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2020 Vision Global Food & Beverage Industry Outlook

Christopher Shanahan Industry Analyst May 18th, 2010

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The CEOs 360 Degree Perspective of the Complex Business Universe

1. Global Perspective 2. Integrated Industry Perspective 3. Technology Perspective 4. Economic Perspective 5. Competitive Perspective 6. Customer Perspective 7. Best Practices Perspective

Global Food & Beverage Retail Revenues, 2002 through 2014


Global demand for Food & Beverages Reached $11.6 Trillion in 2009 and is likely to reach $15 Trillion in 2014
CAGR (2009 2014)
Retail Food & Beverage Industry Sales ($ Trillions) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2004 1.1 2.0 2.4 1.8 1.0 2009 1.7 2.6 3.6 2.5 1.2 2014 2.2 3.0 5.1 3.3 1.5

5.5%
CAGR (2004 2009)

9.6%

Latin America (LA) Europe (EU) Asia Pacific (APAC) Mid. East & Africa (MEAF) North America (NA)

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Food & Beverage Retail Sales by Region, 2002 - 2014


Global share of demand for Food & Beverages is increasing in Emerging Regions which is driving continued Globalization of the industry

2014
NA 10% LA 15%

2009
NA 11% LA 14%

EU 20% MEAF 22%

2004
NA 12% LA 13%
EU 22%

MEAF 21%

APAC 33%

EU 24%

MEAF 22%

APAC 32%

APAC 29%

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Food & Beverage Demand by Product Category, 2009


Spending on meat and poultry increases with increased market development Increasing odds of Health Issues??
100% 90% 80% 70% 60% 50%
19.0% 24.3% 26.4% 27.1% 26.5% 34.1% 30.0% 29.2% 28.6% 25.9%

Food & Beverage Market: Product Category Share of Revenues per Region, (World), 2009
8.9% 3.2% 8.0% 4.6% 7.1% 5.5% 6.6% 5.5% 7.4% 5.7%

40% 30% 20% 10% 0%


NA Bread & Grains Dairy EU Fruit & Vegetables APAC Meat & Poultry LA Fats & Oils MEAF Sugar & Sweeteners
20.1% 18.4% 17.7% 16.6% 20.2% 14.6% 14.6% 14.2%

14.0%

15.5%

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

The Food & Beverage Industry Today and Tomorrow


Key Mega Trends Impact as a Function of Time on the Food & Beverage Industries

Mega Trend

2010

2015

2020

Globalization Economic rebound continues Rising Food Prices Due to Demand Full industrialization from Bioenergy & Changing of developing countries Economics Increasing consolidation within food processing

Health & Wellness

Continuous re-assessment of safe chemicals and materials for F&B and agricultural production

Increased Use of Health Claims

Increasing urbanization impacts the demand for health & wellness solutions beyond BRIC

Food Safety & Sustainability

Customers increasingly gain access to F&B processing information

China begins to shake off food ingredient safety concerns

The Adoption of Safety & Sustainability Strategies will be Common-place as opposed to being the exception

The Economic Downturn of 2008 & 2009 and 2010 Recovery


The Relative Impact of the Economic Downturn and Recovery on Specific Industries
Total Value of the Market Capitalizations of Top U.S. Public Companies Per Industry in Years 2008, 2009, and 2010 Relative to its Value in Jan 2007 (US), 2007 2010

140%

120%

126%

125%

Relatively Little Change in Industry Performance

133%

131%

102%

101%

100%
92%

J - 2007
96% 93%

93%

92%

95%

87%

84%

84%

81%

78%

78%

79%

62%

60%

40%

20%

0%
Food Processing Health Care S&P 500 (Total Market) Energy Personal and Household Care Crops Containers & Packaging Paper & Paper Products Chemical Manufacturing

