World and U.S.

Confectionery Market
June 9, 2008

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

About NCA: Association Profile

Promote and protect the U.S. confectionery industry

675 members total

Manufacturers: 400 Suppliers: 160 Brokers: 115

NCA Goals
Represent confectionery as an enjoyable food Significant source of candy category information Inhibit and reduce federal, state and international legislative and regulatory requirements Recognize new scientific and advancing technologies, meet the candy industry needs for training and education Grow the confectionery category

NCA Activities & Programs

Trade Relations Public Relations International Trade Development ALL CANDY EXPO Government Affairs Technical & Regulatory

www.candyusa.com
Register as industry member Resource Guide New Industry Research Results IRI data Manufacturer Shipment Data Industry Reviews Seasonal Holiday performance Export development programs

NCAs Daily SmartBrief Register today!

NCA 2008 Priorities

Farm Bill Nutrition legislation Advertising restrictions Responsible cocoa growing Social Responsibility Consumer promotion Trade involvement ALL CANDY EXPO

The largest confectionery, cookie and snack show in the Americas

May 20-22, 2009

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

2007-2008 Global Economic Trends

Economy slowing in Western Europe and USA
Retail sales growth down USA Unemployment ends year at 5% Up from 4.6% in 2006 but low in historical terms Housing market declines affecting job growth

Eastern Europe, Asia and Africa will grow faster High oil and energy prices Fears of global inflation Fear of global recession Commodity prices higher Slower growth

2007 Global Confectionery Sales

Manufacturers $ sales grew 3% in 2007

Category Total Chocolate Non-Choc. Gum

Retail Sales $141 Billion $77 Billion $44 Billion $20 Billion

Manf. Sales $93 Billion $51 Billion $29 Billion $13 Billion

% +3.4% +3.7% +2.3% +4.5%

Million Tons 13.8 6.9 5.9 1.0

% +2.9% +3.5% +2.0% +3.4%

Euromonitor Estimates

Continuous Growth of Confectionery

Total value and tons of confection sold at retail has increased consistently over the past five years $ +44% Tons +15%

Billions
$120.8

$128.8

$136.4 $141.2

$98.3

$109.4

12.0

12.1

12.6

13.0

13.4

13.8

2002

2003

2004

2005

2006

2007

Dollars Sold at Retail, Billions

Tons Sold at Retail, Millions

Euromonitor

The Second Largest Packaged Food Category

2002 - 2007
Product Categories
$0 Beer Confectionery Carbonated Beverage Sweet and Savory Snacks Bottled Water Ice Cream Biscuits Wine Cereal Snack Bars $25 $50

$ Billions
$75 $100 $125 $150 $175 $174.3

+21.0% +43.6%
$141.2

+29.9% +35.8%
+69.4% +39.0%
$65.2
$82.7

$128.1

$61.5

+36.6% $57.5 +7.1% $26.0 +24.9% $23.4

$7.8
+55.5%
Euromonitor

Global Region Size $

Millions of U.S. $

$50,000 Western Europe $40,000

$30,000

North America

$20,000

Asia Pacific

$10,000

Latin America

Eastern Europe

Middle East and Africa

$0 2002 2003 2004

Australasia
2005 2006 2007

Global Region Size Tons

Tons - 000

5,000

4,000

Western Europe

North America
3,000
Asia Pacific

2,000
Eastern Europe

1,000

Latin America
Middle East and Africa

Australasia
0 2002 2003 2004 2005 2006 2007

Market Tonnage Growth 2002 - 2007

27.8%

28% 22% 17% 11% 6% 0%

World

26.2%

25.4%

20.7%
15.5%

14.5%

7.5%

7.3%

Asia Pacific Middle East and Africa

Eastern Europe

Latin America

Australasia

Western Europe

North America

Developing Markets are growing at almost twice the world average.

Euromonitor

Tonnage Growth 2002 - 2007

600 500 400 300 200 100 0
Asia Pacific Eastern Europe Western Europe Latin America North America Middle East and Africa Australasia

571.8

Thousands of Tons

404.0

280.0

267.4

214.8

138.2

27.1

51% of tonnage growth has come from Asia Pacific and Eastern Europe.

