Why Retail is a Bright Spot in Food Industry M & A March 21, 2019 Brian Todd President The Food Institute WWW.FOODINSTITUTE.COM MISSION The Food Institute (FI) is the single source for information, analysis and reporting for the food industry ‘from farm to fork’.

FI provides balanced coverage of food trends through multiple channels so that industry professionals worldwide can tap in when and how they choose. Overall Food Industry M & A Slowed In 2018

591 527 503 505

410

316 311

2012 2013 2014 2015 2016 2017 2018 Source: Proprietary data from The Food Institute. Food Processors Account For 30% Of Deals Retailers Make Up 17%!

16%

30% Food Processors 3% Investment Firms & Banks 5% Foodservice & Restaurants Retailers Diversified Firms Wholesalers 17% Others 14%

15%

Proprietary Information: Food Institute LLC, Upper Saddle River, NJ

A Few Of The Findings

• ConAgra acquired Pinnacle Brands • Ferrero acquired Nestles U.S. confections • General Mills and Smuckers invest in pets • Tyson buys lab-grown meat startups

Supermarket M&A Rebounded In ’18…

36 36 36

29 28

22 19

1999 2012 2013 2014 2015 2016 2017

Proprietary Information: Food Institute LLC, Upper Saddle River, NJ

On the Retail Side

UNFI • SUPERVALU

LIDL • Best Markets

Walmart • Flipkart

Spartan Nash • Martins

Proprietary Information: Food Institute LLC, Upper Saddle River, NJ

Available Soon at www.foodinstitute.com

Contact Info

Brian Todd [email protected] www.thefoodpartners.com

Why Retail is a Bright Spot in M&A

PRESENTED BY THE FOOD PARTNERS

March 2019 MERGERS & ACQUISITIONS Retail Landscape • Amazon’s acquisition of Whole Foods was the catalyst for several major competitors radically altering their strategic plans • Amazon and Walmart are like two elephants wrestling and all of the other retailers in the U.S. are the grass • In May 2018, Kroger and Ocado partnered to build 20 fulfilment centers in the U.S. which will materially expand Kroger’s geographic market – improve efficiency – grow online business without any material investment in brick and mortar • In December 2018, Kroger announced it was offering autonomous vehicle grocery delivery in Scottsdale and announced the expansion to Houston in March 2019 • In January 2019, Trader Joe’s ended its home delivery service in Manhattan – “Instead of passing along unsustainable cost increases to our customers, removing delivery will allow us to continue to offer outstanding value” • In March 2019, the Wall Street Journal reported Amazon was expected to launch a new line of brick and mortar grocery stores in major U.S. cities • Ocado’s home delivery business in Great Britain for FY 2018 generated revenues of $1.9 billion – EBITDA was 5.6% of sales

2 MERGERS & ACQUISITIONS Retail Landscape • A number of players focusing on “the last mile” are losing money on every incremental dollar of business – the question will be whether these players can generate sufficient volume in a market to create a profitable business model • Consumer tastes and preferences continue to shift rapidly for what, when and where they buy food • Winn-Dixie CEO’s vision for the company is as a conventional store operator – not a recipe for success • Food retailers in the U.S can be separated into two categories – those that are “relevant” and have momentum and those that are operating “conventional” stores • Majority of supermarket chains in the U.S. are focusing on eliminating non-core stores to make material capital investments in the core business, including technology • In 2018, U.S. retail grocer store count declined by 2.5% - it can be expected that this trend will continue at the same level or increase the next five years

3 MERGERS & ACQUISITIONS Distribution Landscape • The number of grocery wholesalers has declined from 48 in 2003 to 28 in 2019 • During the same time period, 29 grocery distribution centers closed • UNFI’s acquisition of Supervalu is one of the most significant transactions in the grocery distribution space since Fleming’s liquidation in 2003

 Business combination surprised the industry

 Caused a number of other grocery wholesalers to rethink their business model

4 MERGERS & ACQUISITIONS Transactions

Mergers and Acquisitions Portfolio Versus Corporate Transactions

• The number of stores sold annually since 100 90 2010 has fluctuated between 80 70 66 60 approximately 400 and 1,000 (excluding 60 50 46 24 48 50 43 17 44 the Albertson’s, Safeway and Delhaize 38 39 11 40 21 8 13 20 acquisitions in 2013, 2014 and 2015, 30 27 17 20 42 43 39 30 30 27 respectively) 10 19 22 24 0 2010 2011 2012 2013 2014 2015 2016 2017 2018

