C&S Wholesale Grocers – Strategic Update Amid Slowing

Grocery Demand – 16 June 2021

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Specialist:

Title:

Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst

Jason Lindsey (JL)

Former National Buyer at C&S Wholesale Grocers Inc

Agenda:

1. Post-coronavirus operating environment

2. American wholesale distribution dynamics

3. Supply chain inflation impacts

4. Pricing strategy and market share outlook

Contents

Q: Could you give an overview of the US wholesale grocery distribution industry? How is it structured and

how has it evolved over the years?

Q: What do you think about the competitive landscape? Could you describe the top wholesale players? What

power do the retail players have to determine market share among the wholesalers?

Q: What industry trends did you notice pre-coronavirus?

Q: How are the big wholesale players grappling with the labour shortage?

Q: Could you give an overview of C&S Wholesale Grocers and how it has changed over the last five years?

Q: Could you talk about market size when it comes to independents? Is everyone after a piece of a very small

pie? What differentiates C&S around winning independent business?

Q: How do C&S’s product offerings compare to other wholesalers? Is it common industry practice for

everyone to carry the same type of goods?

Q: Are independent chains demanding any different types of product assortments or do they want

something more personalised?

Q: How does pricing come into effect when pushing national brands? Would you say some of the

independent players have better positioning when it comes to packing and price increases or overall

recognition throughout their local markets?

Q: Are there any other categories that you think the grocery wholesale industry in general want to expand

into to provide to retail clients?

Q: What are the major inflationary pressures in the industry that may have been accelerated by coronavirus,

including labour?

Q: How much can prices rise before you reach the top and consumers are unwilling to pay for the items?

How much flexibility does a player such as C&S have to pass on price increases?

Q: Are there any opportunities in this challenging cost environment?

Q: Could you talk about labour sustainability and how wholesalers or retailers are grappling with this issue?

What can C&S do to be flexible with this cost pressure, whether through automation or other avenues?

Q: How willing is the industry to use technology to solve labour issues?

Q: You mentioned coronavirus led to everyone re-evaluating their product lines. Could you speak to the

impact of the large retail demand on wholesalers such as C&S?

Q: How has demand shifted throughout the pandemic? Are people shopping more in centre aisle? Is there a

big push to the fresh and outer aisles?

Q: What do you think of C&S’s strategy to attract more independents? What do you make of its footprint,

whether local or national? Are there any other markets within the US that you think are under-penetrated? 9

Q: How would you rate the wholesale industry when it comes to retail grocers? Could you speak to the

industry’s overall performance and agility in adapting to new consumer habits and preferences?

Q: How strategically important is location in the wholesale grocery industry? What are the optimal markets

and locations for a wholesaler? Where is the opportunity? Is it in the Midwest, in more urbanised markets or

in other local markets?

Q: Could you outline any strategic missteps by C&S and the wholesale industry overall?

Q: Could you speak to the impact of retail market consolidation and the positives and negatives of some big

retailers having so much purchasing power and sway in the market?

Q: Are there any steps the wholesalers need to take to maintain their market shares?

Q: Could you describe how the distributor and supplier or packer relationship has evolved over the years?

What is stopping packers such as Tyson, Cargill or Pilgrim from going directly to the end user or taking other

retail courses?

Q: Could you talk about retailer influence in fresh, where packers have to control pricing and dictate supply?

How could it impact C&S if its suppliers are holding out or unable to meet demand?

Q: How does the relationship dynamic work with some of the local producers, such as farmers? How close

are those relationships compared to some of the big suppliers?

Q: Could you talk about industry segmentation? Why isn’t there more overlap between C&S focusing on

retail grocers and also working to supply foodservice players?

Q: Could you talk about the innovation or lack thereof when it comes to delivery? Why hasn’t the industry

prioritised innovation along the delivery chain?

Q: What has happened with automation throughout the wholesale retail grocery industry? Kroger launched

an Ocado partnership within one of its warehouses

Q: How has C&S tried to maximise margins? What can it do to improve margins, other than increase

volumes? Can product assortment or offerings give a wholesaler a competitive advantage when it comes to

increasing its dollar share?

Q: What are the barriers to entering the wholesale grocery industry? Have they become higher or lower?

