking cues from others on finances, desire, and/or of the virus and how to prepare lifestyle and restless for a how to balance our responses opportunity dictate; old for “shelter-in-place” return to normalcy behaviors return otherwise

Varies by market based on COVID-19 impact, government actions and human response

PEPSICO FOODSERVICE INSIGHTS 2 Some states are pulling back on reopening plans as covid-19 cases surge to record levels

U.S. TOPS 3 MILLION CONFIRMED CASES AND CONTINUES 20 STATES HAVE PRESSED PAUSE OR TO REPORT RECORD DAILY CASE COUNTS REVERSED THEIR REOPENINGS

➢ Number of confirmed COVID-19 cases rising by at least 5% in 45 states

Source: NPR Coronavirus Map, NYT Interactive Map PEPSICO FOODSERVICE INSIGHTS 3 Around the country…

…AS CASES CONTINUE TO RISE, …AS FALL 2020 COMES INTO VIEW, …JULY 4TH TRAVEL VARIED STATES ARE RESPONDING SCHOOLS ARE LEFT IN LIMBO July 4th travel busier than expected ➢ Texas ordered re-closure of bars & Schools are lacking a clear consensus of ➢ July 3rd busiest day for road restaurant capacity reduction to 50% what the Fall 2020 school year will look trips so far this year like sparking major debates: ➢ U.S. air travel up 90% vs. last ➢ Restaurants in Miami-Dade County in ➢ Some states have announced re- month, but still down 70% vs. YA ordered to shutter dine-in services openings plans, but vary widely

States’ COVID-19 rates impacted the ➢ Governor of NJ signed executive order ➢ The administration threatens to amount of travel happening mandating face coverings outdoors cut federal funding to schools ➢ States currently seeing surges of that do not open in the fall infections saw travel rates 10% ➢ Arizona orders gyms, bars/nightclubs below national avg. and entertainment venues including ➢ Strong backlash to new policies ➢ States with low or decreasing cinemas & waterparks to reclose affecting International students, Covid-19 cases nearly doubled Harvard & MIT suing Trump rates of travel administration

PEPSICO FOODSERVICE INSIGHTS 4 HOW WILL THESE CHANGES CONTINUE TO IMPACT OUR FOODSERVICE CHANNELS? Today’s Focus:

WORK DINE PLAY TRAVEL

• B&I • Restaurants • Recreation/Gyms • US Travel • Education • Entertainment/ • Airlines Cinema • Hotels • Stadiums

PEPSICO FOODSERVICE INSIGHTS 5 Let’s take a look at Workplace & Education

WORK LIVE PLAY TRAVEL

• B&I • Education

PEPSICO FOODSERVICE INSIGHTS 6 WORK Of those who can work from home, most As consumers get more used to WFH, report being MORE effective some say ‘pros’ outweigh ‘cons’ 32% 1IN 5 CONSUMERS ARE WORKING MORE SINCE COVID-19 STARTED 44%

“Video chats mean we need to work harder to process non-verbal cues like facial expressions, the tone and pitch of the voice, and body 23% language; paying more attention to these consumes a lot of energy... You cannot relax into the conversation naturally.” BBC Interview with Professor Gianpiero Petriglieri Yes, just as effectively Yes, but not as effectively No

Searches for ‘Zoom fatigue’ over time 120

100 80 50% 65% 60

40 of those who can agree they’re

20 work from home, satisfied with their

0 have had a mostly work-life balance positive experience

Source: Kantar US Monitor COVID-19 Survey June 8-14, 2020, Google Trends PEPSICO FOODSERVICE INSIGHTS 7 WORK Offices are starting to reopen…but is it worth it?

AS OF MID-JUNE, ONLY 15% OF CONSUMERS REPORT EMPLOYEES AND EMPLOYERS ARE GETTING MORE THEY’VE GONE BACK TO THE OFFICE COMFORTABLE WITH LONGER-TERM FLEXIBLE SCHEDULES

153 INDEX 67 INDEX ONLY 19% OF CONSUMERS ARE READY TO GO BACK TO GEN X FEMALES THEIR OFFICE IMMEDIATELY AFTER SHELTER-AT-HOME

Blue collar workers have returned with distancing & PPE, white collar offices starting to slowly open. 48% think their employer 76% will allow it or already are Locations that are open must of those employed have working from home practice social distancing, extra potential to work from home hygiene, including: 75% want to work from home at least some of the time • Mask requirements • Temperature checks • Limited occupancy

Source: Kantar US Monitor COVID-19 Survey June 8-14, 2020; Technomic, Inc. Planning Program 2020; PEPSICO FOODSERVICE INSIGHTS 8 Datassential Coronavirus Webinar 6-26 WORK C&U operators are in the midst of planning for a variety of scenarios… Recent announcements While most are planning to be in-person in the fall, some are proposing hybrid models Harvard University • 40% of undergrads on campus each semester • Freshmen will get priority in the fall and seniors in the spring • On campus students will live in single bedrooms • There will be restrictions on access to dining halls and non- 9% residential buildings. Planning for in-person classes • Students will be required to take a COVID-19 test every 3 days 6% • Tuition will not be discounted (despite all classes being taught Considering a range of 6% remotely) scenarios 10% Princeton University Waiting to decide 24% • 50% of undergrads on campus each semester Proposing a hybrid model • First-year students and juniors will be on campus in the fall, May 22 sophomores and seniors return in the spring 10% Planning for online classes • Breaks will be shortened to long weekends and students will 60% leave campus before Thanksgiving, having reading periods 68% and exams online 2% • In addition to regular testing and requirement of masks, social distancing will be the norm, including that “parties will 5% be prohibited” • Tuition will be discounted 10% and most instruction will be remote

July 6 Ivy League schools announced the cancellation of all fall sports.