Portfolio Corporate

Stores Sold Average Stores per Transaction

4,500 4,170 80 70 4,000 70

3,500 60 3,000 50 47 2,500 2,253 2,069 3,400 40 31 2,000 30 877 21 1,500 1,335 25 907 991 20 13 15 1,000 651 19 582 6 18 8 384 10 230 1,192 13 500 918 770 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 Stores Sold Stores Sold Through Large Transactions[1]

- Source: Company reports, news articles, The Food Partners - Includes announced but not yet closed transactions [1] Albertson’s, Safeway and Delhaize acquisitions in 2013, 2014 and 2015, respectively 5 MERGERS & ACQUISITIONS Bankruptcies

Number of Supermarket Bankruptcies by Year Supermarket Bankruptcy Detail

16 No. of State 14 Company Date Filed Stores Filed Status 14 Seasons Kosher Supermarket 9/16/2018 8 NY Emerged 12 Schuette Stores 9/7/2018 2 IL Liquidated Southeastern Grocers 3/27/2018 582 DE Emerged 10 Tops Holding II 2/22/2018 169 NY Emerged 8 7 Marsh Supermarkets Holding 5/11/2017 44 DE Sold 6 Central Grocers 5/2/2017 n/a IL Sold 6 5 Thorne's Markets 1/20/2017 4 OH Closed 4 4 3 3 3 Fairway Group Holdings 5/3/2016 15 NY Emerged Fresh & Easy 10/30/2015 97 DE Liquidated 2 1 1 Haggen 9/9/2015 164 DE Sold The Great Atlantic & Pacific Tea 7/19/2015 297 NY Liquidated 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dahl's Foods 11/10/2014 10 IA Sold Associated Wholesalers 9/9/2014 n/a DE Sold Farmers Foods (Highland Springs and Webb) 6/2/2014 2 VA Closed C&K Market 11/19/2013 60 OR Emerged • The number of supermarket bankruptcies Fresh & Easy Neighborhood Market 9/30/2013 167 DE Sold Midwest Gourmet Foods (Fox & Obel) 9/19/2013 1 IL Unknown has remained steady over the past several Mi Pueblo San Jose 7/22/2013 21 CA Emerged Belle Foods 7/1/2013 57 AL Sold years – although slightly up in 2018 Pro's Ranch Markets 5/29/2013 11 CA Sold Liborio Market 4/13/2012 8 CA Liquidated Michael’s Fresh Market 12/30/2011 7 IL Unknown • Since 2010, 5 companies with over 100 Associated Grocers of Maine 8/26/2011 n/a ME Dismissed Azteca Ranch Market 8/1/2011 n/a CO Liquidated stores have filed for bankruptcy Moo & Oink 8/24/2011 4 IL Liquidated Andronico's Market 8/22/2011 7 CA Sold  A&P, Fresh & Easy, Haggen, Southeastern A.G. Ferrari Foods 3/30/2011 13 CA Sold Rizk-Co-Zann Foods Corporation 3/10/2011 1 PA Dismissed Grocers and Tops The Great Atlantic & Pacific Tea 12/12/2010 336 NY Emerged Empresas Cordero Badillo 11/12/2010 n/a PR Emerged • Average chain size is 18 stores (for Grand Mart International 10/19/2010 6 MD Sold Supermercado del Pueblo 4/1/2010 4 NV Unknown bankruptcies under 100 stores) Star Food International 1/5/2010 3 CA Unknown

- Sources: The Food Partners, Capital IQ, news releases 6 MERGERS & ACQUISITIONS Looking Forward at Retail • Southeastern Grocers may be a repeat of A&P • At least one regional chain is currently for sale • In 2019, we anticipate 300 to 500 stores will be sold • Store closures continue at an accelerated pace • The rise in interest rates has had a minor impact on buyers’ appetite for the “right” stores • EBITDA multiples paid by buyers should remain stable • The consolidation of the retail grocery sector will strengthen the overall health of remaining retail base