Q: How are wholesalers thinking about adjusting to the shift in health and wellness, to organic and meatless

offerings? How hard is it for a wholesaler to establish reliable suppliers in these growing but high-cost-

profile areas within organic?

Q: What is your 6-12-month outlook for C&S? What are the best- and worst-case scenarios for the

company?

Q: Is there anything you think the investor community should know about C&S’s management team or their

ability to execute on priorities?

C&S Wholesale Grocers – Strategic Update Amid

Slowing Grocery Demand

Transcription begins at 00:00:00 of the recorded material

NH: Welcome to Third Bridge Forum’s Interview, entitled C&S Wholesale Grocers – Strategic Update Amid

Slowing Grocery Demand. I am Nyree Hinton, and I will be facilitating today’s Interview with Mr Jason

Lindsey, former National Buyer at C&S Wholesale Grocers Inc.

Jason, before we get started with today’s Interview, please state I agree or I disagree to the following

statement: You understand the definition of material non-public information, and agree not to disclose any

such information, or any other information which is confidential, during this Interview.

JL: I agree.

NH: Could you start by giving an overview of your background and various roles you’ve held in the industry?

JL: I’ve been in the wholesale industry now for almost 25 years in the fresh meat side. I’m a former meat

cutter. I’ve been from the smallest companies to the biggest companies, the biggest company I worked for

obviously was C&S as a National Buyer. I am currently a Meat Director in Kentucky for Laurel Grocery, so I’ve

been doing this for quite a few years. Seen it all, been and done it all.

[00:01:11]

Q: Could you give an overview of the US wholesale grocery distribution industry? How is it structured and

how has it evolved over the years?

JL: Really, this industry hasn’t changed in a whole lot over the years on the fresh meat side. It’s pretty much,

you negotiate what you have, you negotiate your pricing every week. If you’re a big retailer, you negotiate

programmes and you run programmes, so it really hasn’t changed a lot, just a lot of product changes. You see

more and more case-ready and stuff like that, CRT beef, products like that. It really hasn’t changed a lot.

[00:02:01]

Q: What do you think about the competitive landscape? Could you describe the top wholesale players? What

power do the retail players have to determine market share among the wholesalers?

JL: On the wholesale side, your big players are going to be, C&S is one of them, SuperValu is another, and

then it’s here and there, like Harvest Sherwood’, they’re a big player now, they merged together. On the retail

side, you’re talking about the Krogers of the world, they’ve got 2,250 stores, the NCG Group, which is C&S

services, Ahold Delhaize is another big one. They can really change a market just with their buying power and

how much they buy. There’s no one packer on the meat side that can supply them. They can really change the

landscape on pricing, if they buy up all the product out there. Those are your biggest players in the game. You

could put Albertsons in there too, out west.

Private and confidential 4

[00:03:36]

Q: What industry trends did you notice pre-coronavirus?

JL: Relative to the industry? Pre-COVID, every company was expanding their lines. When you’re talking, just

to throw a company up, like Johnsonville or Oscar Mayer, everybody was trying to expand into new products.

Then, once COVID hit, everybody has re-evaluated everything they’re doing, and shrinking their lines, number

one, because of labour issues, they don’t have the help to do it. They’re going back to focusing on their core

items, just so they can keep the supply chain full. That’s the huge change right now.

[00:04:38]

Q: How are the big wholesale players grappling with the labour shortage?

JL: The big players, on the wholesale side, it’s you take what you can get. Rumour mill, stuff I’ve seen happen

in the past, I don’t know if it’s currently happening, is these bigger players on the retail side, if they don’t get

90% of what they order, they send fines out to the manufacturer if they don’t get 98% fill rate. It’s really just

the bigger you are, the easier it is to bully people around

[00:05:40]

Q: Could you give an overview of C&S Wholesale Grocers and how it has changed over the last five years?

JL: C&S, when I was there, and I’ve been gone for four years, they had the big change, such as NCG, Tops over

in Buffalo, they lost Ahold Delhaize. They had those big players, but C&S were, and I believe they still are, in

my opinion, focusing more on the independent side. The independents, really you’ve got more flexibility, more

ability to make room with an independent than you do a big chain, because a lot of times, they negotiate their

own stuff if they want to, and then just tell you what it’s costing, and then they agree upon markups on all their

products with the big retailers. They were really pushing hard to focus on the independent side.

