INTRODUCTION TO AVENDRA April, 2005

1. INTRODUCTION TO AVENDRA April, 2005

2. Background & Context • At the April 6, 2005 HAMA meeting in Atlanta, Avendra participated in an educational segment regarding procurement. • Brian Weed, Avendra’s COO, made a brief presentation to the group. The presentation material was pulled from the following slides, which provide a more comprehensive overview of Avendra’s positioning, sales process and offerings. • Avendra plans to continue discussions with the owner community in an effort to educate owners on its business and on procurement opportunities in the lodging market. • If any HAMA member would like to talk with Avendra, or would like to connect Avendra with their property manager(s), they should contact Brian Weed at Brian.Weed@Avendra.com or 301-825-0008.

3. Introducing, or Reintroducing, Avendra Avendra, LLC is an independent company founded in 2001 by some of the most respected names in the hospitality industry: Individually, these companies fielded effective and highly-regarded purchasing organizations. Avendra has integrated these resources, and made significant investments in new capabilities, services and tools. The result is the most effective procurement services company in the hospitality industry, comprised of 200+ professionals. In 2003, Avendra’s client base of 175 management companies and 4,000 properties procured nearly $2 billion in goods and services through its programs.

4. Avendra Has Deep Expertise in Key Procurement & Service Functions Contracting Expertise: Food & Beverage Products (21 people) Food Distribution & Regional Programs (11) Rooms & F&B Operating Supplies (7) Engineering Products & Services; Kitchen Eqt (5) Other (Golf Pro Shop & Grounds; Admn Svcs) (9) Program & Customer Services: Quality Assurance & Price Audit Svcs (17) Field Support & HQ Call Center (36) Account Manage-ment Services (15) Change Mgmt, Operational Consulting (6) Replenish-ment Products (11) Infrastructure & Growth: Spend Tracking Operations (18) Technology (customer, supplier, e-commerce) (19) Program Manage-ment & Marketing (6) Sales & Business Develop-ment (16) Other (Finance, Legal, HR, Exec, etc.) (35) Note: all headcount numbers reflect existing positions as of June, 2004

5. Challenges in Today’s Hotel Management Market • The issues are often the same across competitors . . . the challenge is aligning operations and tactics to each company’s unique mix of issues, strategy and culture. • Issues Impacting ALL COMPANIES in Market • - Internet impact on pricing power • - Increasing interest rates/cost of capital • - Underlying economy; war impact on travel • - Spiraling healthcare costs; inflation in key cost categories • None • Issues Impacting SPECIFIC COMPANIES • - Strategy/tactics of direct competitors • - Shift in power of owner/manager relationship • - Consolidation & scale: pros/cons; company standing • - New property development & local economies--impact on key properties • Company’s ability to control • COMPANY STRATEGY • - Market positioning/differentiation - Operational strategy (central/decentralized) • - Portfolio size & growth plan - Customer/channel mix (group/IT/leisure) • - Portfolio mix (types of properties/brands) - Capital strategy (public/private/institutions; leverage) • COMPANY OPERATIONS • - Property decision processes - Property market positioning (local delivery of brand “promise”) • - Role of influential properties - Regional infrastructure - Takeover/start-up capabilities • - Supplier relationships - Effectiveness of HQ programs - Performance mgmt/metrics • High

6. Linking Procurement to Strategy, Operations and Culture • Avendra’s deep experience in hospitality and procurement allows us to identify the right procurement approach given the management company’s particular circumstances. • Management Co. Profile – Example 1 • Manager for activist Owner. • Portfolio of 20 independent, luxury properties. • Individually positioned properties, with decentralized decision making. • Management Co. Profile – Example 2 • 3rd party Owner/Operator. • Portfolio of 150 limited service properties; 7 different national brands; 4 primary franchisors. • Rapid growth, primarily via conversions. • Critical Managerial Implications • Owner relations critical—reporting, transparency. • Difficult to leverage operational benefits of portfolio’s scale given management approach. • Use “Corporate Programs” judiciously, involve key field influencers in design (test before rolling out). • Critical Managerial Implications • Compliance to franchisors’ brand standards critical. • Staffing (property & corp) very lean—cost focused. • Takeover capabilities can make or break ROI from property acquisitions. • Essential Procurement Capabilities • Managing spec requirements across flags. • Reporting purchasing compliance against specs. • Centrally managing (challenging) product quality to optimize profit at unit level, but doing so with limited overhead. • Smooth supplier transition program for takeovers. • Essential Procurement Capabilities • Savings and benchmarking data important for owner reporting. • Rebates need to go back to properties. • Product and service quality more important than price—invest any savings into upgrades.