Euromonitor

Top 20 Confectionery Markets

$ Billions
$0 USA United Kingdom
$12.1 $9.7 $8.4 $7.3 $6.8 $6.3 $6.0 $4.9 $4.6 $2.8 $2.3 $2.3 $2.0 $1.7 $1.6 $1.6 $1.5 $1.5
Euromonitor

$3

$6

$9

$12

$15

$18

$21

$24

$27
$29.4

$30

Countries

Germany Russia Japan China Brazil France Italy Mexico Canada Australia Spain Poland Turkey Argentina Ukraine Netherlands Sweden

Switzerland $1.5

Top 20 Confectionery Markets

Tons Billions
0 USA China Russia Germany United Kingdom Brazil Mexico France Japan Ukraine Italy Spain Indonesia Poland Australia India Netherlands Argentina Canada Turkey 300 600 900 1,200 1,500 1,800 2,100 2,400 2,700 3,000
2,990 1,184 1,129 1,065 1,036 536 488 371 359 295 279 204 196 189 187 181 180 179 167 144
Euromonitor

C ountries

Top 20 Per Capita Confectionery Markets

Kilograms Countries
United Kingdom Iceland Luxembourg Ireland Liechtenstein Switzerland Germany Denmark Finland Norway Sweden Netherlands USA Australia Austria Belgium Russia New Zealand Ukraine France 0 3 6 9 12 15
17.1 16.6 14.5 14.0 13.6 13.5 12.9 12.6 12.1 11.8 11.2 11.0 9.9 9.1 9.1 8.7 7.9 6.7 6.4 6.0
Euromonitor

18

Top 20 Confectionery Companies

Market Share % Company
Cadbury Mars Nestl Wrigley Hershey Kraft Ferrero Perfetti Van Melle Lindt & Sprngli Lotte Storck Arcor Obiedinenye Leaf Haribo Meiji Orkla Ritter Morinaga Cloetta Fazer 0.5
0.5 0.5 0.5
Euromonitor

10
10.1 8.9

12

7.7 5.5 5.5 4.3 4.2 2.9 1.9 1.7 1.4 1.0 1.0 1.0 0.9 0.7

Slightly changed since last month!!!!

Top 20 Confectionery Companies

Market Share Changes 2002 - 2007
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 5.1% 1.6% 1.0% 1.0% 1.0% 0.5% 0.5% 0.4% 0.4% 0.2% 0.1% 0.1% 0.0% 0.0% -0.1% -0.1% -0.1% -0.5% -0.8% -0.9%
Euromonitor

Cadbury Wrigley Obiedinenye Leaf Perfetti Van Melle Ferrero Lindt & Sprngli Nestl Orkla Haribo Ritter Storck Arcor Cloetta Fazer Meiji Lotte Morinaga Mars Kraft Hershey

Top Confectionery Importing Countries

January December 2007
Country USA United Kingdom Germany France Netherlands Canada Belgium Russia Italy Spain Austria Sweden Denmark Ireland Australia Mexico Czech Republic Poland Hong Kong Japan
* Global Trade Atlas

2007 $ Sales $2,006 $1,734 $1,622 $1,471 $769 $723 $558 $541 $487 $487 $460 $438 $351 $365 $333 $330 $326 $321 $279 $272

2007 % Growth +3.5% +20.6% +13.5% +20.4% +10.4% +10.2% +17.5% +42.2% +12.8% +13.5% +14.9% +13.0% +24.0% +19.4% +32.2% +14.4% +35.1% +31.6% +18.1% +0.7%

2007 USA Exports

January - December 2007
Country 2007 $ Sales 2007 Tons 2007 % Growth

World
Canada Mexico South Korea Japan Australia Philippines United Kingdom Hong Kong Singapore Colombia Taiwan Peru China Panama UAE
* Global Trade Atlas

$1,004,788,079
$446,710,332 $137,901,651 $49,090,151 $28,724,733 $24,055,499 $23,264,222 $21,385,698 $19,895,650 $16,257,498 $15,280,295 $15,078,029 $10,968,139 $10,692,742 $10,353,915 $10,241,649

267,734
125,469 45,461 11,262 6,512 5,185 4,896 4,635 4,437 3,804 4,217 3,808 1,984 2,528 1,990 2,674

