Change Imperative within the Food & Drink Industry .

1. Change Imperative within the Food & Drink Industry. FDII Annual Conference April 27th, 2006 1

3. Deloitte Audit Tax Consulting Corporate Finance Deloitte Overview Deloitte has been advising clients since 1845 12 consecutive years of revenue growth Irish Offices in Dublin, Cork, Limerick and Belfast

4. Clients in the Food and Beverage Industry

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6. What‘s Happening? Trends and Events affecting the Food and Drink Industry International Market Domestic Market • Health & Food Safety • Changing Lifestyles and Retail Behaviour • Food Deflation, Discounting and the response of the Grocers • Consolidation & Globalisation • WTO & Free Trade • Shift in Cost Base & focus on cost • Re-structuring of the Grocery Sector & Supply Chain • Removal of Groceries Order • European Sourcing Change Imperative Source: Deloitte Analysis

8. Food Safety through the years • 2006 – Avian Flu? • 2004: “Sudan 1” red dye • Illegal dye, classified as carcinogenic. • Found in various UK food products, e.g. pesto, chilli products, curry sauce. • 1997: E.Coli food poisoning • Outbreak in Britain. • 20 deaths in Scotland. • 1992: Listeria in French cheese and pork • 1989: Salmonella in British eggs • 23 people died. • £25 million government rescue package. • 1985: Antifreeze in Austrian and Italian wines • At least 21 people died.

9. Concerns Over Food Safety • A Deloitte survey of executives in the food industry showed that product traceability is a key concern for all respondents (100%). 57% believe that food safety will only increase in importance. • Related concerns about ethical employment in the supply chain and environmental impact simply add to growing challenges faced by the industry. • Governments responding with increased legislation and the EU directive 178 that came into effect in 2005 - Article 18 of this directive addresses traceability specifically. • Almost half of respondents to the survey feel that poor collaboration in the supply chain is a real barrier to food safety. The perception is that the greatest risks are “up the supply chain”.

10. Traceability from “Field to Fork” Harvest Initial Processing Laboratory / QA Manufacturing / Transformation Logistics Retail / Risk Management Process Steps • Consumer package tracking • Consumer habit and demand tracking • Genealogy back to production and origin history of all ingredients • Tracking of product movement • Automatic generation of labels & shipping documen-tation • Planning & Control of production • Resource allocation • Tracking of material movement, splitting, combining, consumption, & production • Plant diagnostics and online HACCP & SPC/SQC • In-process measure • Piece ID and optimum usage scenarios • Storage monitoring (temp & humidity) • Physical, chemical, and biological testing • Hazard analysis • Storage of lab data with cross-reference to inventory • ID& handling • Stock& monitoring • Pest & Treatmenthistory • Growth-stage monitoring Enabling Technologies

12. International Trends – Changing Lifestyles and Retail Behaviour • Convenience Shopping • “Food on the Go” • Prepared Foods / Meal Solutions • Eating Out • Retailer Brands • Innovation • Successful Collaboration & Account Management

13. International Trends – Stalled Food Prices Source: Eurostat

14. Stalled Pricing - Retail Reaction 1. “Food Deflation” 6. Focus on Brand Leaders & Own Label 2. Retailer Margins Reduce Distribution for Mid Range Products Under Threat 5. Category Range Review 3. Non Food grows within the mix 4. Pressure on Space for Food

15. Top 10 Retailers 2001 2000/01 Sales $m 1 Walmart (US) 1 Walmart (US) 191,329 2 Carrefour (Fr) 2 Carrefour (Fr) 59,703 3 Kroger (US) 3 Home Depot (US) 49,000 4 Home Depot (US) 4 Metro (AG) 45,738 5 Metro (Germany) 5 Tesco (UK) 42,439 6 Ahold (NL) 6 Kroger (US) 41,539 7 Kmart (US) 7 Costco (US) 37,028 8 Albertson’s (US) 8 Target Corp. (US) 36,762 9 Sears (US) 9 Ahold (NL) 36,548 10 Target (US) 10 Aldi (Germany) 36,362 International Trends: Concentration of Retailers Top 10 Retailers 2005 2004/05 Sales $m No. Operating Countries America Europe Asia 285,222 10    89,568 35    73,094 5  69,781 29   62,505 13    56,434 1  47,146 8    45,682 1  44,793 8   42,906* 12   Source: Deloitte