7. Customer Testimonials: Avendra Adds Value in Different Ways to Different Customers • “Avendra has the ability to leverage its expertise in purchasing to provide additional consulting advice and services that can really make a difference to my results.” • Scott Monell, Executive Chef - Fairmont Hotel Dallas • “Outsourcing through Avendra has allowed us to offload a lot of man-hours and management expense … they act as partners in our day-to-day operation.” • Tony Richardson, VP F&B and Procurement - Davidson Hotel Company • “We knew the quality we had to provide to hold our edge (as a AAA Five Diamond Hotel). Fortunately, Avendra has brought us more leverage and across-the-board product knowledge.” • David Benton, Vice President and Managing Director - The Rittenhouse Hotel • “We increased productivity at the hotel level in 2003…by leveraging our buying power and systems.  We reduced food and supply costs through greater participation in programs offered by Avendra, a procurement services company.”   • Bill Marriott, Chairman - Marriott Hotels and Resorts (2003 Annual Shareholders Report)

8. Avendra Offering Contracting, Supply Chain Management, and Customer Access to Resulting Programs Specification Development/Rationalization Quality Assurance Audits & Services Purchasing Information & Analysis Change Management, Customer Support & Services (Corporate to Property-level) Avendra 2001 – 2003: Single (Inflexible) Offering • Provide customers access to contracts, bundled into “programs.” • Over time, Avendra added new services to support the program offering • Single (opaque) revenue model for new customers

9. Custom Contracting Services Specification Development/ Rationalization Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Info, & Analysis; E-Commerce Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs Avendra Today: Flexible, Customized Solutions • We have a new process of engaging with prospective customers: Discovery Unbundle . . . . . . . then Customize Offering Execution Select Components Appropriate Given Needs and Culture Determine Preferred Fee Model Implementation Expertise Results Tracking Expertise Analyze Operations, Needs and Culture

10. Framework for Assessing Account-Specific Needs Deep Understanding Of (Unclear) Needs Joint Discovery Process Diagnosis Clear Needs/ Basic Understanding Standard Product/Service Product/Service PlusModifications Abstract andUnique Solutions Customized Solution for the Account

11. Objectives of the Discovery For each procurement topic, we will assess 1) importance of the topic to the account and 2) the account’s current performance. Illustrative Example H Opportunity Space • QA – Safety • Compliance • Owner Reporting • Specification Development Importance (Determined by strategy, external drivers, company preferences/culture) • Scale Buying • Supplier/Spec Audits • Supplier Service Management L L H Performance (Determined by interviews, analysis, Avendra best practices, observations)

12. Discovery: Process & Rough Timeline Start-upInformation GatheringSynthesis (1 week) (2-7 weeks) (1-2 weeks) Field and Corporate Interviews Meeting to Discuss Findings Joint Scoping & Objective Setting Data Collection & Analysis Proposal (if requested) Avendra Best Practices Benchmarking

13. Avendra 2004 Offering: Contracting & Supply Chain Management • Services Available in this Offering Component • Avendra’s Core Program “Bundles” • Groups of highly leveraged contracts organized by function—F&B, Rooms, Engineering, Admin Services, Golf Grounds Maintenance, Golf Pro Shop, Spa Products. • Avendra has contracts with 650 suppliers, covering over 1,000,000 SKUs and ~$2B in annual purchases. • Customers typically experience significant savings vs. previous purchases. • Avendra’s Program Development Processes • Structured, efficient process Avendra uses to ensure contracting activity is driven by customers. Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

14. Avendra 2004 Offering: Custom Contracting Services • Services Available in this Offering Component • Contracting Services • Account-specific Contracting. • Property-specific Supplier Agreements. • Supplier Diversity Services • Supplier Diversity (MWBE) Program Development and Reporting (Corporate-level). • Property-specific MWBE Compliance (for high target-goal properties). Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

15. Avendra 2004 Offering: Specification Development Services • Services Available in this Offering Component • Corporate Specification Development • Corporate or Brand Standards. • Cost/Value Engineering. • Maintenance of Corporate/Brand Specifications. • Property Specification Development • (Where properties have discretion relative to corporate specifications/standards.) • Product Cuttings/Comparisons • Broad category comparisons as part of program development process. • Narrow product comparisons to support product change-outs. Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

16. Avendra 2004 Offering: Quality Assurance Services • Services Available in this Offering Component • Avendra’s QA Supplier Audit Program • Regular, proactive audit plan driven by ongoing risk assessment. • Customer Advisory Management • Product Recalls • Advice on Major Food Issues (e.g., Mad Cow crisis) • Other QA Services Available • Property-based Food Safety Operational Reviews • “Meet the Truck” Audits (Delivery/Receiving) • Food Safety Education Seminars • Custom Corporate QA Audit Program Development Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