[00:06:53]

Q: Could you talk about market size when it comes to independents? Is everyone after a piece of a very small

pie? What differentiates C&S around winning independent business?

JL: When it comes to C&S, you’ve got the ability, because you are so big, you can be a little more aggressive on

your pricing, because you can negotiate for a little less than what somebody else would, a smaller wholesaler in

New York City. That’s their biggest advantage in all of the independent side, they’ll try to capture that

business. There again, just to play devil’s advocate, the downside to C&S on that part is, in my opinion, they

don’t have a lot of flexibility. Where I’m at, I could turn on a dime. C&S, because it’s such a big ship, it takes a

little more time to turn it around and do things. That’s the biggest challenge they have.

[00:08:13]

Q: How do C&S’s product offerings compare to other wholesalers? Is it common industry practice for

everyone to carry the same type of goods?

JL: When you’re talking about the fresh, everybody is carrying pretty much the same thing, it’s just a matter of

what packer you’re buying it from on fresh, like beef and pork. A boneless pork loin is a boneless pork loin,

Private and confidential 5

whether you get it from Swift or you get it from Tyson, or you get it from Seaboard. Everybody is carrying

pretty much the same items, and even in lunch meat. There are only so many companies out there that are

doing that, so everybody has pretty much got the piece of pie, it’s just a matter of who’s going to be the

cheapest on the street for the source, because they’re all chasing that business on the independent side.

There’s not a lot of variety difference between even myself and C&S, and what we carry.

[00:09:33]

Q: Are independent chains demanding any different types of product assortments or do they want something

more personalised?

JL: On the independent side, just being totally frank, when it comes to the outside wall which we produce the

beef, all your fresh stuff, the meat departments, it’s pretty much price. Everybody is always looking for the

next new gimmick to try. The meatless thing has taken off in the last two years, so everybody is trying to get

into that game. It’s a matter of, “What’s the guy down the street from you?” If you’re buying from C&S and

you’ve got a Save A Lot down there, not Save A Lot, because they don’t buy from C&S, or just to use an

example, try to be a little different, so there’s some of that in there, but there are only so many vendors out

there doing it, so sometimes it’s hard to get. You can’t really do a private label for independents, because

they’re competing with the guy down the street that’s probably buying from the same guy you are. You try to

push them towards a national brand, unless they’ve got 30 stores, which is a good-size store, and they could

support a private label with their volume, but otherwise you’re pretty much just trying to push the national

brands.

[00:11:15]

Q: How does pricing come into effect when pushing national brands? Would you say some of the independent

players have better positioning when it comes to packing and price increases or overall recognition throughout

their local markets?

JL: The independents have an advantage over the big chains on one thing. They’ve got everybody competing

for their business, on no matter what they do, whereas if you’ve got a 2,500-store chain, you’ve got people in

an office that are controlling it for everybody. They don’t shop at everywhere, they usually get on programmes,

whereas the independent, they’ll call five different people to get pricing on stuff. You always try to make sure

you’re giving them the best price you can, so you’re making a little bit of money, and the customer is getting

the best price, so they can make some money. That’s their big advantage on the independent side.

[00:12:36]

Q: Are there any other categories that you think the grocery wholesale industry in general want to expand into

to provide to retail clients?

JL: Right now, the fastest-growing category in centre of store would be private label. Everybody can buy green

bean giants from a company, so it’s a matter of trying to find that off-ramp you can offer people. Some people

don’t want to use it, some do, they can offer it at a discount. It’s a double-edged sword when it comes to the

private label. If C&S were to go out and get Bob’s big beans, they could offer it to everybody as a low-price one,

but they’re also going to carry the national brand, like Bush.

NH: Could you expand on C&S’s private label strategy? What is that like for a wholesaler trying to win new

business? How competitive is it to get some of the big retail chains to take on your product?

Private and confidential 6

JL: The big retail chains control their own private label. Take, I’ll throw it out there, NCG. These companies

that are doing these off-labels don’t approach C&S. They approach NCG, and they get their private label in.

