AmerCareRoyal - Market Update Q2 2024

AmerCareRoyal offers disposable products used in the food service, janitorial, sanitation, industrial, hospitality and medical industries.

Quarterly Market Update

Quarter 2 | Spring 2024

Restaurant Supply Product Pathway

Q2 2024 Market Update

SUMMARY: Stable material costs, agile global shipper response to Baltimore accident, positive overall status

MANUFACTURING

OCEAN LOGISTICS

GROUND LOGISTICS

RAW MATERIAL AVAILABILITY

PORT DISRUPTION

INBOUND PORT TIME

DIESEL FUEL COST

CONFLICT DISRUPTION

COST

DOCK TERMINAL TIME

FACTORY OUTPUT

WAREHOUSE

LABOR

PORT LABOR

Most glove material costs remain stable, though raw latex rose in Q1 due to typical late-winter Malaysian monsoon. Pulp prices drive paper cost and pulp rose nearly 10% in Q1 – finished paper prices are expected to rise, near term. Strikes in Finland are impacting large shares of baking paper availability. (RISI) Non-China Asian economies are strengthening so far in 2024 as North American importers diversify sourcing options away from mainland China.

Port delays, due mostly to labor and equipment shortages, are generally isolated at the start of Q2, even with Baltimore’s bridge collapse. . US diesel prices declined in Q1, lower by 3.2% versus prior year, opening April at the lowest level since October of last year. Canadian diesel was lower by 2.9% versus prior year first week of April.

The collision and collapse of the Key Bridge in Baltimore (US 11th largest port) poses limited disruption to global import / export logistics, analysts say. Attacks on shipping in the Red Sea related to the war in Gaza continued to drive voyage reroutes around the Cape of Good Hope

Regulatory and Society SUMMARY: PFAS regulation continues to expand across the US; Canada’s plastic bans challenged but remain in-effect as legal challenges proceed through the Courts

Q2 2024 Market Update

Canadian Federal Court ruled in November that the country's ban on single-use plastics is "unreasonable and unconstitutional“ … in January, Canada’s Federal Court of Appeal stayed that ruling pending government appeal. The Single-use Plastics Prohibition Regulations remain in force. (Canada.ca)

U.S. Food and Drug Administration (FDA) announced in February manufacturers will no longer sell grease-proofing substances containing PFAS for food contact use in the U.S. including food packaging paper and paperboard. ( fda.gov )

CANADA: Single-use plastic ban on plastic checkout bags, cutlery, foodservice ware, ring carriers, stir sticks, and straws. *Bans are still in place during court challenges

States banning intentionally added PFAS :

California

Colorado

Connecticut

Maine

Maryland New York

Minnesota

Vermont

Washington

States proposing bans on added PFAS in 2025:

Illinois

Pennsylvania

Massachusetts Pennsylvania North Carolina

Michigan

New Jersey Tennessee

Industry and Economy Perspective

Q2 2024 Market Update

SUMMARY: Strong employment with inflation slowly ebbing helps smooth challenges of adverse weather and food prices in Q1 – Restaurant Operator optimism predominantly high

