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Warren Erickson Chief Operating Officer

Warren Erickson Chief Operating Officer. Background Founded in 1930 Now in third generation of ownership and control One of the largest independent dairy processors in the United States Service Iowa, Parts of Illinois, Kansas, Missouri, Minnesota, and Nebraska. Background

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Warren Erickson Chief Operating Officer

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  1. Warren Erickson Chief Operating Officer

  2. Background • Founded in 1930 • Now in third generation of ownership and control • One of the largest independent dairy processors in the United States • Service Iowa, Parts of Illinois, Kansas, Missouri, Minnesota, and Nebraska

  3. Background • Full function plant in Des Moines, IA • Products include all fluid milk, juices, cottage cheese, sour cream, dips, yogurt, and ice cream mixes • Approximately 600 employees and $150MM in sales • For background I will show a DVD giving you some idea of the history and processes of AE

  4. Milk Procurement • Over 90% of AE’s milk is procured from Iowa • Two large direct ship farms – Harlan and Atlantic • Small amount of milk is from Minnesota • In September 2007 we purchased 41.5 million pounds of milk. • September 2007 Class I utilization was 77%

  5. Milk pricing • AE buys milk based on components, pounds, and classification • AE sells milk based on customer accepted unit of measure –typically ounces • Class I price set in advance by USDA • All other pricing is set retroactively • Pricing has reached unprecedented levels

  6. Reaction to high prices • Substitution of smaller sizes • Switching to lower cost alternatives • Difficult to change customer patterns even if prices decrease

  7. Other pricing factors • Political considerations (Farm Bill 2007) • Weather (NFMP, OJ) • Transportation costs • Steady increase in agriculture costs • Sweeteners • Milk Solids • Other ingredients

  8. Changes in the industry • When AE was started there were over 200 dairies in Des Moines, all home delivery • 30 years ago there were around one hundred retail routes (direct to home) • In the last 10 years the retail market has undergone significant changes

  9. Changes in the industry (continued) • Mass merchandisers continue to branch out into grocery and expand their base of operations • Dairy is more national in scope than ever before with Dean Foods, HP Hood, and other big players

  10. Challenges • Customer changes in taste and packaging preferences over time • Product mix variations on a seasonal basis (only meaningful comparison is year-to-year, month-to-month is too volatile) • High level of capital investment required for any changes • No hedge for risk protection on long term contracts

  11. Why AE is different • We are innovative and willing to take risks • Our products are better, we are more interested in quality • We promote our brand and our service • We offer a full line of quality products

  12. Marketing • We promote our brand to the end customer • Target market is women 25-49; mom’s are the gatekeepers to the household refrigerators! • Stress the health benefits of milk and dairy products • This target is skeptical of technology

  13. Health Benefits of Milk: • Two servings of dairy a day can reduce adolescent obesity • Milk drinkers had ½ rate of breast cancer • Calcium and Vitamin D reduce risk of colon cancer by 75% • Reduced blood pressure • Reduced osteoporosis • Increasing the intake of milk and other dairy products lowered the development of risk factors for diabetes by 70% • Helps you lose weight and maintain a healthy weight

  14. New things for AE: • 8 oz. plastic school milk cartons • New flavors (orange pomegranate, blueberry buckle, raspberry cheesecake, vanilla latte yogurts; Chocolate Fiesta Milk)

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