Source: The Chronicle of Higher Education, Retrieved July 6, 2020 10:06 p.m. EST; Technomic, Inc. Planning PEPSICO FOODSERVICE INSIGHTS 9 Program 2020; Technomic Foodservice Impact Monitor, June 5, 2020 WORK …but long-term headwinds exist for C&U

Students Staying Closer to Home • 49% of the class of 2020 have changed their post-grad plans as a result of COVID-19 • Some state Universities saw spikes in commitments from in-state residents compared to last year • To save on costs, students and families are considering options such as commuting vs living on campus or starting out at a 2-year school International Student Enrollment Expected to be Lower • This week, it was announced that International students attending colleges & universities that will have 100% online learning will not be issued student visas. While active students can remain enrolled, they must return home or transfer to school offering in-person instruction. • Colleges & Universities were already predicting worst-case scenarios when it comes to international student enrollment and retainment, translating to millions of dollars lost for schools. Dining Halls Changing Roles • Greater emphasis will be put on to-go and Grab & Go options, as seating capacity will be reduced to accommodate distancing • Some Colleges & Universities have announced that dining halls will only serve on-campus residents and staff • 80% of students said they would be more likely to get food from an on-campus dining venue that offers digital ordering and payment options

Source: Wakefield Research May 2020 PEPSICO FOODSERVICE INSIGHTS 10 WORK K-12 school re-opening also on uncertain footing

Schools aren’t aligned on their decisions to re-open SOME STATES HAVE REOPENED SUMMER CAMPS ➢ Some schools will limit in-person attendance to a few days/week, others will leave it up to parents to decide Safety measures a potential indicator of what’s to ➢ The CDC will provide more direction on school guidelines yet won’t come in the fall: change them despite Trump claims they’re too tough/expensive ✓ Fewer campers allowed per session and those at camp are split Balancing safety with normalcy & peer interaction into smaller groups they stay with for the session ➢ 1 in 5 teachers say they are unlikely to return to school if their ✓ Social distancing through plexiglass barriers, marked off classrooms reopen personal spaces, assigned seats, and eating meals in shifts OUTLOOKFALL FOR ➢ Engagement in proper activities, access to right resources, & fear of ✓ Hand sanitizer widely available and required upon entry children falling behind academically are top concerns for continuing ✓ Daily temperature checks and health screenings upon drop-off at-home learning in the fall. ✓ Designated pick-up and drop-off spots to minimize the number of people coming in Increased need for access to free or low-cost meals ➢ Parents of students experiencing higher rates of unemployment than ever before ➢ Lunch debt concerns Lunch likely won’t take place in the cafeteria ➢ 69% of K-12 operators plan to have students eat in classroom or at desk only ➢ 37% are considering shortening school days and eliminating the lunch period for the near future NBC News

Source: Technomic, Inc. Planning Program 2020; Education Dive June 2020 Survey of 800 parents of K-12 PEPSICO FOODSERVICE INSIGHTS 11 children, USA Today – Back to School? WORK Overall, consumers have concerns about the safety of Workplace foodservice CONSUMERS FEEL LESS SAFE RETURNING TO …HIGHLIGHTING A TRUST ISSUE WORKPLACE FOODSERVICE… of consumers DO NOT TRUST cafeterias (schools, offices, hospitals) Restaurants with outdoor seating 63% 33% to take the necessary precautions to keep them safe

QSR 61% what would need to happen for you to feel safe dining in again?

✓ Spaced out tables 40% C-Stores 54% ✓ Employees wearing masks 39% ✓ All common areas are visibly wiped down regularly 39% Hospital cafeterias 37% ✓ Restrooms are extremely clean 39% ✓ Employees wearing gloves 38% Workplace cafeterias 36% ✓ Sanitizing products provided to customers 38% ✓ Smaller capacity 36% College & University cafeterias 33% ✓ No self-serve buffets 25%

K-12 school cafeterias 32%

% who feel safe going there after shelter restrictions are lifted Source: Datassential COVID-19 report 27: FINDING OUR WAY 6.26.20 PEPSICO FOODSERVICE INSIGHTS 12 WORK That leaves Workplace foodservice in new territory

GRAB & GO IS A TOP MENU PRIORITY MENU FOCUS FOR REOPENING B&I Grab & Go Healthy Comfort Nearly 9 in 10 will continue meal kits C&U Grab & Go Comfort Healthy K-12 Grab & Go Healthy, Good Supply, Ready-to-Heat Kits Hospitals 1Healthy Grab2 & Go 3Comfort 2/3 will continue to-go family meals

Boston College plans to streamline menus to focus on its most popular menu items, “comfort foods that

intersect with ethnic preferences.” PANDEMIC NEW SOURCES OF REVENUE OF SOURCES NEW PANDEMIC

- 2/3 will continue pantry Aramark opened pop-up convenience stores for healthcare workers across the

country to serve as one-stop shops for POST groceries and other necessities.

Source: Technomic, Inc. Planning Program 2020 PEPSICO FOODSERVICE INSIGHTS 13 WORK IMPLICATIONS

1. As consumers start to return to Work channels for potentially the first time in months, consumers will have a strong need to have safety concerns addressed 2. Operators should consider revisiting the footprint of cafeteria spaces to accommodate for social distancing, desire for grab & go, and growing need for solutions that allow for contactless experiences (i.e., digital order ahead for pick-up and delivery) 3. New product offerings like family meal kits and meals for the next WFH day are potential tactics for revenue

PEPSICO FOODSERVICE INSIGHTS 14 Getting deeper into restaurants…

DINE

• Restaurants

PEPSICO FOODSERVICE INSIGHTS 15 DINE Consumers desire to support local businesses, especially restaurants during the time of COVID-19

YOUNGER CONSUMERS PLACE MORE TRUST IN THEIR …AND ALL CONSUMERS WANT HELP THEIR COMMUNITIES LOCAL ESTABLISHMENTS…1 THROUGH LOCAL RESTAURANTS 2

of consumers say they try to buy from 62% of consumers 66% local companies when possible Feel “Eating at restaurants allows me to do my part in helping my community”