17. Avendra 2004 Offering: Purchasing Information & Analysis • Services Available in this Offering Component • Customer Reporting - Basic • Standard reports provided on a scheduled basis to designated customer contacts. • Includes: spend participation by property/supplier, product-level compliance, program savings reports, supplier service level reporting, issue tracking, etc. • Customer Reporting & Analysis - Advanced • Basic reporting, PLUS: • Self-help analysis tools and access to data warehouse. • Online push/pull reporting to properties. • Custom report development for customers. • Spend Tracking for non-Avendra Suppliers • Requires customer to assist in making suppliers provide data links to Avendra. • Compliance Analysis for non-Avendra suppliers. • Financial & Pricing Audit Services • Standard services (part of Core Program Offering). • Customer-specific financial audit services. Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

18. Avendra 2004 Offering: Customer Support & Services • Services Available in this Offering Component • Property-level Rollout Implementation • Property education regarding Avendra offerings. • Develop and manage supplier transition plan. • Track initial orders; troubleshoot as needed. • Measure early satisfaction; troubleshoot as needed. • Account Management • Proactive resources for corporate-level customers. • Assist with Owner Relations, as needed. • Facilitate use of additional offerings, as appropriate. • Field (property/regional) Support • Proactive property visits to ensure smooth operations. • Issues resolution assistance. • Aggressive property compliance service, as directed. • Call Center Support (866-AVENDRA, online options) • Issue tracking, resolution and follow-up. • Transactional Purchasing Services (for properties) Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

19. Avendra 2004 Offering: Operational & Best Practice Consulting Services • Services Available in this Offering Component • Best Practice Benchmarking • Corporate and/or Property levels. • Development of Standard Operating Procedures for Purchasing • Food & Beverage Operational Consulting • Property-based Food Cost % Improvement. • Menu development. • Local market menu price benchmarking. • Other Operational Consulting • e.g., Spa development & operations. • Disaster Readiness Programs (Prop- or Corp-level) • Corporate Business Development Support • Due diligence assistance—assessment of potential purchasing synergies from corporate transactions. • Integration of corporate purchasing functions after corporate transactions. • Mgt Company takeover/transition assistance. Custom Contracting Services Specification Development Services Avendra Core Offering Quality Assurance Services Operational & Best Practices Consulting Customer Support & Services Purchasing Information & Analysis Core: Contracting, Supply Chain Management, and Customer Access to Resulting Programs

20. Common Questions and Comments • “I’m already a large purchaser, and you can only squeeze suppliers so much. How can Avendra get more savings than I can on my own?” • “I worry that I’ll need to trade off product quality and/or service to get your savings.” • “We seem to do pretty much what you do with a lot less overhead.” • “I don’t like the idea of rebates. Why can’t you get rid of rebates and just lower the prices?” • “As long as the properties can pick and choose among the Avendra suppliers and other competing suppliers, they will get the best pricing and value, right?” • “Even if I see initial savings, how do you make sure I continue to get, and measure, the savings over time?”

21. Typical “Scale Curve” for Purchasing Economies of Scale in Purchasing • “I’m already a large purchaser, and you can only squeeze suppliers so much. How can Avendra get more savings than I can on my own?” The economic benefits of increasing scale (size) have been studied thoroughly. Related to purchasing economies of scale, it is generally accepted that: • Cost reductions do FLATTEN OUT as volume increases beyond a certain point, but they CONTINUE TO DECLINE. Typically, costs reduce about 3% every time volume doubles. • As an example (shown at right), when spend goes from $100M to $200M, costs decline 3%; but, it will take double the incremental volume to get the next 3% cost reduction.

22. Property Savings Are Compelling • “I’m already a large purchaser, and you can only squeeze suppliers so much. How can Avendra get more savings than I can on my own?” • Avendra typically performs market basket analyses during the sales process. • Representative sample of items purchased, weighted by $ volume. • Perform over a hundred analyses each year. • Results show significant savings can be generated. • Average of 14% for all baskets.

23. Customers Set Product & Service Specifications 2) “I worry that I’ll need to trade off product quality and/or service to get your savings.” • Customers, not Avendra, select the products their properties will use. • Avendra’s programs comprise ~650 suppliers with over 1,000,000 individual products. • The breadth of our offering serves the needs of customers ranging from Holiday Inns to Hyatt Regencies to Four Seasons. • Each customer determines their specifications. Avendra provides options that meet that requirement, and include the economic impact of each option. Then, customers have the final say on product selection. • Distributors’ service levels are managed through rigorous contracting, tracking and issue resolution. • Unlike most distributor agreements, Avendra puts service level requirements (e.g., minimum fill rates, on-time delivery performance) into its distributor agreements. • Avendra tracks and reports service level performance for distributors. • Avendra’s customer service, field support, and contracting professionals respond to customer issues and/or if service level performance doesn’t meet expectations. • Avendra’s QA team conducts unannounced “Meet the Truck” audits that check distributors’ delivery performance (timing, condition of product, etc.).