7 MERGERS & ACQUISITIONS The Future: Defining a Strategy for Independent Retailers • In specific markets the increase in the minimum wage appears to have resulted in fewer people qualifying for government assistance resulting in a decline in same store sales – where did the sales go • Investing gross margin to maintain or grow top line sales did not prove to be successful strategy for most of 2018 • Price investment in the fourth quarter of 2018 and first quarter of 2019 had a positive impact on same store sales for many independents • Focus on fresh and local products • The difference between undertaking a minor or major store remodel is a balancing act to maximize value and the long-run viability of a store • Five year goal is to be the survivor in every market served

8 MERGERS & ACQUISITIONS Quotes of the Year • In 2019, meal solutions do not come in a box delivered to your house like last year

 They are now delivered by an Uber driver • Why do consumers pay a premium for a meal solution in a box that they can get at the grocery store when they could buy the ingredients and Google how to prepare it in a new and interesting way • We have two kinds of customers, those that shop at our stores and those that shop at our competitors’ stores • In the new world order, every supermarket in this country is a limited assortment store because on line shopping provides an endless aisle • The best quote for 2018 “I have two more sons in the business then I need” “How many sons do you have?” “Two!”

9 Food Institute M&A Webinar

Topic: Retail a Bright Spot in M&A?

Presenter: Karen Martin

March 21, 2019

0 Presenter Biography

KAREN MARTIN

Karen specializes in mergers & acquisitions in the Food, Consumer & Retail sector. For over 25 years, she has focused on mergers and acquisitions and corporate finance for public and private companies. Prior to joining BMO Capital Markets, Karen was with Banc One Capital Markets, Inc. for ten years. For the last 16 years, Karen focused exclusively on the food, consumer & retail sectors. BMO Capital Markets includes nearly 100 M&A professionals globally. Karen leads the firm’s M&A activity in the Food and Food-Retail sectors. Karen has advised on various types of transactions, including outright sales, corporate divestitures, acquisitions, capital raises and take-over defense. Some of the transactions on which Karen advised include the recapitalization of Mastronardi Produce, KeHE Distributor’s acquisitions of both Tree of Life and Nature’s Best, SaveMart Supermarkets’ acquisition of Albertsons Northern California stores, the sale of Wilson Farms for BRS, the sale of Albertsons fuel center business, the sale of Fleischmann’s Vinegar to Green Plains, the acquisition of Glacier Water Company by Primo Waters, the sale of Red Arrow Products to Kerry Group plc, the sale of Associated Brands to Treehouse Foods and the take-over defense and ultimate sale of Vincor Wines. Karen Martin BMO Capital Markets Corp. Managing Director 115 South LaSalle Street Karen has an MBA from the University of Chicago Booth School of Business and Mergers & Acquisitions 35th Floor West a Bachelor of Arts from DePauw University. Chicago, IL 60603

Tel.: (312) 461-3626 Cell: (312) 961-0207 [email protected]

1 THE CHANGING CONVENIENCE STORE INDUSTRY AMZN Q2 official data not The Demise of Retail Captures Headlines… released, projections not in ER

“AMAZON IS TAKING OVER THE WORLD”

(U.S. Prime members in millions) % Growth 101 95 97 90 85 80

63 65 23%

9% 6% 6% 6% 3% 2% 4% JCPenney’s Retail Revolution Has Failed Jun-16 Sep-16 Mar-17 Jun-17 Sep-17 Jun-18 Oct-18 Dec-18 -Wall Street Journal 4-Dec-08 Retail Sales are Weakest in 35 Amazon climbs as beneficiary of Years ‘retail apocalypse’ -Wall Street Journal 4-Dec-08 -Financial Times 10-Apr-17

2008 2018 Walmart to Close 269 Stores as Amazon Hits $1,000,000,000,000 Retailers Struggle in Value -New York Times 15-Jan-16 -New York Times 4-Sep-18

Source: Financial Times, New York Times, Statista, Wall Street Journal 2 THE CHANGING CONVENIENCE STORE INDUSTRY …But the Death of Retail is Greatly Exaggerated…

RETAIL STORE CLOSURES IN 2018 ARE HIGHLY CONCENTRATED(1) RETAIL SQUARE FOOTAGE PER CAPITA(2)