+14.2%
+6.7% +16.7% +11.5% +7.2% +32.7% +16.8% -12.2% +32.6% +44.5% +57.7% +49.6% +38.8% -5.8% +51.3% -6.6%

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

U.S. Confectionery The Retail Market

Continuous Growth of Confectionery

Total value and pounds of confection sold at retail has increased consistently over the past five years

$24.0

$24.4

$25.8

$27.4 $27.9 $28.2 $29.1

7.0

6.7

7.1

7.3

7.6

7.7

7.7

2001

2002

2003

2004

2005

2006 2007

Dollars Sold at Retail, Billions

Pounds Sold at Retail, Billions

Department of Commerce Data is released in late summer. Please return in August for actual 2007 data.
2006- US Dept of Commerce 311 D Report

Total Chocolate/Non-Chocolate/Gum Dollar Share

GUM 11%

CHOCOLATE CANDY 56%

NON-CHOCOLATE CANDY 33%

U.S. Department of Commerce Census Bureau 2006 MA 311D Report

Retail Confectionery
Market Share by Trade Channel
Warehouse Clubs* 7.6% Drug Stores 8.6% Bulk 5.4% Vending 4.2% Dollar Stores* 2.9% Others 24.9%

Mass X Wal-Mart 4.7% Wal-Mart 11.4%

Supermarkets 15.3%

Convenience Stores 15.0%

*estimates

* * Others include: department stores, food service and ingredient sales, fundraising, give-aways, independent grocers, mail order/internet, military, specialty/candy stores, theaters and concessions

NCA 2007 estimates based on IRI, U.S. Department of Commerce, MSA Vending Data, NCA Shipment Report and other industry sources.

2007 Retail Channel Performance

Based on 52 Week Sales January - December 2007 Channel Supermarkets Wal-Mart Mass X Wal-Mart Convenience Stores Drug Stores *Warehouse Clubs *Dollar Stores Vending *Bulk 2007 $ Sales $4.6 $3.5 $1.4 $4.5 $2.6 $2.2 $.8 $1.2 $1.4 2007 % Growth +2.4% +7.3% +6.5% +6.2% +3.9% +2.0 +0.2% +0.7% -0.5

The confectionery retail market has grown across all trade channels but convenience stores, club stores, dollar stores and chain drug stores have outpaced the overall retail market.
* Indicates NCA estimate
Source: NCA estimates based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce. Sales Figures in billions

Are we in a recession?
Leading Chains
Percent Change in Weekly Sales Per Unit
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0 -8.0 -9.0 -10.0

2002
Thanksgiving

2003

2004

2005

2006

2007

9/11/01

Weekly Change 4 per. Mov. Avg. (Weekly Change)

37 44 51 6 13 20 27 34 41 48 4 11 18 25 32 39 46 1 8 15 22 29 36 43 50 5 12 19 26 33 40 47 2 9 16 23 30 37 44 51 5 12 19 26 33 40 48 3

Weeks of Year

Source: The NPD Groups SalesTrac service; Based on actual sales reported from 45 chains

2007-2008 USA Retail Trends

2007 Holiday retail sales slowed 2.4% growth vs 2.9% in 2006 Luxury Retailers continue to do well Convenience and Drug doing well Mass, dollar and supermarket experience slow growth Overall retail is growing at a slower pace

High gas pricing negatively affecting all retailers

Candy and Gum Ranked 3rd Among 2008 Food Categories

$ Billions

$0.0
Carbonated Beverages Milk

$3.0

$6.0

$9.0

$12.0
-1.1% +14.9%

$15.0
$13.40

$12.90

Product Categories

Candy& Gum Salty Snacks Cereal Ice Cream Soup Cookies Bottled Juice -1.2% +1.1% -1.9% +1.4%
$4.50
$4.10
$4.00

+2.4%
+2.7%
$6.40

$8.60
$8.00

Unit Sales Beverage -5.5% Milk Candy Salty Cereal Soup Cookies -3.4% -3.0% -2.5% +0.9% -3.3% -4.9% -4.0%

Ice Cream -4.2%

+1.9% $3.80

IRI Food, Drug & Mass Excluding Wal-Mart 4/20/2008

Juice

Candy and Gum is the Largest Snack Category

$ Billions
$0.0
Candy& Gum

$2.0

$4.0

$6.0

$8.0
+2.4%
$8.6
$8.0
Unit Sales Candy Salty

$10.0

Product Categories

Salty Snacks Ice Cream Cookies Snack/Granola Bars Bakery Snacks Dry Fruit Misc. Snacks +7.7%
$1.0
$2.3
+5.1%