54% of consumers Feel “Eating at restaurants makes me feel connected to the community again”

31% of consumers Say “Seeing my local community support local restaurants” is one of the most positive food-related outcomes of COVID-19 48% 60% 51% 42% 48% 53% 57% 41% Independent restaurants are more I trust independent restaurants more 15% of consumers transparent than chain restaurants than chain restaurants Say “Knowing I support employees in my community” encourages them to visit/order food from restaurants3 Total Gen Z Millennials Gen X & Older

Source: Mintel – 1The Impact of COVID-19 on Foodservice; 2Datassential COVID 19 Report “Resilience” 6/19/20 3 Technomic Ignite consumer brand metrics data PEPSICO FOODSERVICE INSIGHTS 16 DINE Interest in independent restaurants is reflected in a recent uptick in traffic share but some barriers exist

INDEPENDENT RESTAURANTS ARE SEEING AN INCREASE IN …BUT LACK OF ACCESS CAN KEEP CONSUMERS FROM ENGAGING2 RESTAURANT TRAFFIC SHARE SINCE THE BEGINNING OF COVID…1 What issues have you had with ordering from independent restaurants during shelter-in-place restrictions?

Share of Restaurant Traffic Don't offer delivery 19% Independent restaurants in my area have 33% 17% closed Unsure of safety/sanitation practices in 14% place 25% June 8 Their hours have been cut 14% Not sure if they offer delivery 13%

Difficulty finding if they are open 12% March 25 Worried about a crowded pick-up area 11% Worried they aren't taking safety 10% 67% precautions 75% Couldn't reach them on the phone 9% They don't have a website / not on social 30% of consumers 9% media have no barriers to ordering from They have a reduced menu 9% independents

Chains Independents Can't get delivery via 3rd Party 8%

Source: 1 Datassential Coronavirus Traffic Brief 6/8/20 ; Datassential – One Table Consumer Report PEPSICO FOODSERVICE INSIGHTS 17 DINE Restaurant operators face many re-opening challenges

SPACE & OPERATIONS LABOR ISSUES SUPPLY CHAIN SHIFTING OPENINGS

• Physical changes like: • Labor pool widened but • Restaurants must stabilize • Initial closures caused Re-spacing seating, challenges remain in supply chain in the short restaurants to pivot quickly plexiglass barriers, finding skilled, long- term, look to reorganize to off-premise-only contactless fixtures, air term labor operations & supply operations purifiers, removed chain to match new • Retraining employees • Re-opening starting with tabletop items…much realities with new processes and outdoor dining, required more training new COVID- • Supply issues persist as further adaption • New processes: related positions distributors recover from reservations-only, virtual the drop in Foodservice • Re-closures now looming • Creation of a new work demand & food supply may require restaurants to queues, ordering process culture post-COVID-19 changes, digital menus, disruptions continue pivot operations again etc.

PEPSICO FOODSERVICE INSIGHTS 18 DINE What does dine-in actually look like in re-opened states? As the country began to peel back stay-at-home orders and restrictions, operators excitedly reopened their doors to welcome back guests. What did guests find in their return?

Seating Blocked Off Social Distancing Signs Masks on Team Members Paper Menus & Guests

Reservations required Fewer Customers Limits on Party Sizes No Indoor Waiting Areas Contactless Payment

Individually Packaged Silverware Noticeable Cleaning & Hygiene No Salt & Pepper, Nothing on Tabletops

“While everything looked the same at the surface, there were precautions and reminders everywhere that we're still in the middle of a pandemic.”

Source: Business Insider PEPSICO FOODSERVICE INSIGHTS 19 DINE Restaurants are implementing & optimizing outdoor dining

Outdoor dining has been the first step in Good Not-So-Good reopening around the country. Many operators did not have an existing Examples of outdoor dining done Issues arise when outdoor dining leads to or large enough outdoor dining space, properly include safety measures for crowding/no distancing or mask-wearing; causing restaurants to create in- social distancing & crowd reduction and There are questions surrounding who regulation spaces & operationalize very mask-wearing polices guidelines & varies by location quickly, maximizing the space for revenue & guest comfort Boston, MA Columbus, OH There are many forms based on restaurant locations and layouts: • Existing Patio Seating • Sidewalk/Parking Lot Seating • Open Streets Seating (closed off street areas) • Pedestrian Plaza Seating (urban areas)

PEPSICO FOODSERVICE INSIGHTS 20 DINE In Recovery, operators will balance simplified menus & innovation OPERATOR CONSIDERATIONS • Restaurants are currently implementing streamlined menus for PERCENT OF OPERATORS REDUCING THE ops efficiency & service speed, reduced costs/complexity NUMBER OF MENU ITEMS1 • In Mar/Apr, Technomic reported fewer product LTOs than normal due to fewer resources for product innovation; Most LTO’s were value-based2 • Value LTO’s, Family Meals, and Comfort Food will continue into Not Already recovery as restaurants try to entice consumers back considering implemented implementing 23% • But innovation pipelines remain important, as trends re- 3 30% emerge post-COVID and consumers seek variety

Menu Impacts Across the Stages4

Will implement Confinement Initial Recovery Recovery New Normal Considering 23% implementing Menu Actions Menu Menu Menu Menu 25% Rationalization Revitalization Optimization Reinvention What’s Menus shrink, Craveable, Low-cost, high- More advanced Happening with items value-driven profit-margin culinary tailored to off- items prevail items that drive innovation premise check averages

Sources: 1 Technomic Foodservice Impact Monitor w/e 5/8/20 2Technomic Talks Menu Solutions Jun 20 ;3Datassential One Table Operators; 4Technomic Menu Solutions Jun 20 PEPSICO FOODSERVICE INSIGHTS 21 DINE Guests will accept short term menu changes, but still want variety from restaurants