Rite Aid (1,871) US 23.5

Stripes C-Stores (536) Canada 16.8

Toys R Us (527) Australia 11.2

Mattress Firm (274) UK 4.6

Best Buy (257) Japan 4.4

Radio Shack (250) Netherlands 4.1 U.S. has over 6x space The Bon Ton (250) France 3.8 per capita than median Sears/ / Kmart (154) Switzerland 3.6 Signet Jewelers (120) Median 3.6

Ascena Retail (108) Spain 3.4

Charming Charlie (106) China 2.8 Malls built at 4x rate Gymboree (102) Italy 2.8 of population growth since 1975 Payless Shoesource (100) Taiwan 2.4

The Children's Place (100) Thailand 2.3

Orchard Supply (99) German 2.3

Perfumania (97) South Korea 2.2

U.S. retail was poised for pain due to excess capacity regardless of Amazon

1. IHL Group (based on company reports), reflects those planned for 2018 as of Aug-18 3 2. International Council of Shopping Centers’ Country Fact Sheets (2018), represents median of the top 15 countries with greatest per capita retail square footage THE CHANGING CONVENIENCE STORE INDUSTRY The Retail Landscape Is Undergoing a Transformation

HISTORICAL AND PROJECTED POPULATION BY GENERATION POPULATION PERCENTAGE BY RACE AND ETHNICITY 1. Bang for Buck (millions) 2015 2035 2050 1960 2017 2050E

90.0 100% 79.3 80.0 85% 71.4 66.9 69.4 70.0 80% 61.3 58.7 60.0 55.9 61% Quality 48.0 60% 2. 50.0 47% 40.0 40% 29% 30.0 19.0 18% 20.0 20% 11% 13% 13% 6% 9% 10.0 4% 1% -- -- 3. Digital Integration Millennial Gen X Baby Boomer Non-Hispanic Hispanic African American Asian American White GROWTH IN BUYING POWER OF CONSUMERS BETWEEN 2014-2019 WHAT DO MILLENNIALS VALUE?

32.1% 29.2% 1. Bang for Buck USERS WHO HAVE PURCHASED ON A SMARTPHONE(1) 23.4% 48% 2017 1st 42% 2014 Non-Hispanic 2. Quality White

Hispanic African Asian 66% 47% 22% 10% American American Millennials Gen Xers Baby Boomers Seniors 3. Digital Integration (9.7%)

Source: Public sources, Pew Research, Sage Policy Group, street research, U.S. Census Bureau 4 Confirm sources

 E-commerce only in beginning stages of potential encroachment on c-stores sales, as THE CHANGING CONVENIENCE STORE INDUSTRY opposed to hardlines and softlines Digital Integration in Food Retail is Small and Growing  Cigarette volume demand decrease not fully E-COMMERCE PENETRATION BY CATEGORY realized with temporary masks of manufacturer 2013A 2018E price increases and cigarette-specific taxes 46.0%

 2-3% volume decrease over the past 34.1% decade 31.9% 28.0% 28.2%

21.9%  Retailers facing lower effective tax rates, 16.9% where they once paid the highest effective tax 14.8% Beginning Stages of C- 10.8% rate of any industry 1. 5.9% Store E-Commerce 2.9% 1.1%  Companies have experienced one-time  Only in early stages of encroachment as favorable EPS increases and additional opposed to hardlines and softlines Food & Beverage Consumables Clothing & Accessories Sporting Goods Electronic & Appliances Toys & Games employee bonuses

The JOBS Act eCommerce Transformation  TBD 2. - Walmart is quickly building its eCommerce units and expects 40% growth in online in 2019  Retail industry relishing one time EPS - Instacart continues to grow and raised another $600MM in fresh capital in Oct.’18 – valuation expands to $7.6B increases and cash influxes, as they paid the highest effective tax rate of any - Albertsons, Target, Kroger have acquired meal kit and online companies industry before the JOBS Act - During 2018, Amazon Prime members exceeded 100 million – over 45% of American households

Masked Cigarette Volume 3. Decreases  Higher prices driven by taxes and manufacturers hiding 2-3% volume decrease over past decade Philip Morris Shares Suffer… on Industry observers estimate online grocery grows to 20% by 2025 Declining Cigarette Volume -WSJ 25-Apr-18 Source: BMO Economics, BLS, IHL, Moody’s, street research, US Census 5 CHANGING FOOD DISTRIBUTION LANDSCAPE Shift in How Products are Ordered and Received

