October 31, 2007 Project # 12406

1. October 31, 2007 Project # 12406 Food Industry. Facts. Insights. Consulting. Retail Meal Solutions: Opportunity Assessment Presentation Prepared by:

2. Overview

3. Project Background • Consumers looking for needstate solutions • Demand realization leads to growing priority in the retail channel • Retailers responding with meal options: • Increasing product mix • Higher quality • Ready to eat • Ready to heat • Opportunities for foodservice manufacturers to capitalize

4. Retail Meal Solutions: The Definition • “Those products found in the section or sections of a retail store where consumers are able to pick up ready-to-eat or ready-to-heat foods” • Based on feedback of both consumers and retailers • Indicates that Retail Meal Solutions are defined by both product and location in the store

5. Objectives • RMS size and growth • Retailer perspective, strategies, and requirements • Consumer behavior • Supplier implications

6. Methodology • Secondary source review • Consumer focus groups • Boston • Chicago • Dallas • Los Angeles • In-depth trade interviews • On-site field analysis

7. Project Organization and Deliverables Common Interest Report Project Organization Site Visit Profiles Additional Findings Purchasing and Supply Practices Focus Group Management Summary

8. Executive Summary

9. RMS Providers – Category Examples Publix Von’s Pavilion / Safeway ShopRite Bloom Shaw’s Whole Foods Natural/OrganicSupermarkets Traditional Supermarkets Wawa Sheetz C-Stores Bristol Farms Central Market HEB Fresh Market Giant Eagle Harris Teeter Ukrop’s Wegman’s Sweetbay Supermarkets Buehler’s Fresh Foods Draegers UpscaleSupermarkets Costco Warehouse/Club Stores

10. Executive Summary • Retailers aggressively attempting to drive new sales growth through RMS • Competitive and creative RMS providers driving innovation and strategy among all retail categories • Retailer success at all dayparts requires understanding consumer needstates

11. Executive Summary • Multiple demographic and behavioral factors moving consumers toward RMS • Food quality critical for future RMS growth • Convenience comes in many shapes and sizes • Beverage potential relatively untapped

12. Market AssessmentRetail Segments and Product Types

13. RMS Sales by Venue Venue 2006 Sales($MM) 2001-2006 CAGR 2006-2009 CAGR 2009 total $MM RMS Current and Forecasted Note: Rounding variances may be present

14. 2006 RMS Sales by Product Type

15. Forecasted Product Type Growth Estimated 3-YearCAGR (Driven by sushi) Source: Technomic, FMI, ACNielsen, Progressive Grocer

16. The Retailer Environment

17. Retailer Positioning Strategies • 2/3 of all supermarkets consider retail meal solutions “very important” • See RMS as a category with strong growth potential • Positioning RMS against the LSR segment • Targeting customers at both the high and low end of the price spectrum

18. Retail Store Expansion Average Traditional Supermarket Square Footage Prepared Foods as % of Deli Sales 1995 1996 2001 2004 2007

19. In-Store Services % of Retailers Offering Food Retailing Industry Speaks

20. Other Retailer Differentiation Activities • Expansion of number and variety of meal solution alternatives • Increasing number of stations • Sampling • Flexibility/Customization • Real time preparation • Daily specials • Differences in lunch and dinner options • Ingredient differentiation

21. Leading Edge Retailers • Whole Foods • Long-standing trendsetter • Wegman’s • Leader in recipe development • Central Market • Best-in-class quality • Publix • Service innovator

22. Retail Prepared Meal Sources Sourcing: • Supplier – 50% to 55% • On-Site – 35% to 40% • Central Commissaries – 5% to 15% Factors Influencing Decision: • Quality • Consistency • Cost • Food Safety

23. Expectations of Manufacturers • Little difference among supplier performance • Expectations: • Consulting services • Culinary expertise and menu development assistance • Product training • Food safety assurances • Future equipment • Labor reducing equipment • Packaging • Emerging technology applications

24. Beverages Fountain/dispensed beverages are an afterthought for many retailers targeting meal solutions • Customers often overlook beverages and desserts • Combo meals are often the only strategy incorporating drinks • Demand for healthy beverage alternatives is growing • Beverage manufacturers have a tremendous opportunity to develop sales by ensuring products are easily accessible • Reminder signage important