+2.7% -0.7%
$4.5

-1.9% $4.0

-3.0% -2.5% -4.9% +6.4% -1.4% +12.3%

Ice Cream -4.2% Cookies Snack/G Bakery

IRI Food, Drug & Mass Excluding Wal-Mart 4/20/2008

$0.5

-4.0% +18.7%

Dry Fruit -6.3% Misc

$0.3

2007 Confectionery Sales

Manufacturers Sales January - December, 2007 $ +3.8% +2.3% +5.8% Lbs. Even -0.9% +0.5%

Confectionery Chocolate Candy Non-Chocolate Candy

NCA Monthly Shipment Reports

Ferrero Session
About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

Confectionery Seasonal Merchandising

Total Confectionery Seasonal Shares

Valentine's Day 16% Christmas 21% Halloween 33% Easter 30%

NCA estimates based on December 30, 2007 IRI Data, NCA Manufacturers Shipment Reports and U.S. Department of Commerce MA311D Report

What Affects Seasonal Sales?

Date/Day of Holiday The Economy Consumer Confidence Shopping Patterns/Habits Merchandising Strength/Visibility

Holiday Dates/Days
Holiday
Valentines Easter Halloween Christmas
Thanksgiving Shopping Days

2007
Wednesday 4/8 Wednesday Tuesday 11/22 33

2008
Thursday 3/23 Friday Thursday 11/27 28
Indicates neutral date for holiday sales

2009
Saturday 4/12 Saturday Friday 11/26 29

2010
Sunday 4/4 Sunday Saturday 11/25 30
Indicates negative date for holiday sales

Indicates positive date for holiday sales

Confectionery Seasonal Sales

(** in millions of dollars)
2004 Valentines Day - $1,010 Easter $1,906 Halloween $2,041 Christmas $1,342 2005 $970 $1,761 $2,088 $1,375 2006 $971 $1,884 $2,146 $1,389 2007 $1,036 $1,987 $2,202 $1,420 2008 $1,035 $1,845 $2,265* $1,430*

Results and Projection as of January 2008 Source: Sales figures are compiled by National Confectioners Association based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce

Seasonal Confectionery Trends

2008
VALENTINES EASTER HALLOWEEN CHRISTMAS -0.2% -7.1%

2007
+6.7% +5.4% +2.6% +2.2%

2006
+0.1% +7.0% +2.8% +1.0%

2005
-4.0% -7.6% +2.3% +2.4% +2.4%

2004
-3.0% +5.5% +2.4% -3.5%

2003
-7.6%

2002
+6.5%

+2.2% -2.2% +0.7% -0.4% -1.4% -3.0%

* IRI FD&M

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

U.S. Confectionery Trends

We are concerned about our weight!

The alarm about our weight condition has been well documented and well reported!
Dist. Of Adults (18+years)

Overweight or Obese 62%

Not Overweight or Obese 38%

Note: Sample is approximately 3,700 adults per year of which 90% provide food and beverage intake, height and weight information Source: The NPD Groups Health Track Service

Snacking is a part of our diet!

Distribution of Annual Meals

Breakfast 28%

Lunch 27%

Snacks 19%
Source: The NPD Group's National Eating Trends and CREST Services

Supper 26%

 But snacking isnt becoming more important!

25% 20% 15% 10% 5% 0% 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
Source: The NPD Group's National Eating Trends and CREST Services

Percent of All Meals that are Snacks

We snack throughout the day!