C&S will try to get, I think one of the ones they used to have when I was there was Best Buy, that was C&S’s

off-label for stores that wanted to use it. These big chains, they control most of their own products. C&S is just

a procurement, we’re taking it in, and C&S will cut deals will bring the product in for the stores, and then they

follow the supply chain to get it to the stores.

[00:15:02]

Q: What are the major inflationary pressures in the industry that may have been accelerated by coronavirus,

including labour?

JL: It’s everything. It’s centre of store, it’s beef, it’s pork. This inflation is driving up everything, plus there’s

labour shortages in these plants. You pick an item, it’s gone up in price. Stuff that I would be able to buy, like

73% ground beef, eight weeks ago I was getting for USD 1.30 or USD 1.40 is now USD 2.55-2.60 a pound. It’s

rampant in everything. You pick an item. Everything is going up.

[00:16:11]

Q: How much can prices rise before you reach the top and consumers are unwilling to pay for the items? How

much flexibility does a player such as C&S have to pass on price increases?

JL: C&S has to pass on those price increases no matter what. They can’t absorb that. When it’s industry-wide,

the retailers are expecting it, because they see what stuff costs. How high can they go? Speaking specifically for

fresh meat, I don’t know. When they handed out those big stimulus cheques, was it January, February, one of

my packers, they lost one-third of the workforce. People, they quit working. It’s got to stop eventually, but I

think what we’re going to see is, what we expect, the norm is going to be higher than what we’re used to. If you

go back 20 years with 73% ground beef, I used to be able to buy it and sell it all day for USD 0.69. We’d do

USD 0.99 ads. That slowly went to USD 1.29, USD 1.49, then it was USD 1.99 pre-COVID. Now, we’re at USD

2.49, USD 2.99, so I think we’re seeing the norms on retails where stuff is going to be. It’s all up to the

consumer. Eventually, the consumer will just stop buying stuff. I don’t know where that threshold is yet, and

that’s up for debate with everybody.

[00:18:08]

Q: Are there any opportunities in this challenging cost environment?

JL: There are always opportunities, it just depends on how open a retailer is to listening to different ideas.

Sometimes you’ve got to look at doing some frozen stuff, stuff that’s not labour. You don’t want to get a lot of

labour involved with this stuff. There are always opportunities, it’s just a matter of retailers sometimes push

back on a lot of those things. They don’t want to mess with it, but there’s money to be made for everybody on

that.

[00:19:04]

Q: Could you talk about labour sustainability and how wholesalers or retailers are grappling with this issue?

What can C&S do to be flexible with this cost pressure, whether through automation or other avenues?

Private and confidential 7

JL: I can’t really speak to what C&S is doing. I don’t know. I can speak to what we’re doing. We’re constantly

hiring people here. We’re looking for drivers, we’re looking for warehouse people. We own five grocery stores,

I’m constantly looking for meat cutters. You just keep them coming, keep them coming in. You hire 10, you

hope two stick. It’s challenging, and it’s going to remain challenging I think, because speaking for the fresh

meat side, nobody is going into this trade any more, it’s a dying trade. I’m currently looking to try to do some

case-ready stuff for my source, because I don’t have the labour to cut meat like we used to. There’s nobody out

there with that skillset any more, and I can’t go in and do it any more, I don’t have time. I’m sure C&S and all

their retailers are dealing with the same thing.

[00:20:40]

Q: How willing is the industry to use technology to solve labour issues?

JL: Always looking. Always looking towards technology. Whether it’s case-ready, sliced beef for the retailers, if

they go into a case-ready, they can eliminate the high-price meat cutters. We’re always looking to technology

for things like grind logs, stuff you have to protect yourself on with the USDA. Everybody is always looking to

technology to try and help them, and they’re very open to it.

[00:21:22]

Q: You mentioned coronavirus led to everyone re-evaluating their product lines. Could you speak to the

impact of the large retail demand on wholesalers such as C&S?

JL: I’ll use Johnsonville again, they cut down a lot of their lines that they didn’t sell a lot of, then went back to

the basics. The demand is out there, demand is still strong in retail, because people are still buying a lot of

groceries, and they’re still cooking at home a lot. Certain areas, and I don’t know for sure, but I’m sure a lot of

areas, the restaurants aren’t still at full capacity, so people are still shopping and eating at home. What you

have to do is cut down on what you’re carrying and bring in extra of what you are carrying, because now you’ve

got to expand that line just with the core items, just so you can fill your case. That’s what everybody has to do

in this industry. If they went from 15 items to seven, those 15 items had 15 shelf spots. You don’t want to lose

that shelf space if you’ve got to fill it with something, so now take those seven, and you make three facings of

it, just to keep the case full, and keep it presentable.