Many consumers are empathetic to current operator BUT… Not all consumers feel this way, as some note challenges and will accept some change in the short they would be upset with reduced menu sizes term AND… Consumers will desire variety as we move back into the New Normal

What would you think if your favorite restaurant did any of the It would be upsetting to visit a restaurant to then find out following during this period of shelter-in-place restrictions? that their menu has reduced in size2 immediately after?1 Overall 41% ACCEPTABLE 18-24 40% Adds many new menu items 84% 25-34 47% Shortens menu to only most popular items 69% Reduces options / flexibility for 35-44 51% 63% customization 45-54 42% Increases menu prices slightly 52% 55-64 35% Offers / sells lower quality alcohol 49% 65 and over 34%

Sources: 1Datassential One Table Consumer Report; 2Technomic Foodservice Impact Monitor w/e 6/5/20 PEPSICO FOODSERVICE INSIGHTS 22 DINE Catering is shifting to smaller events with individual items

FROM: LARGE GATHERINGS TO: FAMILY/INTIMATE GATHERINGS

• A majority of catering programs saw significant decreases during COVID-19 due to the cancellation of large group events and workplace shutdowns • Focus is now on new customers (e.g. families, essential businesses) with a higher number of deliveries with smaller event sizes and lower ticket averages • Shift from sandwich platters, family-size salads, shared party trays to individually wrapped sandwiches, boxed lunches, individually portioned entrees/sides/dessert to prevent contact and potential contamination at group gatherings; Strong opportunity to provide individual-size chips as a side for this occasion as they travel & pair well. • These shifts require operations & logistics changes, as well as incremental costs such as labor, packaging, and delivery that must be considered • Potential Future State – Catering “virtual events” is an idea being explored by Panera Bread; creating a singular, private menu that participants can order from at any Panera around the country and have that product delivered at a specific time

Source: NRN.com PEPSICO FOODSERVICE INSIGHTS 23 DINE The growth in the delivery space is leading to change for both restaurants & 3rd Party Delivery

NOTABLE MERGERS/AQUISITIONS DELIVERY ONLY/GHOST KITCHENS Speculation on long term impact GrubHub to merge with European Brinker launched national delivery- of delivery consolidation - food delivery company Just Eat only chain “It’s Just Wings,” Commission fees a big question. Takeaway in $7.3B deal delivers through DoorDash; Orders Potential for more choices for

fulfilled via Chili’s & Maggiano’s consumers, more work for IMPLICATIONS DELIVERY NEWS DELIVERY kitchens delivery drivers. Consumer loyalty to one app/company WingStop opened 1st US Ghost may increase. Uber to buy Postmates for Kitchen in Dallas, TX; future goal

DELIVERY CONSOLIDATION DELIVERY $2.65B, combining US networks of digitizing 100% of transactions Delivery-Only businesses will of restaurants & delivery people; continue to grow near term as separate apps will remain active restaurants fight for survival; REGULATION Offers flexibility for new & NYC, LA, Portland join list of large established brands to bring in US cities capping 3rd party revenue at a crucial time. delivery fees to help restaurants

PEPSICO FOODSERVICE INSIGHTS 24 DINE Opportunity in the future of alcohol to-go Many states relaxed liquor laws as a temporary COVID-19 relief measure, allowing restaurants & bars to sell alcohol to-go, increasing off-premise revenue in recovery & beyond while consumers safely enjoy their alcoholic beverages at home. Now, some are making the changes permanent.

A FIGHT A’ BREWIN’

% OF OPERATORS WHO EXPECT TO CONTINUE IOWA governor signed a bill into law permanently allowing cocktails to go OFFERING THE FOLLOWING ADULT BEVERAGES FOR OFF-PREMISE AFTER BUSINESS RETURNS on menus, MICHIGAN extended through 2025. TO NORMAL2 States currently considering making temporary cocktails to-go policies Packaged beer 51%

permanent: FLORIDA, OHIO, OKLAHOMA, TEXAS, DC Bottles of wine 41%

BUT… There is potential legislation opposition from alcohol retailers, as Bottled spirits 27% Cocktail kits/premixed well as groups concerned with upholding alcohol safe-serving policies. 24% cocktails Packaged hard seltzer or 63% Consumers who ordered 20% OPPORTUNITY: Retention of the new adopters of alcoholic beverages cider alcohol to-go is an opportunity area for restaurants (if 13% from a restaurant for Growler fills/refills 13% permanent). And early indicators show it is incremental to pick-up / delivery I do not plan to continue off-premise beverage sales. Innovation and menu planning 14% Tried for the first time offering any of the above for this offering could be a differentiator. Will continue post-COVID (among 1st time triers) Sources: 1Datassential COVID-19 Report 19 5/20; 2Technomic Foodservice Impact Monitor w/e 5/8/20, 488 operators/157 operators offering adult beverage for takeout or delivery PEPSICO FOODSERVICE INSIGHTS 25 DINE POST-COVID, CONSUMERS WANT TO RETURN TO SELF-SERVE AT C-STORES

CONSUMERS ARE MORE INCLINED TO RETURN TO SELF-SERVE BEVERAGE OPTIONS, BUT OPERATORS WILL STILL NEED TO REASSURE & DRAW THEM IN

% likely to return to self-serve After closing them in March, Wawa Self-dispensed coffee 75% 25% has reopened self-serve areas in 60

Self-dispensed soft drinks 75% 25% locations with added safety measures including tissue paper to Self-dispensed frozen drinks 74% 26% cover handles & wrapped stirrers.