Distribution of In-Home Snack Meals

Morning 32%

Afternoon 30%

Evening 38%
Source: The NPD Groups National Eating Trends service

But there is a shift:

Percent of In-Home Snack Meals Occurring in the Morning
35% 30% 25% 20% 15% 10% 5% 0%
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
Source: The NPD Groups National Eating Trends service

Morning Snacks

And fewer in the evening

Percent of In Home Snack Meals Occurring in the Evening
60% 50% 40% 30% 20% 10% 0%
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
Source: The NPD Groups National Eating Trends service

Evening Snacks

Feeling about Children and Sweets:

Children should not be allowed to eat sweets
Percent of Homemakers Agreeing
52.1 52.4 49.4 46.3 45.5 45.9 40.6 36.1 36.7 33.8 32.6 31.1 31.6 31.9 30.2 31.1

29.3 29.6

28.2 28.5 28.9 29.4 29.3

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07

Top Snacks Foods Consumed By Children (under 6)

1987
1. 2. 3. 4. 5. 6. 7. 8. 9. Cookies Fruit Milk Juice Candy CSD Ice Cream Crackers Cake 1. 2. 3. 4. 5. 6. 7. 8. 9. Fruit Cookies Milk Crackers Juice Popcorn Candy Ice Cream Chips

2007

10. Chips

10. Fruit Rolls/Bars/Bits

Source: National Eating Trends

Candy Bars
Percent of Age Group Eating Candy Bars in Two Weeks
30 2005-2007 1990-1992 Percent Eating At Least Once in Two Weeks

25

20

15

10

0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70

Age of Eater
Source: The NPD Groups National Eating Trends Data

Chocolate Covered Candy

Percent of Age Group Eating Chocolate Covered Candy in Two Weeks
30 2005-2007 1990-1992 Percent Eating At Least Once in Two Weeks 25

20

15

10

0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70

Age of Eater
Source: The NPD Groups National Eating Trends Data

Non Chocolate Candy

Percent of Age Group Eating Non Chocolate Candy in Two Weeks
30 2005-2007 1990-1992 Percent Eating At Least Once in Two Weeks 25

20

15

10

0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70

Age of Eater
Source: The NPD Groups National Eating Trends Data

Kids are Eating more Fish!

Percent of Age Group Eating in Two Weeks
25 2005-2007 1990-1992 Percent Eating At Least Once in Two Weeks 20

15

10

Goldfish
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70

Age of Eater
Source: The NPD Groups National Eating Trends Data

Trend in Consumers of Organic Products

Trend in Percent of Population Consuming Organic Products

24.5% 21.4% 21.4% 20.1% 18.3% 16.5% 15.0% 13.9% 11.6% 9.8% 11.5% 11.5% 13.9% 14.3% 13.4% 15.1%

2003
May Aug '03 Nov '03 '03

2004
Feb '04 May Aug '04 Nov '04 '04

2005
Feb '05 May Aug '05 Nov '05 '05

2006

2007
Feb '07

Feb '06 May Aug '06 Nov '06 '06

Source: The NPD Groups National Eating Trends service

But this still is one of the Hot Trends in the US:

Trends - What's

for 2007/2008

Dark chocolate sales accelerating - +50% in 2007 Chocolate experiences

Chocolate tastings Chocolate and wine pairings

Exotic chocolate flavorings: citrus, spice, salt, fruits High cocoa content chocolates Gourmet chocolate bars Gourmet packaging for chocolates Single origin chocolates Urban names for upscale chocolates

Trends - What's

for 2007/08

Sugar Free gum - +13.5% sales Exotic fusion flavors Fortified products Theater Box candies Event merchandising theaters, birthday, game nights Single-serve seasonal items New seasonal offerings

Whats important:
1. New we like to try new things but dont mistake this for a trend! The top 25 new items in chocolate, non-chocolate and gum generated 10% of total sales in 2007. 2. Taste this takes generations to change! but it is changing! 3. Convenience we have always moved to making our lives easier!... remember, easier not easy 4. Value Weve never let food costs rise faster than our incomes!

Key Customer Meeting Thirty Key Customers

February 28, 2008

Changes we will see in the next five years: Continued consolidation Growth in global business Blurring of Snacks and Confections More Customization packs for individual retailers More Secondary Merchandising Speed to Shelf coordination more important Continued loss of center store Labeling will become more important

Key Customer Meeting Thirty Key Customers

February 28, 2008

Changes we will see in the next five years: Price Blending less differential in key sizes Product Quality more important to consumers More Premium section will grow
Must have quality product and matching packaging

Distinction between luxury and premium Healthier options Growth in organic confections More functional products More portion control options

World and U.S. Confectionery Market

June 9, 2008

National Confectioners Logistics Council

About NCA Global Confectionery Performance USA Confectionery Performance Seasonal Performance Trends New NCA Research Findings

New NCA Research

Dechert-Hampe Expanding the Dimensions of Confectionery - a $10 Billion Opportunity!
and

Phil Lempert the Supermarket Guru New Consumer Research

Confectionery is Expandable Not a Zero Sum Game

Fixed Consumption Expandable Consumption

Purchasing

Purchasing Consumption
Consumption

weeks

weeks

Consumption at fixed rate Soap, Detergent, Toilet Paper Promotion Loads Pantry

Consumption Driven by Purchase Candy, Snacks, Beverages Promotion Builds Consumption

Source: Dechert-Hampe & Co.