[00:23:04]

Q: How has demand shifted throughout the pandemic? Are people shopping more in centre aisle? Is there a

big push to the fresh and outer aisles?

JL: People are shopping more in the grocery stores. During COVID, it was incredible. We saw 60-70% spikes

in demand. Now, most of these stores are trying to maintain at 10-15% vs where they were pre-COVID, and

you’re trying to retain those customers. The demand is still there, people are shopping more. I don’t see that

changing any time soon. I think people will learn how to cook, just to be honest, because people were forced to

learn when all the restaurants closed. I think you’re going to see more of that, especially with states opening up

more, people are barbecuing more this summer. Holidays are going to have more impact this summer, I think.

It’s been a long time since we’ve seen something like this, where people are just going to want to be outside.

Demand is going to be really high in retail probably for the next year.

Private and confidential 8

[00:24:39]

Q: What do you think of C&S’s strategy to attract more independents? What do you make of its footprint,

whether local or national? Are there any other markets within the US that you think are under-penetrated?

JL: To say how they’re doing it now, I don’t know, post-COVID, what they’re doing. We always had the most

aggressive pricing out there when I was there. Dollars and cents were the owners, that was the big thing. Their

footprint goes all the way from Maine to Miami. They’re not really in the central United States, but they’re in

California and Hawaii. They’ve got Texas, they’ve got a place down there. Other than the Midwest, currently

where I’m at, Kentucky, Chicago, that area, they don’t have a footprint here, but otherwise they’re pretty much

all over the country. They’re big in Pennsylvania, they’re creeping into Ohio now. I’m battling them there in a

few stores now. They’ve got a big footprint right now.

[00:26:26]

Q: How would you rate the wholesale industry when it comes to retail grocers? Could you speak to the

industry’s overall performance and agility in adapting to new consumer habits and preferences?

JL: I think wholesale overall, if you had to give it a grade, I’d give it an A. We all had to learn, when COVID

hit, how to adapt and move strategically. That benefited companies, like where I work, who are smaller, we’re

not the size of C&S, trying to turn this ship around. I think everybody did the best they can with what they

have, and I think once everything gets back to normal, and if these labour issues get figured out, it’ll get better,

ever better. Right now, it’s just everybody is doing the best they can with what they can get.

NH: What does that scale mean for the retail grocer wholesale industry? Is there an optimal size, or do you get

too big at some point and lose the agility needed to manage costs effectively?

JL: You never really lose the ability to manage costs. It’s just a different challenge, because of locations, and

trying to make sure everybody’s get delivered where they should when you’ve got multiple warehouses. For

myself, we’ve just got one warehouse, where C&S, when I was there, we had 52 warehouses. I don’t currently

know where they’re at now. Everything is entered into the computer system and everybody stays on top of

that, because that’s your money. They’re managing, everybody manages their costs fine, I’m positive of that.

It’s computers now, so no more paper.

[00:28:42]

Q: How strategically important is location in the wholesale grocery industry? What are the optimal markets

and locations for a wholesaler? Where is the opportunity? Is it in the Midwest, in more urbanised markets or

in other local markets?

JL: For me, it’s always you go where a population is, and always has been. If you’re C&S, they have so many

different DCs, you want to be able to reach out to those New Yorks and handle that, because that’s where your

population or your concentration of population is. For us here, we’re in Kentucky, we reach out to five states

and we cover the smaller retailers. Everybody’s got their own footprint out there and what they do and do well,

so if I personally was starting up a wholesale company, I’d be closer to the cities. There’s just more volume

there, but it’s also a tougher dog fight on their business. That’s your biggest challenge.

[00:30:08]

Q: Could you outline any strategic missteps by C&S and the wholesale industry overall?

