Future Retail & Foodservice Opportunities

1. Future Retail & Foodservice Opportunities James Degen J. M. Degen & Company, Inc. www.Degenconsulting.com 805-434-2400

2. Words of Wisdom • “So like Noah said--you’d better wake up you don’t want to get stuck in this zoo. Cause when he leaves the dock he ain’t waiting round for you. Be prepared to change some too.” • Boz Scaggs--”Some Change” J. M. Degen & Company, Inc.

3. Food At-Home Working women Time to prepare Declining skills Decline of “family meal” Expectations Food Away-From-Home Labor cost Labor skill/availability Consistent quality Safety Menu differentiation Profitability Undercurrents Of Change J. M. Degen & Company, Inc.

4. Declining Food Expenditures J. M. Degen & Company, Inc.

5. Shift In Consumer Food Expenditures To Foodservice J. M. Degen & Company, Inc.

6. Food Marketing and Consumption Have Changed Forever • Demographics • Wellness Culture • Search For Value • Value of Time • Channel Blurring J. M. Degen & Company, Inc.

7. Demographic Drill Down • 78MM Boomers enter new life Stage--empty nest, retirement • 73MM Gen Y’ers are becoming adults driving new culture cohort • 61% of population growth by 2014 due to immigration • 34% of U. S. households will be single person by 2010 J. M. Degen & Company, Inc.

8. Wellness Culture • Obesity and related heart health and diabetes concerns increasing--world-wide • In 2004 33% of U. S. Adults on a diet • 37% of health club memberships held by boomers • 32% of Americans dieting for health reasons in 2001 • 71% of Americans believe that food & nutrition play a great role in maintaining overall health • Increasing consumer interest in digestion/gut health • Functional food category is estimated at $16+B • Fresh = Healthy J. M. Degen & Company, Inc.

9. Search For Value • According to FMI, price is the leading reason for switching supermarkets (32%) • Households most likely to participate in frequent shopper programs is $75K+ (35%) • 39% of consumers shop at both Wal-Mart Supercenters and traditional supermarkets. In the South it is 92% • 82% of consumers participate in at least one frequent shopper program--93% of consumers over $100K in income J. M. Degen & Company, Inc.

10. Value of Time • Convenience culture continues with “time” the currency of 21st century • 46% feel more stressed Vs 5 years ago • 46% don’t have enough time in the day--53% of boomers • 1/5 of all meals eaten in a car • Food prepared away from home continues to grow • Disappearance of traditional meal leads to more snack meals--4-6 meals/snacks per day J. M. Degen & Company, Inc.

11. Channel Blurring • Traditional retail food channels blurring into multiple retail channels offering food • Traditional foodservice channels following similar patterns particularly snack meals • Food becoming a traffic building tactic due to purchase frequency • Value-priced food appeals to value-conscious consumers J. M. Degen & Company, Inc.

12. Non-Traditional Channels Impact Retail Food Purchases • Wal-Mart--U.S. food/beverage sales $67.6B (2003) • Supercenters • Sam’s Clubs • Neighborhood Market Stores • Membership Clubs • Dollar Stores/Extreme Value Retailers • Limited Assortment Stores • Convenience Retailers • Result: Supermarkets given up competing for center-store sales J. M. Degen & Company, Inc.

13. Supermarket’s Decline In Relative Food Retailing Importance J. M. Degen & Company, Inc.

14. Retail Food Channel Growth Rates J. M. Degen & Company, Inc.

15. Foodservice Is Defined By Chains • Restaurants account for 63.6% of all foodservice industry retail sales. • Top 100 chains account for 96.3% of all restaurant sales • 96.3% of hamburger restaurant sales • 91.3% of all family steak restaurant sales • 83.4% of chicken restaurant sales • 57.6% of other sandwich restaurant sales • 50.7% of pizza restaurant sales J. M. Degen & Company, Inc.

16. “The most frequently used culinary utensil is the window control of a car.”--Harry Balzer, NPD J. M. Degen & Company, Inc.

17. Retail & Foodservice Opportunities • New retail and foodservice products are going to have to deliver against these changes in consumer definition, behavior and motivation J. M. Degen & Company, Inc.

18. Retail & Foodservice Opportunities • Foodservice or food “prepared away from home” an opportunity for companies not already participating • Members of Gen-Y eat out on average 24 times per month--almost once per day (Technomic) • 51% of Gen-Y ate restaurant-prepared food growing up “sometimes” or “more often” compared with 12% of their baby-boom parents (Technomic) • “These (Gen-Y) are consumers of bagged lettuce and (healthful)prepackaged meals” (FMI) • “BATH restaurants (Better Alternative to Home), i.e., simple ethnic establishments” (Tim Zagat) J. M. Degen & Company, Inc.