Over 300,000 jobs were added to US payrolls at the end of March - including 28,000 in the restaurant industry - leading analysts to speculate that additional interest rate cuts hoped for this year won’t happen. Restaurant industry employment at the end of 2023 topped the February 2020 pre-pandemic peak by over 37,000 jobs. (Nations Restaurant News) Inflation ticked up a tenth of a percentage point in mid-Q1, 3.2% versus 3.1% in January, down from a pandemic era peak of 9.1% in June 2022. Canada’s inflation rate declined to 2.8% mid -Q1. Target interest rate to control inflation by both the US and Canadian federal governments is 2%. (Associated Press, Statista, Reuters, US Federal Reserve, Bank of Canada) Large areas of North America experienced unusually cold weather fronts or rainfall early in Q1, negatively impacting restaurant sales and traffic. Same-store restaurant sales growth in the U.S. was -4.5% for the industry in January, the weakest monthly sales growth reported since February 2021. Store traffic also experienced a significant year-over-year slowdown during the month, down -7.1%, a 6.2 percentage point fall compared to December. ( Produce Bluebook) Prices for food-away-from home rose in the U.S. by 0.1 percent, the slowest monthly increase since March 2021 and for 2024, prices for most food categories are predicted to change at a rate below their 20-year historical average. Meal prices from Limited- Service restaurants (takeout only) rose in the first quarter 5.2% year-over-year, while full-service (sit-down restaurant) meals rose 3.8% year-over-year. (US Department of Agriculture, NerdWallet, US Bureau of Labor Statistics) Sales at Canadian restaurants and bars fell 1.9 percent in January to $7.9 billion. Sales at Ontario’s food service and drink ing places falling 1.1 % ($3.1 billion), 1.2 % ($1.5 billion) in Quebec, and 6.9% ($1.3 billion) in British Columbia. Canadian inflation cooled in February, increasing just 2.8% but restaurant meal prices went up 5.1% overall, 5.8% for fast food and takeout. (Statistics Canada) .

Convenience stores enjoyed record in-store foodservice sales of $360 billion in 2023, up 1.3 % from prior year. Average per- customer, per visit spend increased 3.7% to $7.80. (National Association of Convenience Stores)

16% of Foodservice Operators surveyed by Technomic in the first quarter of 2024 report being extremely optimistic about the economic outlook over the next six months; 4% are extremely pessimistic.

Foodservice Industry

Q2 2024 Market Update

SUMMARY: Backlash to meal price inflation, signs of slowing in takeout meal boom

Fast food has been a budget-friendly option for away-from-home dining, but the last decade of steady price increases – being referred to as “fast -flation ” - has eroded that value proposition. Consumers are taking note; negative response to an $18 Big Mac meal combo prompted McDonald’s CEO to promise affordability on a recent earnings call. (foodinstitute.com) Restaurant prices being largely a function of operating costs, an interesting note for industry packaging suppliers comes from Technomic’s Q1 Operator Outlook Study stating that year -over-year paper and packaging costs were up 40% in Q4 of 2023.

Significantly higher rates of decline for

takeout meal demand were reported by Operators

surveyed in Q1. The chart at right indicates declines versus prior month in Q1 ranging above 40% for off- premise meals versus rates of increase half that number. ( Technomic)

Key Takeaways – Q2 2024

Q2 2024 Market Update

Hard winter weather at the start of the year temporarily hindered the restaurant economy but pace picked up in March and appeared to be normalizing somewhat as the first quarter closed. The tragic accident that collapsed the Francis Scott Key bridge in Baltimore Harbor on March 26 has prompted aggressive response industry-wide to identify and optimize shipping alternatives for inbound products. ACR supply chain and logistics teams are in close contact with ocean freight providers and will stay on-top of the situation as recovery efforts continue. Inflation remains a factor for restaurant patrons and operators. Despite the steady retreat of price increases from over 22% eighteen months ago to now around 3%, just a point above the US Fed’s target rate for inflation in a healthy economy. Restaurant operators challenged to constrain cost can count on ACR for product diversity and cost-minimizing value offerings that are right for every application. International Monetary Fund expects emerging economies in Asia to grow 5.2% this year — a 0.4 percentage point upgrade from its forecast in October. The IMF upped its global economic growth projection to 3.1% in 2024 due to the greater-than- expected resilience of the U.S. and several large developing economies as well as fiscal support in China. While Taiwan, Malaysia and Thailand were still mired in sub- 50 readings, Malaysia’s 49 was its best reading in 17 months. Taiwan and Thailand also saw improvements in January over December’s performance. (CNBC, IMF) • Undoubtedly contributing to this is on-going source country diversification by North American suppliers including AmerCareRoyal, that continue to develop robust alternative sourcing options away from mainland China. Distributors and Operators seeking operational security for their supply chains can rely on ACR’s deep level of country -of-origin diversity and domestic manufacturing capabilities across the ACR product portfolio.

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