Private and confidential 9

JL: If you’re talking outside of COVID times, C&S’s biggest challenge, as we’ve talked about, is the ability to be

flexible, because they are so big. There’s layer upon layer of doing stuff, that’s their biggest challenge. I don’t

know how you fix that and if you can. That’s the challenge for them. It’s a double-edged sword, like I said.

Their buying power is so huge, but if there’s a misstep, then they can’t fix it right away. If a truck doesn’t show

up because it broke down, they can’t go back the next day and fix that, because they’re so strategic in what they

do with their transportation. The customer is pretty much just out of luck. There’s no flexibility there, that’s

the biggest challenge that they have. Where somebody like ourselves, our truckers will show up, we call our

transportation, we move some stuff around, we can get them covered, or if it’s myself driving something out to

them, just so they have something.

[00:32:01]

Q: Could you speak to the impact of retail market consolidation and the positives and negatives of some big

retailers having so much purchasing power and sway in the market?

JL: I could give you my opinion. I’m not enough on that side, it’s been years since I’ve been on it. When it

comes to, I’ll just throw Kroger out there, they’re in a better ability to lose money, I guess you would say, on

certain items, holiday items, and to really just push out the small guy. I don’t care to speak a lot on the other

part of it, because I haven’t been on that side in a long time, and I don’t want to give you bad information.

[00:33:51]

Q: Are there any steps the wholesalers need to take to maintain their market shares?

JL: The wholesaler has got to be able to partner up with their packers or their suppliers and look for new ideas

and cost-saving stuff for the stores. Just speaking as to myself, like I said, I’m trying to look to doing it case-

ready here hopefully in the next two years. The grocery store business isn’t going away, the meat department

isn’t going away. The problem is the labour is going away. There’s a lot of opportunity as long as these

wholesalers get out in front of it and think outside the box. They’ll be fine. You’ve got to bring in, try stuff new,

try stuff differently and partner. You get with your customers and let them know what you’re thinking, get

their thoughts, see if they’ll partner up with you to try it. The wholesale industry I think will be just fine. It’s

not going away. The only way they could drive it away would be if the independent world just absolutely got

crushed.

[00:35:34]

Q: Could you describe how the distributor and supplier or packer relationship has evolved over the years?

What is stopping packers such as Tyson, Cargill or Pilgrim from going directly to the end user or taking other

retail courses?

JL: They do. They do go to the end user when they’re the big boys. The NCGs, the Krogers, Albertsons, they do

go directly to the end user and then somebody like a C&S is just a procurement arm for them. NCG will

negotiate their programmes and their pricing, and then C&S will say, just throw a number out there, a nickel a

pound to deliver everything. I don’t want to divulge what they do, but just throw a number out there, it’s a

nickel a pound to deliver. All you have to do is order it, make sure it comes in, make sure it gets out to the

stores. The problem is there are not a lot of those players out there like a Kroger, NCG, Albertsons. They have a

ton of stores, but if you go into the cities like Chicago, New York, Boston, there are still a lot of independents

that can’t do that, because they don’t have the buying power. They don’t have the ability to bring a truck in and

negotiate a programme separately from everybody else, because they’re not using the (inaudible 37.06).

Volume on their meat business dictates everything. It’s, again, another double-edged sword.

Private and confidential 10

You hope over time, like what happened with me at C&S was I developed a relationship with the NCGs, the

Ahold Delhaizes and they would work with me and I would partner up with them on stuff. Their guys would

call me and get my opinion on stuff. Then you can work with them on those things, but that takes time. Then

the packer, as long as you’ve got a strong relationship with the packer, the Pilgrim’s, Cargills, and they know

you, they’ll work with you before maybe they go to the end user, to help you. A lot of times they just go directly

to the end user on those big guys. They did it to us at C&S. Sanderson did it to us.

[00:38:09]

Q: Could you talk about retailer influence in fresh, where packers have to control pricing and dictate supply?

How could it impact C&S if its suppliers are holding out or unable to meet demand?

JL: When it comes to fresh meat, I’ve never encountered it where they’re holding out. It’s supply and demand

on everything. If there are a lot of people out there chasing ground beef, hamburger, the price is going to go

up. It’s a matter of having, myself or my buyers having a relationship with their packers, so that they get an

idea what’s going on out there. They’re not going to not sell you meat. It’s not going to happen. If they don’t

have it, they’ll tell you, and it can vary by item. They may not have knuckles for next week’s delivery, so you’ve

got to call another guy to get them. You’ve got to have relationships with every packer out there, because

everybody is in a different sold position.