Confectionery Delivers High Profitability Driven By High Gross Margin

% Gross Margin
30%

27%

Confectionery

Grocery Average

Confectionery margins are 3-5% points higher

Source: DHC Analysis of Retailer Data

Confectionery Is Among Most Frequently Purchased Categories In Stores

Annual Purchases
Carb. Bev. Milk Confectionery Cereal Bottled Juice Cookies Soup Coffee

31
30 22 16 15 12 11 7

Frequent purchases make it key to retailers

Source: ACNielsen HomeScan

Top Performing Retailers Sell Confectionery At A Higher Rate

Confectionery Sales Index Per $MM ACV

Top Performing Retailers Moderate Performers Low Performance

136

101

76

Top performers have a rate 35% greater than average

Source: DHC Analysis of Retailer Data

Top Performing Retailers Generate Higher Growth In Confectionery

Confectionery % Sales Growth
Top Performing Retailers Moderate Performance
1.9% 4.1%

Low Performance

-2.4%

Some of the top retailers are growing by double digits

Source: DHC Analysis of Retailer Data

Top Performing Retailers Have Greater Confectionery Section Productivity

Confectionery Sales Per Linear Foot
Top Performing Retailers Moderate Performance

$15.57

$13.91

Low Performance

$6.10

Source: DHC Analysis of Retailer Data

Potential For Improved Performance Projects To A $10 Billion Opportunity

Confectionery Sales $ Billions
$39 $29

A $10 Billion Opportunity

+35%

Current Performance

Potential Performance

Potential growth based on top performing retailers

Source: Dechert-Hampe & Co.

Aisle Management

Many Consumers Are Unhappy With Retail Merchandising Of Confectionery

Consumer interviews reveal some of the shopper frustration at the shelf
The candy section is confusing. Its difficult to find what you want The products are all clumped up. They run into each other They need to separate the different kinds of candy better Its overwhelming. Theres no organization to help you shop

Source: Dechert-Hampe & Co.

Supermarket Guru Survey Customer Satisfaction

Excellent Good Fair/Poor
33 49 19 Holiday Candy 27 54 20 Chocolate 24 57 18 Adult Candy 24 55 21 Gum 23 43 33 Holiday Gifts 18 59 24 Hard 12 53 35 Mints 37 52 P Label 1 1 11 31 58 Gourmet 46 44 Novelty 1 0 9 33 59 Natural 31 61 Imported 8 26 69 Ethnic 5 22 73 Organic 5

20

40

60

80

100

Snacks Customer Satisfaction

Excellent
Salty Snacks Potato Chips Nuts Natural Gourmet Organic Ethnic P Label 0
15 12 10 6 11 30 37 32 63 52 38 58 25 44 50 44 46 49 41

Good
47 40

Fair/Poor
10 10 27

20

40

60

80

100

Supermarket Guru Survey Customer Satisfaction

% of Consumers 0

What10 Improvements? 20 30
39 33 28 24 20 19 15 13 13

40

50

More Variety Cost Savings More Gourmet More Imported More Fresh Better Quality More Health Info Better Organized More Ethnic

New Patterns Of Consumer Shopping Behavior Change the Game

Consumer shopping patterns changed toward more shorter trips Retailers competing with multiple outlets for shopping occasions Majority of shopping trips today are convenience oriented Shoppers must be drawn into the aisle Perimeter displays must compensate for reduced traffic

Where are Consumers Buying?

Why the market share shifts?

Is there a change in the planned vs. unplanned confectionery purchase? Is the consumer more apt to indulge in an impulse purchase away from the supermarket? Are supermarkets merchandising impulse purchase items correctly?