16. 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 Agricultural Production Food Processing Food Retailers Food Wholesalers & Distributors International Trends: Manufacturer Consolidation • Gillete / Procter & Gamble $57B Bestfoods / Unilever $25B Nabisco / Altria $19B Quaker Oats / Pepsi $14B Diageo / General Mills $10B Miller / SAB $5.5B S&N / Spirit Group $4.2B Interbrew / Ambev $11.9B • Pernod Ricard / Allied Domecq $13B Source: The Food Institute Report

17. International Trends: Imperatives for FDII Members • “Best in Class” Supply Chain Integrity • Continued Focus on Innovation • Brilliant Customer Relationships • Account Management • International / Global Partner? • Be Prepared for the Opportunities & Threats from Consolidation • Local, Mid - Range Brands are available!! • Loss of Agency Rights • Competition for Shelf Space

18. What‘s Happening? Trends and Events affecting the Food and Drink Industry International Market Domestic Market • Health & Food Safety • Changing Lifestyles and Retail Behaviour • Food Deflation, Discounting and the response of the Grocers • Consolidation & Globalisation • WTO & Free Trade • Shift in Cost Base & focus on cost • Re-structuring of the Grocery Sector & Supply Chain • Removal of Groceries Order • European Sourcing Change Imperative Source: Deloitte Analysis

19. Re-Structuring of Irish Grocery Supply Chain • Market Concentration • Multiples • Symbols • Centralised Distribution • Implications for Wholesale and Cash and Carry • And for Servicing of Independent Retail and HORECA channels • All Island Dimension • Difference from UK:- • Importance and Sophistication of Convenience Format • Planning Guidelines, with respect to Store Size and Location

20. Groceries Order Long terms effect on commercial & pricing approaches Current Future • Significant Portion of Discounting Off Invoice (Marketing Agreements) • Ability to establish “Floor” • Relationship Dependent • Arrangements had developed over time • No / Low Level of Visibility • Greater Portion of Discount On Invoice or Volume related Rebate • Share of Pool will Migrate towards Larger Accounts • More Specific “Contracting” for Trade and promotion monies • Occasional Wars on Brand Leaders • Greater internal focus on deals, and greater central control over pricing decisions

21. European Sourcing • Outsourcing & Offshoring are here – it’s a case of Economics • Branded Goods at risk from Imports – Particularly Alcohol. • Non Branded Commodities provided through “Outsource” or “Generic” format. • European Sourcing will grow because the market is demanding it. • Rising Energy Costs • Food Safety Concerns

23. Domestic Trends: Imperatives for FDII Members • Cost Leadership is a MUST • Restructure your Operating Model to reflect the changed environment • Supply Chain • Sales & Customer Service • Sophisticated Pricing Approach • Embrace European Sourcing Opportunities and Threats • Be proactive!!

25. Summary Strong Imperative for Change within the Food and Drink Industry DO’S DON’TS • MAINTAIN QUALITY & INTEGRITY • HAVE A STRATEGY FOR GROWTH • INNOVATE TO MEET CONSUMER NEEDS (or niche) • BUILD CUSTOMER MANAGEMENT CAPABILITY • RE-STRUCTURE OPERATING MODEL • IGNORE THE ECONOMICS • LOOK FOR SILVER BULLET: PERFORMANCE REQUIRES EXCELLENCE • STRATEGY TO STAND STILL – OFFENSE NOT DEFENSE • UNDERESTIMATE YOUR ABILITY Continued Success Source: ....