Lee Linthicum Head of Global Food Research Euromonitor International

Lee Linthicum Head of Global Food Research Euromonitor International

EUROMONITOR INTERNATIONAL: GLOBAL CONFECTIONERY About Euromonitor International A trusted business intelligence source Biggest global player in strategic business intelligence Four decades of research experience Very widely respected across each industry covered Passport Consumer-focused: industries, countries, consumers Subscription services and custom research Custom research 800 analysts in 80 countries Regional research hubs London (HQ), Chicago, Singapore, Shanghai, Vilnius, Dubai, Cape Town, Santiago, Sydney, Tokyo, Bangalore Industry specialist client support teams

STATE OF THE US CONFECTIONERY MARKET STATE OF THE GLOBAL CONFECTIONERY INDUSTRY WHERE DO WE GO FROM HERE? Q&A

Million tonnes STATE OF THE US CONFECTIONERY MARKET US Confectionery Retail Volumes Continue To Fall In 2011 3.0 2.5 US Confectionery Retail Volumes: 2006-2011 Losses down to falling chocolate volumes Economic concerns Retail price hikes Health concerns 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009 2010 2011 Chocolate Sugar Candy Gum Sugar candy holds firm Health appeal Product innovation Kid appeal Licorice Gum volumes also fairly steady, but more and more polarised between sugar vs sugar-free

US$ billion STATE OF THE US CONFECTIONERY MARKET But Retail Value Sales Carry On Growing In Real Terms 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 US Confectionery Retail Values: 2006-2011 2006 2007 2008 2009 2010 2011 Chocolate Sugar Candy Gum Total US confectionery retail values surpass US$32 billion in 2011 1% real terms retail value gains on 2010 Consumers eating less but spending more Retail price hikes support value growth but so does added value Quality trumps quantity Sophisticated flavours

% growth STATE OF THE US CONFECTIONERY MARKET Premium Chocolate Helps Support Overall Retail Value Growth US Confectionery Retail Value Growth: 2006-2011 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Chocolate Sugar Candy Gum Chocolate outperforms other formats in 2010 and 2011 Chocolate tablets continue to do well, including premium positioned brands Novel flavours Dark chocolate Chilli Sea Salt Beef Jerky Gourmet experience

US$ per kilo STATE OF THE US CONFECTIONERY MARKET US Confectionery Retail Prices Increasing In Real Terms 25.0 20.0 15.0 10.0 5.0 0.0 US Confectionery Average Retail Prices: 2006-2011 2006 2007 2008 2009 2010 2011 Chocolate Sugar Candy Gum Chocolate sees biggest real terms retail price increase Higher input costs Premiumisation Gum prices up nearly US$2 from 2006-2011 Sugar-free gum Lifestyle brands Added value innovations also pushing up sugar candy retail prices

% retail value STATE OF THE US CONFECTIONERY MARKET US Confectionery Distribution Still Fragmented, But Consolidating 100% US Confectionery Retail Distribution: 1998 vs 2011 US consumers shopping smarter, prefer lower priced outlets 90% 80% 70% 60% 50% 33.0 30.9 0.6 1.3 6.2 5.1 21.7 22.4 Others Non-Store Specialists Discounters biggest winner Lower prices Steady outlet expansion Super/hypermarkets think more like discounters 40% 30% 20% 10% 18.0 19.9 20.5 20.4 Small Grocery Discounters Super/Hyper Small groceries see mixed retail value results Convenience stores and gas stations up Mom & Pop stores down 0% 1998 2011 Specialists and other formats falling away

% retail value STATE OF THE US CONFECTIONERY MARKET US Consumers Demand More Sophisticated Chocolate Flavours Growing demand for more novel affordable luxuries Dark chocolate Premium and healthy 50 40 30 20 10 0 US Chocolate Tablets by Format Plain Dark Plain Milk Plain White Filled Sweet/Savoury flavour combinations Peanut butter flavours healthily outpacing wider US chocolate market Snickers Peanut Butter Squared taps this trend

US$ million STATE OF THE US CONFECTIONERY MARKET Growing Demand For All Natural Food Among US Consumers Small, innovative players driving US licorice sales Focus on nostalgia, quality and health US Licorice Retail Value Sales 350 300 American Licorice s Natural Vines looks to tap into these consumers with its broad product appeal All-natural tag resonates strongly with the health conscious 250 200 2006 2007 2008 2009 2010 2011 2012 Aussie style licorice very popular with nostalgic baby boomers