Self-serve fresh bakery case items 73% 27%

Self-serve roller grill items 72% 28% As a welcome back to customers, Condiments bar for food 69% 31% 7-Eleven is offering seven free any size hot coffee and/or any size Condiments bar for beverages 66% 34% fountain drinks for 7Rewards loyalty members per day via the 7-Eleven Soup/chili 66% 34% mobile app. Likely Neutral or unlikely

Source: Technomic C-store Monitor Q2 2020 PEPSICO FOODSERVICE INSIGHTS 26 DINE TECH ENABLED SOLUTIONS ALLOW OPERATORS TO STAY ENGAGED WITH THEIR CONSUMERS

Country Garden – Domino’s – Chipotle Mexican Grill – Robot Restaurant Wedding Registry Virtual Farmer’s Market • Country Garden, a developer in • Domino’s has unveiled the “Domino’s • Chipotle has created an online China has opened up a restaurant Rain Check Registry” targeting platform connecting farm suppliers completely operated by robots, couples who have had to postpone directly to consumers. eliminating most human-to-human their weddings due to COVID-19. • The platform allows consumers to buy contact. • Friends & family can send gift card items directly from farmers, and was • The space is 20,000+ sq. ft., can packages to couples who register on created with the intention of handle 600 diners at once, and has the website. generating a new revenue stream for 200 menu items available within 20 farmers amid COVID-19. secs of ordering.

PEPSICO FOODSERVICE INSIGHTS 27 DINE INNOVATION IS BACK ON THE MENU

Capital Grille – Blaze Pizza – Curry Up Now – The Capital Butcher Mango White Claw Pizza Tandoori Fried Chicken Sandwich • The Capital Grille introduced “The • Blaze Pizza introduced a new menu • Curry Up Now is hopping on the Capital Butcher,” offering consumers a innovation, the Mango White Claw chicken sandwich bandwagon, launching way to enjoy their signature steaks at Pizza which was available for one the Tandoori Fried Chicken Sandwich home. day only. • This permanent menu addition features • Consumers can choose from 4 Steak • Blaze Pizza’s executive chef infused a crisp-fried tandoori-marinated Grille Boxes which include 4 steaks cut the crust of the pizza using Mango chicken topped with Bombay-dust aioli, daily by the in-house butcher and White Claws to replace filtered pickled onions and a chutney made with include a Signature Steak Sauce. water in the dough. curry leaves, pineapple and jalapeno on a brioche bun.

PEPSICO FOODSERVICE INSIGHTS 28 DINE DINE IMPLICATIONS

1. Especially in Independent Restaurants, evaluate any guest pain points and remove barriers to visitation as much as possible to capitalize on positive consumer sentiment. 2. Take care if/when simplifying menus to ensure retention of key guest-satisfying and value-focused items, while filling the innovation pipeline for the New Normal. 3. Focus on off-premise beverage menus, with a mix of non-alcoholic beverage and alcohol to-go (where legal) to maximize revenue opportunities.

PEPSICO FOODSERVICE INSIGHTS 29 PepsiCo Foodservice Insights

We are in a time of unprecedented change and disruption as a result of the COVID-19 pandemic. While there are more questions than answers right now, we are committed to delivering best-in-class insights and perspectives that will provide a more informed approach as we jointly build plans that can succeed on the other side of this challenge.

Due to the dynamic nature of the situation, this document will evolve as new information refines our hypotheses.

Special thanks for this edition go to Nina Guest, Ashley Dodge, and Amy Edler. PepsiCo Foodservice Insights COVID-19 INSIGHTS

JULY 24, 2020 After weeks of confinement and cocooning, the country is GRAPPLING with how to move toward a “new normal”

Possible return to restricted living if COVID-19 cases spike

HORIZON 0 HORIZON 1 HORIZON 2 HORIZON 3 Prevention & Preparation Confinement & Cocooning Restricted Recovery New Normal

Feb-Mar 2020 Mar-Jun 2020 (est.) Jun-Dec 2020 (est.) 2021+

Varies by market based on COVID-19 impact, government actions and human response

PEPSICO FOODSERVICE INSIGHTS 2 Latest COVID News

21 STATES HAVE PRESSED PAUSE OR MASK USAGE VARIES WIDELY STATE BY STATE AS THE REVERSED THEIR REOPENINGS AS NEW HOTSPOTS SPIKE DEBATE CONTINUES TO POLARIZE THE COUNTRY

3 Source: USAToday Map: Updated July 9, 2020, NYTimes Map: Updated July 17,2020 PEPSICO FOODSERVICE INSIGHTS 3 What’s Happening Across Channels?

WORK DINE PLAY TRAVEL

• The ban on international • According to Yelp, 55% of • MLB resumed play on July 23rd. • Airlines tightening up mask student visas was reversed. restaurants previously marked policies, guests risk lifetime ban “temporarily closed” have now • Blockbuster movie Tenet delayed for violations • More large school districts like permanently shut their doors. for the 3rd time, new release LA, Houston, Phoenix announce date yet to be announced. • Southwest & American – mask remote learning plans for Fall • Traffic in June saw a +16% required over age 2, no medical exceptions 2020. swing compared to May, QSR • AMC, Regal Cinemas & reporting positive traffic • 88% of states measured are Cinemark have all pushed • United & Delta – added mask figures for 2nd straight month indexing < 50 on office back nationwide re-opening requirement throughout complete space foot traffic. of theatres. airport journey (check-in, lounges, etc.) to board flights.