24. Customers Leverage Our Investments & Expertise 3) “We seem to do pretty much what you do with a lot less overhead’ • Given their scope and size, most companies don’t have the luxury to make significant investments in procurement. • On contracting, many have a small staff of contracting people that focus on distributor agreements and a handful of manufacturer agreements. • Rarely do companies invest in QA programs, information tools to track/analyze spend patterns, or dedicated property support personnel. • Avendra’s size and scope allows it to make large investments in contracting expertise, value-added services and procurement infrastructure, then amortize these costs over a very large base of business. Our customers directly and indirectly benefit from these investments. Following are examples of these investments: • Deep category experts: Avendra’s 50+ contracting associates each typically focus on 4 or 5 product or service types. • “Assurance” expertise: Avendra’s 15+ QA and price auditing professionals have extensive scientific and audit process training and experience. • “Customer Care” experience: Avendra’s 50+ associates typically have many years of industry experience to better relate to and address our customers’ needs and issues.

25. Rebates: Why They Are Good for Our Customers • “I don’t like the idea of rebates. Why can’t you get rid of rebates and just lower the prices?” • Primary reason for rebates is to allow Avendra customers to enjoy dramatic discounts while protecting suppliers’ pricing structure • Effective price extended to Avendra can be kept confidential • Some manufacturers go to market with a single price (no deviation), and ONLY provide discounts through rebates (e.g., Heinz ketchup) • Avendra and suppliers constantly at odds on how much discount to reflect directly with market (property) prices (back-end rebates vary from 0% to 10%+) • In more “controlled” environments (e.g., fast food restaurants), companies will use rebates to capture all of the excess value • Provides protection for manufacturers • Provides method for customer to see savings materialize • Hotel environment is different—given competitive distributors, need to keep a large portion of savings at property-level • In addition to the above reasons, the existence of rebates provides a mechanism to pay Avendra, avoiding the need to charge properties separately.

26. Cherry Picking: Why it Doesn’t Work • “As long as the properties can pick and choose among the Avendra suppliers and other suppliers, they will get the best pricing and value, right?” • While it seems like seeking the best price for individual items across multiple distributors is the right thing to do, it is NOT • At best, it erodes the program and indirectly harms the customer • At worst, it directly harms the property • Bait and switch tactics common • Can reduce drop (delivery) size and/or lead to higher effective drop fees • Regardless, it consumes valuable time from the property purchaser • Avendra programs are developed to provide the best value on a full market basket basis • Not every item will be priced lower than every competitor in the market, but the overall costs will be lower than alternatives • Some distributors will run loss leaders to entice customers • Some distributors will run specials due to inventory levels or temporary supplier promotions

27. Avendra Provides Ongoing Savings Validation • “Even if I see initial savings, how do you make sure I continue to get, and measure, the savings over time?” • Most challenging aspect of our program is tracking savings over time. • Best method—market baskets—are difficult for Avendra or customers to perform. • Tempting to look at trends in cost ratios, but these typically include many other factors beyond price of comparable products/services. • For example, changes in food cost % are impacted by changes in menu mix (change in items purchased), menu pricing, kitchen efficiency, degree of prepared food used, as well as changes in the prices of certain products. • Given the importance of the topic, Avendra has developed methods to track customer savings after they have adopted our programs: • Regularly share results from market basket studies we perform for other companies (once we “sanitize” the data to maintain confidentiality). • Share our Price Trends Index Report—compares changes in Avendra prices vs. changes in market prices (data from government or industry sources). • Engage 3rd party research firms to perform market basket pricing comparisons.

28. Questions HAMA members should ask the managers of their properties • How much of your spending is cost-controlled at the manufacturer level? • What information tools do you use to ensure compliance to contracted suppliers? • What do you do to assure our property is safe from food-borne illness outbreaks? • How much property labor is spent on purchasing-related activities? • Have you seriously looked at outsourcing procurement?

29. Why Outsource? Why Avendra? • Scale: savings, resources and tools • Expertise: deep domain expertise • Flexibility: however the manager (or owner) wants to do business Are you interested in discussing these topics further or connecting Avendra with you’re property manager? If so, e-mail Brian.Weed@Avendra.com