J-2008

J-2009

56%

62%

60%

78%

79%

J-2010
Source: Frost & Sullivan

83%

80%

87%

The Economic Downturn of 2008 & 2009 and 2010 Recovery


Production Input Costs have Stabilized Since 2008s Historic Rise, For Now
Commodity Food and Beverage Price Index Monthly Price
Commodity Food and Beverage Price Index, 2005 = 100, (Global), March 2005 to March 2010

Price growth has Price growth has abating since its abating since its rapid rise in 2007rapid rise in 20072008 2008 Back to Back to Historical Growth Historical Growth Rates, For Now Rates, For Now Commodity prices Commodity prices are highly are highly correlated with correlated with crude oil prices crude oil prices Likely to Happen Likely to Happen Again Before 2020 Again Before 2020

200

175

150

125

100

75

50 Mar-05 Nov-05 Jul-06 Mar-07 Nov-07 Jul-08 Mar-09 Nov-09


Source: FAO

Global Food Industry Industry Consolidation


Fragmented and Stable Market, but Expected to Slowly Concentrate Over Time
Market Share of the Top 20 Global Food Processors by Region (2008) The Largest 20 Food Processors Command 20% of the Global Market
Western Europe Eastern Europe North America Latin America Asia Pacific World

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

21.2%

12.8%

37.5%

22.3%

5.8%

20.9%

Increasing Demand for Health & Wellness Ingredients


Shift from Reduced 'Bads' to Fortified with Goods Food & Beverage
Growth of Added Goods accelerating year on year Growth of Added Goods accelerating year on year
Global Sales of Reduced 'Bads' Dairy Compared to Nutraceutical-Fortified Dairy, $$ Billions, (World), 2002 - 2015 Global Sales of Reduced 'Bads' Dairy Compared to Nutraceutical-Fortified Dairy, Billions, (World), 2002 - 2015

Global S ales ($US Billion)

$80.00
Fortified Goods Dairy Fortified Goods Dairy

$70.00

$60.00

$50.00

Reduced 'Bads' Dairy Reduced 'Bads' Dairy

$40.00
20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 11 20 12 20 09 20 10 20 13 20 14 20 15

Source: Frost & Sullivan

Avoiding Bads is Key Megatrend that is Set to Continue Through to 2020 Avoiding Bads is Key Megatrend that is Set to Continue Through to 2020

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Increasing Demand for Health & Wellness Ingredients


The Need for Health & Wellness Solutions Will Increase with Increased Urbanization

Beyond BRIC Beyond BRIC Look for increasing urbanization, Look for increasing urbanization, dietary changes, and economic development in dietary changes, and economic development in emerging markets, especially in Latin America and emerging markets, especially in Latin America and Africa, as these are future growth regions for Africa, as these are future growth regions for Health & Wellness Solutions Health & Wellness Solutions

Total expenditure on health as % of GDP

% POP w/BMI >= 25 kg/m

20 15 10 5 0 0 20

y = 0.0524x + 3.6258 R2 = 0.1831

100 80 60 40 20 0 0 20

y = 0.3578x + 21.648 R2 = 0.1646

40 60 80 % of Urban Population

100

40 60 80 % of Urban Population

100

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The State of Food Safety & Sustainability


Confusion Over Standards Impacts Implementation of Effective Safety Practices The plethora of choices of voluntary food safety standards and mandatory government regulation has been an inhibitive factor on the adoption of any type of voluntary/mandatory industry standard Some industry participants feel that voluntary/mandatory existing government food regulations safety that standards are redundant with alreadymerely need to be enforced Some companies feel that it is much easier to just meet the minimum level of government-enforced safety laws without being noticed
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What is Sustainability?
Optimization of the bottom lines over time
GOAL
Change in Bottom Line