TRADITIONAL SHOPPING

 Traditional brick and mortar shopping currently accounts for ~97% of food and beverage purchases; expected to reduce to $990 million ~92% in 2023 Food Manufacturer Senior Secured Credit Facilities

Joint Bookrunner December 2016 CLICK AND COLLECT / BOPUS

 6 in 10 online grocery shoppers have used click and collect Mintel GROCERY RETAILING, US - NOVEMBER 2017 12 Distributor  Enjoy freedom (not required to sit at home waiting for delivery) and ability to select their Don’t trust shopper specific products (i.e. produce and meats)

RETAILER DELIVERY

Retailer  Delivery is direction industry is moving Retailer  Last mile delivery proving expensive for retailers particularly for grocers

3RD PARTY DELIVERY

Amazon and other online fulfillment  Economical delivery solution for retailers companies as well as DTC food  Fees can be a deterrent for potential manufacturers are potential disruptors to food shoppers as well as retail; however, if willing and capable to 3rd Party adapt, distributors can play a critical role in helping manufacturers go direct to consumer DIRECT TO CONSUMER (DTC) / ONLINE FULFILLMENT

 Amazon is the dominant disruptor with online fulfillment in 3rd Party the food space – AmazonFresh, Prime, Marketplace  E-commerce has opened up the potential for CPG’s to go DTC eliminating costs but risk upsetting retail partners

Source: Equity research, Mintel 6 Confirm sources

 E-commerce only in beginning stages of potential encroachment on c-stores sales, as THE CHANGING CONVENIENCE STORE INDUSTRY opposed to hardlines and softlines Yet Bricks and Mortar Continue  Cigarette volume demand decrease not fully realized with temporary masks of manufacturer 2017 % OF NET STORE OPENINGS VS. CLOSINGS price increases and cigarette-specific taxes

Decrease Steady Increase  2-3% volume decrease over the past Superstores / WH Clubs 100% decade Convenience Stores 18% 27% 55% Mass Merchandisers 21% 33% 46%  Retailers facing lower effective tax rates, Specialty Softgoods 29% 33% 38% where they once paid the highest effective tax Beginning Stages of C- Specialty Hardgoods 15% 37% 48% rate of any industry 1. Store E-Commerce Drug Stores 21% 43% 36% Food / Grocery 9% 47% 44%  Companies have experienced one-time  Only in early stages of encroachment as Fast Food 9% 49% 42% favorable EPS increases and additional opposed to hardlines and softlines Bar / Restaurants 13% 51% 36% employee bonuses Department Stores 14% 72% 14% 2. The JOBS Act  TBD

 Retail industry relishing one time EPS - Amazon announced a new grocery chain to increases and cash influxes, as they paid be rolled out starting in 2019 with a smaller the highest effective tax rate of any format and strong health & beauty industry before the JOBS Act departments, primarily for urban markets

Masked Cigarette Volume 3. Decreases  Higher prices driven by taxes and manufacturers hiding 2-3% volume decrease over past decade Philip Morris Shares Suffer… on Even Amazon announced a new, small format grocery chain to be rolled out in 2019 Declining Cigarette Volume -WSJ 25-Apr-18 Source: BMO Economics, BLS, IHL, Moody’s, street research, US Census 7 In An Already Tough Food Retail Environment

Cost Pressures Slippery Consumer

- Freight costs are increasing costs all along the supply chain - Snacking trend impacts where and when food is consumed - Minimum wages are increasing across the US with several larger - Buying behavior remains a barbell: premium and discount retailers going to $15/hour - Health/wellness/convenience driving diversification of product - Healthcare coverage and other employment expenses are offering into fresh/prepared foods / foodservice, a potentially increasing faster than general inflation money-losing proposition - Competitive pressures have driven retailers to use new technology to reduce supply chain costs