19. Rise of Culinology • With most consumers growing up on eating out, food quality expectations and experiences are high • The research chef has joined with the food scientist to create the culinary linkage between the supermarket, foodservice and food processing industries called Culinology • Consumer and foodservice operator demand for nutritionally improved, convenient to prepare foods with acceptable sensory characteristics has created unique challenges for food scientists and research chefs. • Prepared foods must replicate scratch-made quality in flavor, aroma and authenticity J. M. Degen & Company, Inc.

20. Retail & Foodservice Opportunities • Food Movements • Organic foods • “Free range” meats/poultry • Artisan foods • Vegetarian • Slow foods • “Locally grown” • Pedigreed/heirloom foods J. M. Degen & Company, Inc.

21. Retail & Foodservice Opportunities • Next Big Food Wave--Pan-Asian • Consumers seeking more variety and new tastes • Bigger and more diverse than Latin • Beyond food to the importation of culture • Asian foods deliver against many consumer food demands • Healthy • Craftsmanship from complex recipes • Exotic • Fresh perceptions J. M. Degen & Company, Inc.

22. Retail & Foodservice Opportunities • The “G” word replaces the “C” word • Low-carb trend (always a U.S. phenomenon) fades (Mintel) • Other parts of the world look to low glycemic • Reduces food intake decisions to a number • Can be difficult to understand but can be simplified for consumers J. M. Degen & Company, Inc.

23. International Food Labelling Program • Registered trademark in Australia/USA/UK • Foods must be GI tested by accredited laboratory • Must meet nutritional criteria (eg saturated fat, salt) J. M. Degen & Company, Inc.

24. Retail & Foodservice Opportunities • Recap • Less money spent on food • Price motivation to purchase on deal and at non-traditional channels • Food prepared away from home including foodservice and “restaurant quality” prepared foods • Diminishing consumer cooking skills and limited time to cook • More snacking and smaller portions • Foods that travel including dashboard dining and “Desk-fast” J. M. Degen & Company, Inc.

25. Retail & Foodservice Opportunities • Recap (Continued) • Weight control foods including the trend towards glycemic testing/labeling, nutrient-dense foods, etc. • Food as medication including Pharmafoods directed at heart health, quality of life improvement, pre/probiotics, etc. • Shift from Western European cuisine to ethnic alternatives including Pan-Asian • Rise of Culinology • Demand for “fresh” ingredients that implies healthy J. M. Degen & Company, Inc.

26. Retail & Foodservice Opportunities • SUPER TRENDS • Cleaner labels • Fewer ingredients • Recognized ingredients • Natural and organic ingredients • Nutritional label claims • Natural label claims • Big Flavor • Higher consumer expectations • Ethnic flavors including regional ethnic flavors, Latin, Asian • New flavors and flavor combinations J. M. Degen & Company, Inc.

27. Retail & Foodservice Opportunities • Meeting the challenges of clean labels and big flavor, naturally • Multi-functional commodities • Fewer processed food ingredients • Nutritional and functional improvements • Flavor enhancement capabilities • Flavor contributions • Multiple ingredient forms J. M. Degen & Company, Inc.

28. Composition Fiber Sorbitol Malic Acid No Sucrose Low Glycemic Index Antioxidants Benefit Fat replacement Sugar replacement Antimicrobial agent Flavor enhancement Preservation Natural color Extend shelf life Retail & Foodservice OpportunitiesDried Plums J. M. Degen & Company, Inc.

29. Composition Low calories Glutamate Fat-free Sodium-free Sugar-free Selenium Low Carbohydrates Benefits Consumer satiety Flavor enhancement Savory flavor Meat replacer/vegetarian Increased value perceptions Retail & Foodservice Opportunities Mushrooms J. M. Degen & Company, Inc.

30. Composition High protein Low carbohydrates Glutamate Fiber Vitamin E Low in unsaturated fat Benefits Consumer satiety Flavor enhancement Nutrient dense Crunchy texture Baked breading alternative Protein replacer Increased value perceptions Retail & Foodservice Opportunities Almonds J. M. Degen & Company, Inc.

31. Retail & Foodservice Opportunities • Dried Plums, Mushrooms, Almonds demonstrate multi-functional ingredient benefits • Fresh perceptions • Replace artificial ingredients • Add nutritional improvements • Eliminate duplicated ingredients • Increase and enhance flavor and texture characteristics • Communicate favorable consumer perceptions J. M. Degen & Company, Inc.

32. Final Words of Wisdom • "As you discover changing times you must have the strength to endure. As you discover a changing world you can't be guessing, you must be for sure. In these ever changing times.” • Earth, Wind & Fire J. M. Degen & Company, Inc.

33. Future Retail & Foodservice Opportunities James Degen J. M. Degen & Company, Inc. www.Degenconsulting.com 805-434-2400