The more Green we are the more Green we make


Maximize Growth
L ttom Bo mic ono ine

Change in Bottom Line

Line Economic Bottom

Ec

Max/Min Positive/Negative Impact on Internal and External Community


ity

il esponsib Social R

Time
Social Responsibility
Env iron m

reness ntal Awa vironme En

Time
enta l Awa rene

ss

Minimize Waste and/or the Negative Impacts on the Environment

Yesterdays Objective

Todays Objective

In the past, the only metric that a given company really paid attention to and worked toward sustaining was its economic bottom line (EB). Social responsibility (SR) and environmental awareness (EA) were not considered key objectives. This has changed With the growing power of external constituents that demand increasing social and environmental responsibility, companies now must adopt business practices that meet these additional objectives. 13

Having a Best Practices Perspective


Employing Innovation to Enhance Food Supply Chains and Safety
The companys ink product is incorporated into its patented barcode array and automatically modifies The companys ink product is incorporated into its patented barcode array and automatically modifies ordinary coded data into an advanced cold chain monitoring mechanism when exposed to an adulterating ordinary coded data into an advanced cold chain monitoring mechanism when exposed to an adulterating temperature level or other negative environmental factors temperature level or other negative environmental factors The ink is invisible under normal circumstances The ink is invisible under normal circumstances If tampering or other negative environmental factors are present, the ink will turn the barcode bright red, and If tampering or other negative environmental factors are present, the ink will turn the barcode bright red, and rendering the barcode unscannable or it will change the barcode data to indicate exactly what has happened rendering the barcode unscannable or it will change the barcode data to indicate exactly what has happened Negative Environmental Factors
Shipped Product Distribution Channel Distribution Channel Received Product

Barcode # and lack of a bright purple visual marker indicates a safe product

Current work is under development by which the inks can be turned on Activation devices are in final-stage development by the company for use for weigh scales, printing press add-ons, production line systems, Benchtop printers and hand-held devices Barcode # and bright purple visual marker indicates an unsafe product
Source: Frost & Sullivan

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Conquering the Food & Beverage Ingredient Markets


Invest

in

marketing

strategies

that

focuses on your core product offering

Show that your product is an essential component of the average consumers grocery basket Build brand equity through targeted efforts by Marketing and Sales Company positioning as a partner to help end users through this tough economic time Integration of disparate products into a complete solution

Exploit

opportunities

from

consumer

feedback

Proactively seek the final consumers need set and match product lines to those needs

Establish

partnerships

with

other

suppliers

Seek out joint branding with other food manufacturers to exploit complementary synergies
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Conquering the Food & Beverage Ingredient Markets

Adopt

proactive product differentiation strategies

and

service

Focus on successful product lines and global diversification in order to drive sustainable growth Focus on product innovation as a long term goal for a sustainable competitive edge

Understand

the consumers motivation for buying your product


Fear or Greed: these are the primary motivators that impacts whether the consumer will buy your product or not. Consumers will be more willing to buy if the product effectively communicates that it will help avoid a potential loss or pain or help to deliver a gain or pleasure.

Effectively

communicate the indirect costs of product switching


Look for opportunities that will communicate to consumers that product switching entails a sacrifice. Such costs should be pitched as an investment opportunity for the consumer.

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Conquering the Food & Beverage Ingredient Markets


Success is Based on Boosting Top-Line Growth Through Differentiation
Service Differentiation
Top Line Accelerated Growth

Optimize Relationships with Customers

The Solution Provider: The Marriage of Value-Added Quality Enhancement and Customer Relationship Optimization

Maximize Customer Value by being the Low Cost Provider Enhance Value-Added Quality Valuethrough New Product Development Product Differentiation
Source: Frost & Sullivan

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Next Steps

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For Additional Information

Christopher Shanahan Industry Analyst Chemicals Materials & Food (210) 477-8419 christopher.shanahan@frost.com

Christine Stapleton Account Manager, North America Chemicals Materials & Food (210) 477-8406 christine.stapleton@frost.com

Shomik Majumdar Vice President, Consulting & New Business (650) 475-4539 shomik.majumdar@frost.com

Sarah Saatzer Corporate Communications Chemicals, Materials & Food (210) 477-8427 sarah.saatzer@frost.com

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