% retail value STATE OF THE US CONFECTIONERY MARKET Shrinking Gum Pack Sizes To Protect Margins, Add Value 20 15 10 5 0 US Gum Competitive Landscape: 2006-2010 2006 2007 2008 2009 2010 Trident Stride Wrigley's 5 Wrigley and Kraft launch smaller 5-piece chewing gum packs in late 2011 Targets today s value conscious consumer US Retail Prices for Kraft s Trident and Stride Chewing Gum by Pack Size: 2011 Speaks to trend of Snackification Brand Trident Stride Price/ pack Pieces/ pack Price/ piece US$1.29 18 US$0.07 US$0.50 5 US$0.10 US$1.29 14 US$0.09 US$0.50 5 US$0.10 Target different eating/ chewing occasions Viable way to raise retail prices without alienating consumers

Million tonnes US$ billion STATE OF THE US CONFECTIONERY MARKET US Confectionery Retail Outlook: Volumes Down, Values Up 3.0 2.5 2.0 1.5 1.0 0.5 0.0 US Confectionery Retail Volume Outlook: 2011-2016 2011 2012 2013 2014 2015 2016 Chocolate Sugar Candy Gum 40 35 30 25 20 15 10 US Confectionery Retail Value Outlook: 2011-2016 5 0 2011 2012 2013 2014 2015 2016 Chocolate Sugar Candy Gum Falling chocolate volumes should continue to depress overall retail volumes Retail values grow across the board, with chocolate most dynamic

STATE OF THE US CONFECTIONERY MARKET STATE OF THE GLOBAL CONFECTIONERY INDUSTRY WHERE DO WE GO FROM HERE? Q&A

Percentage point change % GDP growth STATE OF THE GLOBAL CONFECTIONERY MARKET Continued Deterioration In Global Economic Outlook 10 8 6 4 2 0-2 IMF World Economic Outlook for January 2012: 2011-2012 2011 2012 1 IMF s Revised GDP Projections: Sept 2011 to January 2012 0-1 -2 2011 2012 Note: 2011 GDP estimates for Euro-Zone unchanged by IMF; 2012 GDP projections for US unchanged by IMF

Million tonnes STATE OF THE GLOBAL CONFECTIONERY MARKET Global Confectionery Retail Volumes Up 1-2% Year-On-Year 16.0 14.0 12.0 10.0 8.0 6.0 Global Confectionery Retail Volumes: 2007-2012 Global confectionery volumes up despite economic concerns: Affordable luxury Emerging markets Sugar candy proving most dynamic: Affordability Transportability 4.0 2.0 0.0 2007 2008 2009 2010 2011 2012 Chocolate Sugar Candy Gum Chocolate volumes also growing in 2011 and 2012 thanks to rising spending power in emerging markets

US$ billion STATE OF THE GLOBAL CONFECTIONERY MARKET Healthy Retail Value Outlook Despite Broader Economic Woes 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 Global Confectionery Retail Values: 2007-2012 40.0 20.0 0.0 2007 2008 2009 2010 2011 2012 Chocolate Sugar Candy Gum Global confectionery retail values should approach US$190 billion in 2012 Consistent real terms growth of 1.5-2% y-o-y Consumers eating less but spending more Emerging markets shifting from volume to value-led growth Chocolate driving this transition

Thousand tonnes STATE OF THE GLOBAL CONFECTIONERY MARKET Emerging Markets Driving Absolute Retail Volume Gains 300 250 200 150 100 50 Global Confectionery Retail Volume Gains: 2010-2011 Rest of World Poland Mexico Argentina Turkey Indonesia UK Russia Brazil India China Brazil, Russia, India and China together account for 63% of global retail volume gains in 2011 Biggest retail volume growth opportunities lie in Asia Pacific, Latin America and Eastern Europe UK only developed market to occupy position in top 10 0

US$ million STATE OF THE GLOBAL CONFECTIONERY MARKET Emerging Markets Drive Retail Values, With Help From US and UK 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Global Confectionery Retail Value Gains: 2010-2011 500 0 Rest of World Algeria Mexico Finland Russia USA India UK Argentina China Brazil Brazil, Russia, India and China together account for 55% of global retail value gains in 2011 Volume led growth in emerging markets supports value gains Consumers also spending more on confectionery UK and US see strong absolute gains in 2011

STATE OF THE GLOBAL CONFECTIONERY MARKET Emerging Region Taking Bigger Share Of Confectionery Values Retail Values: 2001 4% 2% Retail Values: 2011 4% 2% 10% 11% 35% Western Europe North America Asia Pacific Latin America 13% 12% 32% Eastern Europe 16% 22% ME/Africa Australasia 17% 20%

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 US$ per metric tonne STATE OF THE GLOBAL CONFECTIONERY MARKET Cocoa Bean Prices Finally Coming Down 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Cash Prices for Cocoa Beans: July 2010 January 2012 5-year median Source: Euromonitor from International Cocoa Organization, IMF