Competitive Threats Changing Store Footprint

- Aldi’s and Dollar Stores continue to frustrate conventional - New stores are getting smaller (Hyvee, Meijer and others grocers’ pricing strategies have announced smaller formats) - Lidl hasn’t reached their 100 store goal for 2018 (they now - Innovative partnerships – Kohl’s and Aldi’s co-locations have “over 60” stores). In March ‘19, Lidl announces new - Some grocers are using closed stores for eCommerce CEO for US, formerly with Aldi’s in the UK. fulfillment - Good Food Holdings (Bristol Farms, Metropolitan Markets) - While the data is only anecdotal, many independents are sale to Emart, out of South Korea closing marginal stores as they near lease expirations. Some are replacing conventional formats with limited assortment, hardware or even pet-supply stores

8 Is Retail a Bright Spot in M&A?

• There’s excess capacity that needs to come out of the system given the outlook for consumer buying behavior • Consider the death of the shopping mall – food is not immune • Retail locations will be sold – but to whom? Look to other channels with use for traditional grocery footprints (25,000 square feet+) as future buyers of food retail • Smaller formats will increase

• There are ‘future-enabling’ transactions yet to be identified • Management teams have been re-focused • That’s the current M&A conversation

• Companies are starting to realize “it’s just food” • Breaking down silos / barriers because the delivery method is changing • Partnerships, not transactions, are likely in the near-term as the long-term, sustainable game isn’t over; particularly last-mile solutions

• In food retail, M&A changed over the last couple years; not just scale wins anymore • Out of the box thinking like Target – Shipt • Acquisitions that are enabling for the future

The investor market – both public and private – has likes and dislikes

9 FOOD RETAIL DISCUSSION Retail Food Sector Underperforms Overall Market

EV / NEXT TWELVE MONTHS EBITDA

• Relative to the overall market valuation of 11.4x, the broad food retail sector is lower value

• Traditional grocery players Kroger and Ahold ranging 6-7x

• Specialty with Sprouts and Vitamin Cottage is fairing better at 9.5x and 7.3x, respectively

• Casey’s valuation reflective of the growth and margin in c-stores

Source: FactSet; as of 19-Mar-19 10 FOOD RETAIL DISCUSSION Focus on Top Line Growth…

2018A - 2019E SALES GROWTH

Natural andSpecialty Organic Grocers Traditional Grocers Mass Grocers C-Stores

10.0% National Regional 7.1% 7.2% 5.9% 3.9% 3.2% 2.4% 2.6% 1.3%

2018A - 2019E EBITDA GROWTH

8.8% 6.7%

2.9% 2.2% 2.6% 2.1% 0.6% 0.4%

(0.5%)

Source: Capital IQ, FactSet; as of 19-Mar-19 11 FOOD RETAIL DISCUSSION …While Investment for the Future Occurs

2018A / 2019E GROSS MARGIN

Specialty Traditional Grocers Mass Grocers C-Stores

National Regional

33.6% 33.9%

26.6% 27.0% 27.0% 24.3% 24.3% 21.7% 21.6% 21.0% 21.4% 15.1% 15.3% 13.0% 13.0%

n.a. n.a n.a

2018A / 2019E EBITDA MARGIN

6.8% 6.6% 6.8% 6.4% 6.1% 5.8% 5.8% 6.2% 6.0% 6.1% 5.2% 5.0% 4.4% 4.4% 4.2% 4.2% 3.8% 3.8%

Source: Capital IQ, FactSet; as of 19-Mar-19 12 FOOD RETAIL DISCUSSION Relative Valuation is the Market’s View on Winners

EV / EBITDA MULTIPLES

Specialty Traditional Grocers Mass Grocers C-Stores

National Regional EV / 2019E EBITDA 16.3x

15.3x EV / 2020E EBITDA

10.8x 10.6x 10.2x 9.7x 8.9x 9.2x

7.3x 7.1x 6.3x 6.6x 6.5x 6.1x 5.9x 5.8x 5.2x 5.1x

Source: Capital IQ; as of 19-Mar-19 13 SECTOR UPDATE & GELSON'S STANDALONE ANALYSIS Target A / Acquirer A: Earthfare / Oak Hill Target B / Acquirer B: Haggan / Comvest Target C / Acquirer C: Cardenas / KKR Limited, Scaled Retail M&A with Compressed Multiples Target D / Acquirer D: Save-a-Lot / Onex (US$ millions) PRECEDENT TRANSACTIONS & PUBLIC TRADING LEVELS SHOW COMPRESSION IN GROCERY MULTIPLES