[00:39:40]

Q: How does the relationship dynamic work with some of the local producers, such as farmers? How close are

those relationships compared to some of the big suppliers?

JL: Those relationships with the farmers and stuff, they aren’t going to go to a Kroger and try to supply them

with everything, because they can’t. They would meet with a wholesaler like myself or even a C&S, they would

sit down and say, “This is what I’ve got to sell,” because they’re not very big, and then C&S could approach

then and try to sell that to a few stores. They’re not going to circumvent and try to go direct to end user on a lot

of those things.

[00:40:43]

Q: Could you talk about industry segmentation? Why isn’t there more overlap between C&S focusing on retail

grocers and also working to supply foodservice players?

JL: I’ve bought for foodservice too. It’s a totally different dynamic with the pricing, it’s a totally different

dynamic with delivering them. There are a lot of windows. I used to buy for KFC and we couldn’t deliver

between 11:00 and 13:00. You’ve got to be good at that to do it right, because there are so many demands on

stuff, and it’s not a lot of volume. Whereas a retailer, you might sell them 100 cases of beef, and a foodservice,

you might sell five cases. You’ve got to have other things to offer them. It’s more or less one of those, you’ve got

to pick one, you can’t be both. Unless you’re specific to a protein like chicken, years ago I was with Rosebud,

that’s all we did, was chicken, then we were good at chicken, so we could do both, because that’s all we

handled. We could accommodate both. It’s just a whole different dynamic. For me, I personally would rather

do retail, because it’s so much easier to control your volume and turn dates, easier to buy for.

NH: Would you say there’s an opportunity there or synergies between the two, or would you the cost benefit

analysis is not really there for the large players to cross over into foodservice and retail grocery?

JL: Yes, there are not a lot of synergies there, because it’s such different pricing structures. You’ve got to make

a lot more on foodservice than you do retail, because retail is about volume, foodservice is not, unless you’re

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securing 500 Kentucky Fried Chickens or something. There’s just not a lot of crossover there, because

restaurants aren’t going to buy primal beef. A lot of times they’re buying steaks already cut. You can’t really

use your buying power for that. Like I said, it’s just a different world when you’re dealing with chefs.

[00:44:04]

Q: Could you talk about the innovation or lack thereof when it comes to delivery? Why hasn’t the industry

prioritised innovation along the delivery chain?

JL: I don’t know if there’s a lot of innovation you can do for transportation. For C&S or myself, we buy full

truckloads. There’s really no other way to go to get it there. It’s got to come on a refrigerated trailer,

maintained at temperature for fresh, so there are really not a lot of other options. I don’t see that ever

changing right now. Could it go from a semi trailer to a pup trailer, a smaller trailer? Sure, but volume is where

you get your best buys, so you want to get 40,000 pounds. That’s what a full truck is. I don’t know that you can

change that. I don’t see that changing any time soon for deliveries.

[00:45:47]

Q: What has happened with automation throughout the wholesale retail grocery industry? Kroger launched an

Ocado partnership within one of its warehouses and changed that into a fully automated facility where it can

take orders for groceries and place them in bagging to be shipped off. Is the wholesale industry seeking to

incorporate some of those strategies within its own operations?

JL: I’ve seen it, I won’t say who it is, but I know I’ve seen it where they’re starting to use robots to pick

groceries. It’s still a work in progress. The technology isn’t perfect, but they are trying to do that in some

warehouses. For most, when you get to the fresh side, I don’t know, they were trying to incorporate that, I

know of, a few years ago, and the trouble with that is everything is sold by the pound, so you’ve got to call out

weights. A box of 73% ground beef could be 80 pounds or it could be 77 pounds, it varies. You’ve got to call

those weights out. I know they’re trying to work on technology to try to do that, but they’re such heavy boxes.

On the grocery side, I have seen some innovation on that aspect. I don’t know if it’s fully operational and how

much they’re using it, but I know they were putting it together and trying it for a few different places.