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 US cents per pound STATE OF THE GLOBAL CONFECTIONERY MARKET Global Sugar Prices Remain Stubbornly High 35 Sugar Prices: July 2010 January 2012 30 25 20 15 10 5-year median 5 0 Source: Euromonitor from IMF

STATE OF THE GLOBAL CONFECTIONERY MARKET Chocolate Retail Prices Flat To Declining Across Most Countries Of 80 researched markets in 2011: 44 see real terms retail price decline 24 see retail prices rise less than 2% 9 see retail prices rise 2-5% 3 see retail prices increase more than 5%

% retail value STATE OF THE GLOBAL CONFECTIONERY MARKET Super/Hypermarkets Gaining Share, Driving Down Retail Prices 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Confectionery Global Retail Distribution: 1998 vs 2011 10.1 16.9 15.7 0.9 1.5 10.6 10.0 28.9 27.5 9.7 32.6 35.6 1998 2011 Others Non-Store Specialists Small Grocery Discounters Super/Hyper Consumers shopping smarter, many prefer lower priced outlets But discounters failing to grow their share Small groceries lack economies of scale Specialists, other traditional formats increasingly crowded out Internet and vending drive non-store retailing for confectionery

US$ trillion STATE OF THE GLOBAL CONFECTIONERY MARKET Modern Grocery Crowding Out Traditional Rivals 7 6 5 4 3 2 1 0 Global Grocery Retail Spending: 2000-2015 45% 55% 39% 61% 35% 65% 33% 67% 2000 2005 2010 2015 Modern Grocery Traditional Grocery Traditional grocery formats steadily eroded Emerging markets go modern More choice Lower prices One-stop shopping Novel experience Implications for overall Retail prices Manufacturer s margins Competitive landscape Pace of innovation Marketing Manufacturers vs Retailers?

STATE OF THE US CONFECTIONERY MARKET STATE OF THE GLOBAL CONFECTIONERY INDUSTRY WHERE DO WE GO FROM HERE? Q&A

WHERE DO WE GO FROM HERE? Consumers Still Want Added Value Packaged Food Tastes Good Indulgent Value for Money Healthy Convenient

WHERE DO WE GO FROM HERE? Lifestyle Marketing Increasingly Defines Packaged Food Brands Indulge and Pamper Hip and Trendy Ethical and Healthy LIFESTYLE BRANDS

% retail value WHERE DO WE GO FROM HERE? Wrigley Successfully Taps Hip and Trendy Consumers Wrigley s 5 Gum Retail Performance: 2007-2010 12 10 8 6 Specifically designed to look good next to an iphone Sells well because of what it looks like, not what it is Hugely successful, hugely profitable 4 Brand Price/ pack Pieces/ pack Price/ piece 2 0 2007 2008 2009 2010 Canada USA France Germany Greece UK Extra $0.70 15 $0.05 Orbit $0.79 14 $0.06 Trident Soft $0.85 9 $0.09 Stride $1.25 14 $0.09 Wrigley s 5 $1.50 15 $0.10

% retail value WHERE DO WE GO FROM HERE? Maghreb Industries Adds Value, Wins Share In Moroccan Gum 45 40 Morocco Sugar-Free Gum Competitive Landscape 35 30 25 20 15 2008 2009 2010 Maghreb Ind. Kraft Mars Tastes good, looks good Sugar-free Good retail distribution Affordable Dh5 per 35 gram pack Trident retails for Dh5.50 per 14.5 gram pack

Million tonnes US$ billion WHERE DO WE GO FROM HERE? The Sky s The Limit In Dynamic Global Confectionery Market Global Confectionery Retail Volume Outlook: 2011-2016 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2011 2012 2013 2014 2015 2016 Chocolate Sugar Candy Gum Global Confectionery Retail Value Outlook: 2011-2016 250 200 150 100 50 0 2011 2012 2013 2014 2015 2016 Chocolate Sugar Candy Gum Sustained volume gains each year as more consumers eating more sweets Global confectionery retail values to surpass US$200 billion by 2016

WHERE DO WE GO FROM HERE? Significant Opportunities Remain For Companies Of All Sizes Global Confectionery Competitive Landscape Word s top 5 confectionery companies claim less than 50% of global retail value sales 50% 46% Top 5 Private Label Everyone Else Size doesn t necessarily matter Significant opportunities remain for smaller players to thrive 4% Have a good idea, have a good product

THANK YOU FOR LISTENING Any questions? Lee Linthicum Head of Food Research Euromonitor International lee.linthicum@euromonitor.com