Value Channel Trips Have Increased

Household Shopping Frequency Annual Trips
64

Grocery
27

78

Supercenters Mass Merchandisers Drug Stores Convenience Stores Dollar Stores Warehouse Clubs

17 18 25 15 15 15 14 13 10 11 10

2005 2000

Source: Nielsen Household Panel.

Increasing Ring Is Key For Retailers

Average $ Basket Ring
Warehouse Clubs
$60 $87 $83

Supercenters Mass Merchandiser Grocery

$22 $19 $15 $10 $12 $11

$49 $44 $38 $35 $32

2000 2005

Drug Stores Convenience Stores Dollar Stores

Source: Nielsen Household Panel.

Locate Confectionery Section Earlier In Shopping Trip

Confectionery Location In Store
18% 10% 30% 45%
End of Trip Middle of Trip Beginning of Trip

60% 37%

All Retailers

Top Performers

Locate Confectionery near beginning of trip

Source: DHC Analysis of Retailer Data

Confectionery Performs Best Adjacent to Snacks

Adjacent Category
Salty Snacks Nuts Cookies Fruit Snacks Snack Bars Total Snacks Baking Needs Bottled Juice/Water RTE Cereal Other

Top Performing Retailers

18% 18 10 12 6 64% 9 3 0 23%

Others
12% 8 12 6 4 42% 7 9 6 36%

Source: DHC Analysis of Retailer Data

Drive Sales By Allocating More Space To Confectionery Gondola

Gondola Candy Section Size In Feet
44.3 35.0 28.0 22.2 29.4 32.6
All Retailers Top Performers

Grocery

Drug

Mass

Top performing retailers devote more space & generate more Candy sales
Source: DHC Analysis of Retailer Data

Increased Item Assortment Can Drive Confectionery Sales

Non-Seasonal Gondola Candy Grocery Dollar Sales Per MM ACV Index
122 104 82

Less Than 250 Items

250-350 Items

Over 350 Items

Top performing retailers stock more items

Source: DHC Analysis of Retailer Data

Retailers Risk Lost Sales If They Dont Stock Candy Items Consumers Want
If you were shopping & could not locate the particular product you wanted to buy, which would you do?
Buy Another Flavor/Variety

27%

Buy Another Brand

25%

Buy Another Size/Pack

12%

Buy Another Type Of Snack

9%

Buy Nothing Or Don't Know

16%

Walk away
Go To Another Store

11%

Source: DHC Consumer Interviews

Retailers Must Stock Variety of Christmas Candy

If Desired Christmas Candy Were Unavailable

22.4%
Buy Another Variety of Brand

Buy Another Brand

25.8% 15.7% 5.9% 7.8% 22.4%

Buy Another Type of candy

Buy Non-Seasonal Candy

Buy Nothing Or Don't Know

Go To Another Store

Retailers risk lost purchases if they dont carry a variety of Christmas Candy

Source: Consumer Interviews.

Dechert Hampe 2004

A Third Of Candy Sales Are New Items

% Category Sales
New Items, 9.5% One Year Old, 13.5%

More Than Two Years Old, 67.8%

Two Years Old, 9.2%

New products are truly the lifeblood of Confectionery

Source: IRI, FDMX, 2004

Candy Is The Most Responsive Category For Display Treatment

% Increase On Display Only
Candy

169%

Cookies

105%

Carb. Beverages

95%

Bottled Water

95%

Salty Snacks

88%

Wine

68%

Spices/Seasoning

61%

Beer

49%

Source: IRI, Food, 2005

Research Demonstrates Value Of Additional Candy Locations In Store

Candy Store Sales Index By Number Of Permanent Locations
101 85 105

1 or 2

4 or More

Source: DHC Analysis of Retailer Data

Top Performing Retailers Provide More Merchandising Support

Confectionery Gondola % Volume
Low Performers Feature & Display Display Only Feature Only Price Reduction Any Merchandising 5 16 5 14 40 Medium Performers 8 20 7 17 52 Top Performers 10 24 7 18 59

Source: IRI, Food, 2005

Keys to Maximizing Confectionery Sales

Customer Commitment Proper Space
Location Size Organization

Key Assortments Increased Merchandising

Displays and other

Commitment to Seasons Commitment to New Items

World and U.S. Confectionery Market

June 9, 2008