[00:47:55]

Q: How has C&S tried to maximise margins? What can it do to improve margins, other than increase

volumes? Can product assortment or offerings give a wholesaler a competitive advantage when it comes to

increasing its dollar share?

JL: When it comes to something like that, there again, we’re all facing challenges of vendors shrinking their

lines and concentrating on just the core items right now, but C&S, the way they’re going to grow and get more

margin is going to be in the independent world. When you’re dealing with the big boys, everything is

negotiated and it’s done. There’s not a lot of opportunity to make extra money. When you’re dealing in the

independent world, fresh side, I could sell you something for a nickel that I know you’re going to buy 10 cases

of and then sell you three cases of something different and put USD 0.15 on it, because I know I’ve got my

truck coming and they’ll buy it. It’s just one of those give and takes. That’s where you’re going to increase your

margins, in the independent world. C&S, like I said, when I was there, was putting a hard focus on that.

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[00:49:43]

Q: What are the barriers to entering the wholesale grocery industry? Have they become higher or lower?

JL: Speaking from the fresh side, there’s way more competition. When you go into the cities, like we talked

about with the population, there are a lot more what we call jobbers, and these guys have got one truck, they’ve

got one small warehouse and they buy in, and they drive around on a truck and sell it. There are more

competitors on the fresh side. When it comes to centre of store, there’s not a lot of competition there. When

you tie in with a C&S or Laurel Grocery, that’s your centre-of-store supplier. They don’t buy outside, hardly

any. The fresh side, whether it’s produce, deli, seafood, meat, even some dairy, they could buy from several

people. That’s way more competitive. That’s really competitive, but the centre of store, which is where all the

SKUs are, most stores concentrate, I don’t see a whole lot more competition coming to that. I think it’s flat

now.

[00:51:23]

Q: How are wholesalers thinking about adjusting to the shift in health and wellness, to organic and meatless

offerings? How hard is it for a wholesaler to establish reliable suppliers in these growing but high-cost-profile

areas within organic?

JL: Getting the product, if you know the right people, isn’t an issue. It’s the consumer, the customers that are

the biggest issue. If you go to the coasts, either coast, organics and free range, they’re very, very popular,

meatless. If you come to Kentucky, middle America, outside of the cities, they’re meat and potatoes people.

There’s not a lot of call for those items yet. I think it’s going to come as the newer generations come up, but it

doesn’t take hold for us yet. The supply is out there. You can get it, there’s no question about that.

[00:52:51]

Q: What is your 6-12-month outlook for C&S? What are the best- and worst-case scenarios for the company?

JL: My opinion, my best-case scenario is they maintain what they’re doing. Worst-case scenario is they get

sold. I’ve heard rumours of them, they’ve lost a lot of customers, one of their biggest accounts. Hopefully they

can maintain what they’re doing and maybe try to grow it some on the independent side. They’ve just got to

get out and fight for it, and I believe they will.

NH: Why do you think C&S lost some of those customers?

JL: Why? I’m sure it’s money. That’s what it always boils down to. There was never a service issue. There are

always hiccups in the system when you’re delivering to 250 stores, one group, but I think it’s dollars and cents.

The retailer is going to negotiate the best price they can get for themselves and they’re going to put C&S up

against everybody when their contracts come up. I don’t know that for sure, but that’s my opinion on it. That’s

what I would do.

[00:54:35]

Q: Is there anything you think the investor community should know about C&S’s management team or their

ability to execute on priorities?

JL: Speaking for the people I know on their management team, they’re all very good, top-notch people.

Everybody’s got their faults. One thing I learned at C&S was they acknowledge their faults and they tried to

hire people that could do what they couldn’t, because you’re only as good as the people you put around you. It

Private and confidential 13

wasn’t too long ago they were trying to get me to come back and I didn’t want to go back to the East Coast,

because my family’s here, a little further north, so I want to be closer to home. They’ve got some challenges

ahead of them, but I believe with the team they have, speaking for the fresh side, they’ll get through it with

flying colours.

[00:55:40]

NH: Let me close by saying thank you, Jason, for your input. Clients, if you would like to speak to Jason in a

private call or meeting, please let your relationship manager know. Thank you again for joining Third Bridge

Forum's Interview today, this now concludes our meeting. Goodbye.

Transcription ends at 00:55:50 of the recorded material

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