Source: PlaceIQ, Black Box Intelligence – June 2020 Supplier Report PEPSICO FOODSERVICE INSIGHTS 4 Pre-COVID-19, Gen-Z was driving the largest source of FS spend growth

5-Yr Foodservice $ Spend CAGR ‘14-’19* GEN Z REASONS TO BELIEVE

Gen Z +6.8% Most reliant on foodservice for all meals except lunch Millennial +4.8% 80% Gen X +0.9% say they typically decide which restaurant to order from

Boomers -1.5% 68% Matures -9.1% say eating out at restaurants is one of the top activities they enjoy with friends – highest of generations (110 Index)

Source: NPD/CREST, Technomic 2020 Generational Consumer Trend Report PEPSICO FOODSERVICE INSIGHTS 5 *Commercial Restaurant only PepsiCo Foodservice Insights MeetPepsiCo FoodserviceGen Z Insights

6 The Generations At A Glance Key Differences Among The Five Major Generations

Birth Years ~1997-2010 ~1979-1996 ~1965-1978 ~1946-1964 ~Before 1945 The Greatest Also Known As Zoomers Gen Y MTV Generation “Me” Generation Generation You Only Live You’re On Your Words To Live By You Do You Forever Young The American Way Once Own Docile Stereotyped As Distracted Techies Entitled Whiners Cynical Slackers Selfish Narcissists Traditionalists The Meaning Of The Middle-Class In Pursuit Of A Purposeful Life An Interesting Life A Balanced Life Life Life Consumption Style Creation Curation Compromise Choice Conformity

PEPSICO FOODSERVICE INSIGHTS 7 Gen Z – A Snap Shot

There are Making up They are They account for

8% 1% Non-Hispanic White an estimated 58.9 Million 18% African American 22% Gen Zers in the U.S. of the U.S. Population Hispanic $198 Billion Asian American in consumer spending 14% Aged ~10 – 22 55% Other Millennials - $4.64 TRILLION Nearly a majority-minority Generation X $5.11- TRILLION generation Baby Boomers - $5.03 TRILLION

Source: Kantar Futures, The Download On Generations 2020 PEPSICO FOODSERVICE INSIGHTS 8 Gen Zs upbringing centers autonomy

Millennials’ parents were likely to shield them from the harsh Generations of GenZ Parents* realities of the world – as parents they don’t want their kids to feel unprepared for the “real world” 15% Gen X grew up as independent “latch-key” kids and are keen on BOOMERS/OTHER 41% passing down resilience and grit to their kids MILLENNIALS Gen Z - When I mess up, my parents…

44% 58% 21% 20% Tell me to try harder Tell me it’s not Fix it XERS Tell me it’s not next time my fault for me

9 Source: Kantar USM – Youth Outlook 2020 PEPSICO FOODSERVICE INSIGHTS 9 Gen Z came of age amid some of the fastest social change in American history...

PEPSICO FOODSERVICE INSIGHTS 10 Gen Z does not remember a time before instant global connectivity - and learned early not to blindly trust the Internet.

Platforms Used By Gen Z To Stay Connected During The Pandemic

11 Source: eMarketer “How COVID-19 is Changing Gen Z’s Worldview June 22, 2020 PEPSICO FOODSERVICE INSIGHTS 11 Gen Z's defining attributes:

It is important for me to try new I feel in control of my financial 81% things I have never done before, 71% future of Gen Z Agree even if the outcome is unsuccessful of Gen Z Agree

Self Aware Resilient Woke Pragmatic Tech Savvy Identity is Fluid Unpredictability is a The Future Is My Know-How is a click Digital Natives With Their Inclusivity a Must fact of life Responsibility away Own Codes Of Communication

Source: Kantar Futures, Gen Z: Infographic Jan 2020 PEPSICO FOODSERVICE INSIGHTS 12 The 2008 recession delayed Millennials journey to “adulting” but the pandemic presents an even bigger developmental block for Gen Z

MILESTONES AND RITES OF PASSAGE GEN Z IS MISSING OUT ON:

Cultural / Social Freshman Experience Entering the Workforce Rebellion

Prom / Senior Year Campus Life Dating / Co-Habitation

Sports / Extra Curriculars Turning 21 / Nightlife Financial Independence

Graduation Travel / Study Abroad Independent Living

PEPSICO FOODSERVICE INSIGHTS 13 “I think my generation are incredibly loud and demand change constantly. We’ve got a lot of problems (that we didn’t start) to deal with — climate change, gun control, police brutality, etc. [..] I think change will happen with us.” — 17-year-old, Illinois

“We have the tools and language to understand identity in ways our parents never really thought about.” — 23-year-old, Albuquerque

14 Source: medium.com/dosomethingstrategic / NYT Gen Z in their words PEPSICO FOODSERVICE INSIGHTS 14 OPERATORS’ CHALLENGE

1. With fewer opportunities and less financial stability, Gen Z is especially value conscious. Does your value strategy align with their fiscally responsible outlook? PepsiCo Foodservice Insights 2. Gen Z know what their data is worth and are willing to exchange it for tangible returns. Do your digital touchpoints reward them with personalized experiences?

3. Gen Z is missing out on some of the most formative experiences of their life. Can operators help recreate or introduce new rites and rituals?

15 PepsiCoPepsiCo Foodservice Foodservice Insights Insights Gen Z In The Time Of COVID

16 There has been a dramatic shift in how Gen Z spend their time, from a daily presence in Foodservice to in-home video games and Netflix

Weekdays Pre-COVID Weekdays Post-COVID Weekends Pre-COVID Weekends Post-COVID

“I went to public places like “Nothing much, stay home “My weekdays consisted “I stay inside playing video and play video games.” of going to school” games” restaurants & entertainment

such as the mall or parks”

HIGHSCHOOL HIGHSCHOOL

“I stay at home and find ways to “Going to a restaurant or “I pretty much just stay home “School, work and party” keep myself busy, such as Netflix, bar for date nights and now and watch Netflix on the

chores, painting, etc.” hanging out” weekends.”

COLLEGE COLLEGE

“Workout in morning (no gym), “I wake up later, do some yoga by “Gym in morning, study during “Work 8-5 then came home study during the day, get takeout myself at home, watch tv, cook the day…go out to dinner w/ & cooked dinner. or make food at home for dinner”

Then did school work.” dinner, and go to bed.” friends/ family”

GRADSCHOOL GRADSCHOOL

PEPSICO FOODSERVICE INSIGHTS 17 In the fall, most will return to their same school, but colleges will need to close a significant trust gap

➢ NERVOUS: WHERE WILL YOU BE GOING TO SCHOOL? “I don’t trust the school or my peers when it comes to COVID”; “I'm sad I'm worried my plans are derailed. I'm also terrified of ➢ 83% are going to the same getting sick”. school, full time 83% ➢ UNSURE: ➢ 12% postponing or going to “I think school this year will be more difficult - harder to pay different school due to COVID attention with everything going on. I am excited to go back but nervous about how it will affect my education.”