Period 2010 - 2013 Period 2014 – 2019 YTD

Selected Specialty / Regional Overall Selected Specialty / Regional Overall Chart showing precedent transactions Mean: 8.5x Mean: 7.2x Mean: 7.0x Mean: 7.4x with multiples (and mean/median) for Median: 8.4x Median: 7.2x Median: 7.0x Median: 7.0x 11.3x 10.7x 10.6x 2010 – 2013 period 9.2x 7.8x 7.9x 7.7x - Include target, acquirer, EV, year 7.2x 7.0x 6.9x 6.1x 5.7x 5.2x 5.5x 4.2x 3.6x

United Target Safeway Harris Nash New Winn- Whole Target Fresh Target Target Gelson’s Super- Target B Delhaize Roundy’s Safeway A (Canada) Teeter Finch Albertsons Dixie Foods C Market D markets

New Acquirer Spartan Acquirer AB Acquirer Acquirer Acquirer Sobey’s TPG Kroger Albert- BI-LO Amazon Ahold Kroger Apollo Albertson’s A Stores B Acquisition C D sons

EV $300 $5,800 $394 $2,469 $771 $385 N/A $3,300 $464 $13,710 $11,892 $792 $1,312 $1,312 $1,280 $9,067

Year 2012 2013 2013 2013 2013 2013 2011 2013 2012 2017 2015 2015 2016 2016 2016 2014

• Downward pressure on sector valuation, particularly traditional grocery

• Dearth of large strategic consolidators for traditional assets

Source: FactSet; as of 7-May-18, public sources 14 Note: Traditional Grocers Index includes: Ingles, Smart & Final; Specialty Grocers Index includes: Whole Foods, Sprouts, Fresh Market, Natural Grocers.

Denotes Selected Specialty / Regional transactions FOOD DISTRIBUTION DISCUSSION Food Distribution is a Valuation Bright Spot

EV / NTM EBITDA

• Relative to the retail market, the broad food distribution sector is meaningfully higher value

• UNFI/SVU stands out as linked to more traditional grocery and operational challenges

• Foodservice players experiencing strong valuations given trends of food away from home

• Convenience stores in distribution in line with overall market valuation

Source: FactSet; as of 19-Mar-19 15 FOOD DISTRIBUTION DISCUSSION Stronger Growth in Foodservice Distribution than Retail

2018A - 2019E SALES GROWTH

8.0%

5.9% 4.0% 3.3% 3.1%

2018A - 2019E EBITDA GROWTH

11.7%

8.9% 8.5% 6.5% 6.4%

Source: Capital IQ, FactSet; as of 19-Mar-19 16 FOOD DISTRIBUTION DISCUSSION …At Similarly Tight Margins

2019E GROSS MARGIN

23.5% 18.9% 17.7% 13.2%

5.4%

2019E EBITDA MARGIN

5.9% 5.5% 4.7% 2.5% 1.1%

Source: Capital IQ, FactSet; as of 19-Mar-19 17 M&A ENVIRONMENT Stronger Activity in Food Distribution M&A EV / EBITDA GROCERY DISTRIBUTION Target 1 (Tree of Life) / Acquirer 1 Specialty TraditionalTraditional Overall Specialty (KeHE) = Specialty = Traditional Mean 9.7x Mean 8.3x Mean 9.3x Target 2 (Nature’s Best) / Acquirer Median 10.0x Median 8.6x Median 9.5x 2 (KeHE) 11.8x Target 3 (Lipari) / Acquirer 3 10.6x 10.0x 10.0x 10.0x 11.8x 9.5x (Sterling Investment Partners) 9.0x 9.2x ~11.0x 10.6x 10.5x 8.1x 8.1x 10.0x 10.0x 10.0x Target 4 (Mastronardi) / Acquirer 4 7.7x 7.5x 9.5x 7.1x 9.0x 9.2x (MetalMark) 8.1x 8.1x 7.7x 7.5x Target 5 (DPI) / Acquirer 5 (Arbor) 7.1x Target 6 (Caito) / Acquirer 6 (SpartanNash)

SunOpta (Canadian Associated Grocers Target Target 1 Nash Finch Tony's Fine Foods Target 2 Target 3 Target 4 Target 5 Target 6 Unified Grocers Target 7 SuperValu Distribution Assets) of Florida