HOW WILL YOU GO TO SCHOOL? ➢ DISSAPOINTED: “It will be very strict with rule and regulations. All school events 21% A mix of online and in-person are canceled so it won’t be much fun. Paying full tuition when things are like this feels like a bad deal” 5% 43% Entirely online Entirely in-person A very small number are EAGER/EXCITED to be going back I don’t know yet 30% to campus

PEPSICO FOODSERVICE INSIGHTS 18 Pre-COVID, Gen Zs were happy and optimistic, focused on mental health, education & finance

HOW WERE YOU FEELING 6 MO. AGO PRE-COVID BIGGEST CONCERN:

35% My mental health 30% 49% Education 25% 44%

20% Finances 41%

15% Family’s health 39%

10% My physical health 30%

HAPPY

CALM OPTIMISTIC

SOCIAL Job security 23%

5% ANXIOUS HOPEFUL

OVERWHELMED Friends’ health 18% 0% I had no concerns 9% Other (Please specify): 2%

PEPSICO FOODSERVICE INSIGHTS 19 Since COVID, Gen Z are feeling anxious, exhausted, and bored, with high concerns about their health and the health of loved ones

HOW ARE YOU FEELING NOW CURRENT BIGGEST CONCERN:

45% Family’s health 64% Up 25% 40% My mental health Up 7% 35% 56% 30% My physical health 47% Up 17% 25% Up 22% 20% Friends’ health 40% 15% Finances 37%

10% ANXIOUS

BORED Education 31%

5% EXHAUSTED

HOPEFUL

LONELY AGITATED

OVERWHELMED 21% 0% Job security I had no concerns 8% Other (Please specify): 2%

Foster the perception of a safe and comfortable environment for them and their loved ones is particularly important for Gen Zs.

PEPSICO FOODSERVICE INSIGHTS 20 Foodservice can help Gen Zs and draw back traffic by offering small moments of joy

WHAT GIVES/ WOULD GIVE YOU A MOMENT OF JOY DURING THIS TIME…

Time outside with family & friends 69% Food from your favorite restaurant 59% Watching Netflix 56% Time at home with family & friends 50% Eating AT your favorite restaurant 48% Traveling within the US 45% Playing video games 45% Receiving a gift certificate for a meal at your… 43% Opportunity for easily favorite restaurant gifting a meal Gifting a gift certificate for a restaurant meal to… 25% a friend Watching live sports on TV 22% Other 18% These are just some examples, an opportunity for operators to get creative PEPSICO FOODSERVICE INSIGHTS 21 Beverages can also provide moments of joy by focusing on Gen Z’s new needs

BEVERAGE OCCASIONS & NEEDS BEVERAGE CATEGORIES OVERINDEXING WITH WHERE GEN Zs OVERINDEX GEN Zs (Q2 2020, index to Gen Pop)

OCCASIONS: ➢ During COVID, ‘WITH SNACK’ occasions grew in relevance with Gen Zs (130 index to gen pop) ENHANCED/ FLAVORED ENERGY RTD COFFEE SPORTS DRINKS WATER 132 NEEDS: 152 122 168 ➢ “QUENCHES THIRST”, “REPLENISH MYSELF” & “ENHANCES MY FOOD” remain Gen Z’s top beverage needs, similar to older cohorts. KOMBUCHA ➢ With less SOCIAL& ON THE GO needs, JUICE/ JUICE DRINKS LEMONADE SMOOTHIES 302 245 some focus shifted to emotional ones: 138 127 “TO STAND OUT”, “TO LET LOOSE”, “TO Gen Zs continue to consume Regular Cola & Flavored PUT ME IN A BETTER MOOD” CSDs but the categories have lost ground during COVID

PEPSICO FOODSERVICE INSIGHTS 22 There are a number of communication territories that resonate particularly with Gen Z …

COMMUNICATION PLATFORMS OVER-INDEXING WITH GEN Zs*

“JOY IN THE ORDINARY: More than looking forward to buying things, I can't of US general Index among wait to be in a store or restaurant, take in the place, the music, people watch”,… 44% population 126 STUDENTS

“MAKE UP FOR LOST TIME: I plan on celebrating some of the occasions we of US general INDEX among missed, like birthdays, Mother's Day, St Patrick's (if bars have a do-over), etc.” 1/3 population 126 GEN Zs

“ALL MY FAVORITE THINGS: I cannot wait to return to some of my favorites: Of general INDEX among my favorite restaurant or bar, my favorite place to connect with friends,... places 1/2 population GEN Zs that are 'mine' and where I feel like home.” 120

Of GEN Z say “SET ME FREE: I can't wait to be able to feel free again, unrestricted, free to Of general FREEDOM has population been the hardest be me” 43% 45% to give up

PEPSICO FOODSERVICE INSIGHTS 23 OPERATORS’ CHALLENGE

➢ COVID has turned Gen Z’s mood from optimistic to anxious, unsure of their hopes for a good future. How can Foodservice bring them moments of PepsiCo Foodservice Insightsjoy & help them rediscover their optimism? ➢ Gen Z don’t trust their College and classmates for a safe COVID-free environment. Colleges will need to amplify safety cues, and strictly enforce rules on campus. ➢ Gen Z’s needs differ as do their reception of brand communications. Ensure targeted communication & portfolio highlights. 24 PepsiCo Foodservice Insights Gen Z And Foodservice