SunOpta (Canadian Associated Grocers Acquirer Acquirer 1 UNFI Spartan Stores UNFI Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 Acquirer 6 SuperValu Acquirer 7 SuperValu UNFI Target Target 1 Nash Finch Tony's Fine Foods Target 2 Target 3 Target 4 Target 5 Caito Unified Grocers Target 6 SuperValu Target 7 Target 8 Distribution Assets) of Florida

EV (mm's) $190 $67 $797 $195 $188 $225 $850 $230 $218 $375 $89 $180 $2,900 Acquirer Acquirer 1 UNFI Spartan Stores UNFI Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 SpartanNash SuperValu Acquirer 6 SuperValu UNFI Acquirer 7 Acquirer 8

Date Dec-09 May-10 Jul-13 May-14 Jul-14 Oct-14 Nov-15 Dec-15 Nov-16 Apr-17 Aug-17 Oct-17 Jul-18 Date 2009 2010 2013 2014 2014 2014 2015 2015 2016 2017 2017 2017 2018 2018 2018

FOODSERVICE / OTHER DISTRIBUTION

Overall Mean 8.7x Median 8.0x

12.5x (1) 12.0x 11.9x 12.5x 12.0x 11.9x 10.8x 10.5x 10.0x 9.2x 10.8x 10.5x 8.6x 10.0x 7.6x 8.0x 8.0x 9.2x 6.8x 7.2x 7.0x 6.9x 7.0x 8.6x 6.3x 6.3x 8.0x 8.0x 7.6x 7.2x 6.8x 7.0x 6.9x 7.0x 6.3x 6.3x

 Pre-emptive Process: Finalize & sign

Pine State commitment papers with Tier 1 Buyer, commence Skor Food J.T. Davenport Queensgate Qzina Specialty Allen Del Monte Jenny Service Services Group Target Target 1 Target 2 Target 3 Target 4 Target 5 Brakes Group Trading Target 6 Target 7 Target 8 Group & Sons Foodservice Foods Brothers Capitol Meat Company of America Company syndication process, and close & fund transaction

The Chefs' The Chefs' Chef's Chef's Pine State Acquirer Colabor Group Acquirer 1 Core-Mark Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 Sysco Core-Mark PFG Acquirer 6 Acquirer 7 Acquirer 8 U.S. Foods Skor Food J.T. Davenport Queensgate Qzina Specialty Allen Del Monte Jenny Service Services Group Warehouse Warehouse Warehouse Warehouse Target Target 1 Target 2 Target 3 Target 4 Target 5 Brakes Group Trading Target 6 Target 7 Target 8 Group & Sons Foodservice Foods Brothers Capitol Meat Company of America Company EV (mm's) $34 $54 $38 $22 $33 $580 $30 n.a. $191 $112 $150 $3,100 $88 n.a. $335 n.a. $385 $1,800  Broad Process: Finalize & sign commitment The Chefs' The Chefs' Chef's Chef's  Broad Process: Deliver commitment papers to Acquirer Colabor Group Acquirer 1 Core-Mark Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 Sysco Core-Mark PFG Acquirer 6 Acquirer 7 Acquirer 8 U.S. Foods papers with buyer, commence syndication Date Mar-11 Aug-12 Dec-12 Jan-13 May-13 Dec-13 Dec-13 Apr-14 Jan-15 Jun-15 Dec-15 Feb-16 Apr-16 Aug-16 Mar-17 Jul-17 Mar-18 Jul-18 Warehouse Warehouse Warehouse Warehouse prospective buyers process, and close & fund transaction Date 2011 2012 2012 2013 2013 2013 2013 2014 2015 2015 2015 2016 2016 2016 2017 2017 2018 2018

Source: Company filings, press releases, BMO Capital Markets estimates, and CapIQ 18 Note: Some multiples based on rumored bid range. 1. Multiple includes present value of $260 million in cash tax benefits.

Wrap Up

 Retail will continue to be challenged on various fronts

 Retail activity will suffer from lack of consolidators of traditional chains/formats

 Will there be an Amazon – Casey’s – Sprouts- type deal in our future?

 Watching the distributors’ M&A activity shows them adjusting to the changing retail landscape

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