PEPSICO FOODSERVICE INSIGHTS 25 What was important to Gen Z pre COVID-19 is now a must have for everyone else Their expectations of foodservice have only been amplified as a result of COVID-19

AUTHENTICITY CONVENIENCE SUSTAINABILITY Ingredients & transparency Off-premise solutions & Companies solving the digital problems they’re perpetuating

PEPSICO FOODSERVICE INSIGHTS 26 AUTHENTICITY

FROM: FLEXIBLE DIETS TO: ADDED FOCUS ON TRANSPARENCY

Gen Zers aren’t necessarily looking for completely “healthy” What’s Healthy to Gen Z Most important attributes: options, but are looking for information on ingredients & ✓Does not sacrifice sweet ✓Clean sourcing. Craveability is ultimately still a major driver. ✓Dairy substitutes ✓Made from scratch ✓Functional ✓Natural ✓Local Of Gen Z strongly agrees that they’re 54% more likely to visit a 81% 66% restaurant that is transparent about what is in their menu items Of Gen Z say craveable Of Gen Z find fruity a driver flavors appealing

Source: Technomic 2019 “How the We Generation Will Force Foodservice to Evolve”; Technomic 2020 Generations Consumer Trend Report PEPSICO FOODSERVICE INSIGHTS 27 CONVENIENCE

FROM: SETTING THE NEW STANDARD FOR DIGITAL TO: LEADING THE CHARGE & RE-SETTING THE BAR

INFLUENCES ON WHERE TO DINE 51% of Gen Z got restaurant food for delivery ✓Free Wi-Fi (134 Index) ✓Mobile ordering ✓Mobile payment options DIGITAL AMENITIES THEY’RE INTERESTED IN 45% of Gen Z got groceries for delivery ✓Track order progress online (150 Index) ✓Online ordering via mobile ✓Online ordering via computer ✓Order at kiosk 42% of Gen Z say they’ll continue using ✓A system that registers favorites for easy ordering contactless delivery in the future (150 Index)

Gen Z is more likely to prefer self-serve fountain drinks over crew-serve (Index 125)

Source: Technomic 2019 “How the We Generation Will Force Foodservice to Evolve”; Datassential Report 26 | 6.19.2020 PEPSICO FOODSERVICE INSIGHTS 28 SUSTAINABILITY

FROM: HIGH PRIORITY TO: ZEROING IN ON IMPACT & ISSUES

INFLUENCES ON WHERE TO DINE 40% of Gen Zers, would be more likely to visit restaurants that make an effort to be sustainable (Index 133) (i.e. conserving water, reducing plastic waste and reducing their carbon footprint) uses local ingredients Their commitment to sustainability remains, despite concerns of COVID-19’s impact on the sustainability agenda:

uses sustainable foods I feel the same as I did I feel more defeated – I feel more energized – before COVID about Sustainability has taken a Sustainability is more sustainability because… backseat because… important than ever because…

“It hasn't changed my views on “People are worried about being “Being at home makes me feel like I sustainability. COVID hasn't safe, are using plastic to protect have more control over how much recycles/reduces waste brought up any new opportunities themselves from germs even more waste I produce since I am controlling for me to be sustainable.” than before the virus, and it hurts all my purchases & trash.” the environment.”

Source: Technomic 2019 “How the We Generation Will Force Foodservice to Evolve”; Technomic 2020 Generations Consumer Trend Report PEPSICO FOODSERVICE INSIGHTS 29 Favorite restaurants brands reflect these attributes

WHAT MAKES A RESTAURANT YOUR FAVORITE? GEN Z’S FAVORITE RESTAURANTS (RANKED):

Tasty 79%

Affordable 67%

Craveable item(s) 56% QSR GEN Z BRAND SKEW Fills me up 47%

Good variety 37%

Welcoming staff 34% FSR GEN Z BRAND SKEW Has food or beverage(s) nobody else has 22%

Great Loyalty program 16%

Their brand fits my personality 11%

Source: 1Q Survey 7/21/2020, age 13-24; Source: Technomic Ignite consumer brand metrics data, Q2 2019-Q1 2020 PEPSICO FOODSERVICE INSIGHTS 30 OPERATORS’ CHALLENGE

1. Transparency is more important than ever to Gen Z – they’re hungry for information. Are you clearly highlighting the ingredients in the foods & beverages being sold? How are new PepsiCo Foodservice Insightsproducts/LTOs address craveability & health halo? 2. Gen Z had the answers to digital – listen to them going forward. Are you meeting the table-stakes digital needs of Gen Z? What does the next step up look like? Do you have the right solutions to ensure food & beverage quality in off-premise? 3. Sustainability still a priority – don’t take your foot off the gas. How are you both showing and telling your commitment to sustainability?

31 5 MOST IMPORTANT TAKEAWAYS 1. Gen Z has been uniquely impacted by COVID-19 in terms of key milestones. Opportunities exist for operators to create new meaningful and joyful moments

2. Despite setbacks, Gen Z will remain passionate advocates for the issues and causes they care about. They will value brands that acknowledge what they say

3. Coming out of COVID-19, brands can reach Gen Z by leveraging 4 key communication messages: ‘joy in the ordinary,’ ‘making up for lost time,’ ‘all my favorite things,’ and ‘set me free’

4. Foodservice previously provided a ‘third space’ for Gen Z, that they’re now lacking. Reinforcing the safety and hygiene of new dining options will entice Gen Z to come back.

5. All the elements that drew Gen Z to foodservice pre COVID-19 (i.e., tech abilities), are now lifelines to everyone else. Gen Z will be the True North for innovation in this space

PEPSICO FOODSERVICE INSIGHTS 32 PepsiCo Foodservice Insights

Due to the dynamic nature of the situation, this document will evolve as new information refines our hypotheses.

Special thanks for this edition go to Omar Sahi, Raluca Corobana, Ashley Dodge, and Amy Edler. The best!