25. Breakfast Opportunities Retail meal opportunities are, and will remain, limited during the breakfast daypart unless the convenience factor is increased dramatically • Retailers have had difficulty reaching breakfast customers • Coffeehouse and other LSR breakfast experiences occur in 2 to 3 minutes or less (Ordering from the car) • Consumers report there is nothing that distinguishes supermarket breakfast goods from the competition • Retailers are skeptical that they can differentiate if offerings are limited to pastries and bread items

26. Lunch Daypart Strategy Lunchtime retail meal solutions must be better positioned in order to capture new audiences • There are indications that consumers consider retail meal solutions to be geared toward dinner needs • Consumers interest is in smaller portion sizes and correspondingly lower lunch prices • Retailers and manufacturers should recognize that consumers are looking for unique lunch items • Lighter meals, such as salads, seafood, healthy-preparation poultry, and soups are considered perfect lunch foods

27. The Consumer

28. Supermarket Prepared Foods Usage • 50% of consumers purchase prepared foods from retailers at least once a month

29. Consumer RMS Drivers Planned or Unplanned Planned or Unplanned Planned or Unplanned Unplanned Unplanned Unplanned Planned or Unplanned Planned or Unplanned

30. Purchase Considerations: Quality • One of the primary ways consumers determine quality is through “freshness” cues: • Meal preparation in sight • Prepared food samples • Smell of prepared foods • “Made on date” • Presentation of foods • Judge both quality and nutrition by sight

31. Purchase Considerations: Convenience • Consumer define in a number of ways: • Location of store • Location of prepared foods department(s) within the store • Ease of finding desired foods • Ease of ordering • Self-service alternatives • Speedy check-out • Packaging

32. Purchase Considerations: Freshness • “Wanting something fresh” is a frequent consumer demand • The following cues send a positive signal to consumers: • See someone making the food • Tastes good • Appropriate smell • Presentation • Store reputation • Time stamp • Packaging

33. Purchase Considerations: Premium/Artisan • Some consumers are seeking out gourmet retail meals when they want to treat themselves. • Ingredients that are different from regular fare • Value-added meats or entrees beyond cooking skill levels • Consider detailed product descriptions or company background

34. Purchase Considerations: Brand Name Recognition • Debatable importance • Consumers: • Often say it does not typically influence • Could indicate higher food processing • Potentially higher price • Retailers: • Consumers consider products containing certain manufacturer ingredients

35. Value-Adds With Resonance • Location of Prepared Foods Section • Designated Register and Cashier • Seating Area • Take-Out Services • Call-Ahead Ordering • Drive-thru • Curbside Pick-up • Service-Oriented Employees • Samples

36. Supplier Implications

37. Competitive Best Practice Applications Leading edge prepared food retailers are forcing the largest retailers to change their retail meal strategies • A majority of consumers shop at multiple retail food outlets. These consumers are being exposed to increased prepared foods options at many of their local stores • Foodservice manufacturers need to be aware of prepared meals developments in all segments of the retail channel • Larger retailers are monitoring the activities of the regional players and are incorporating items and programs into their own operations

38. Food Quality Food quality, above all else, will impact the degree of growth for retail meal solutions • Consumers have a tremendous number of retail or foodservice alternatives • A poor (or even mediocre) experience will essentially eliminate that venue from future meal consideration • The quality of the food is most important in determining satisfaction with the experience • Retailers are looking to foodservice manufacturers for assistance and expertise in developing high quality meals

39. Fresh and Nutritious Offerings Retailers must expand retail meal offerings to include a wide variety of fresh, nutritious foods across all meal parts • Consumers’ first considerations are toward the entrée • Stations will become even more important for success • Eliminate the “deli mentality” • Consumers want to be able to purchase an entire meal from their retailer • “Little” additional at-home preparation to “no” additional at-home preparation

40. Convenience Convenience is critical in consumers’ venue selection decision • LSRs, with drive thru windows, highly recognized menus, and easy ordering processes have distinct advantages over retail locations • Retailers need to structure operations so that convenience is optimized • Manufacturers need to work with retailers to ensure that their products are physically located in the prepared foods department(s)

41. Recap - Key Takeaways • Solid Growth Opportunity • RMS Growth Exceeding Overall Foodservice Growth • Success Depends on Food Quality and Perception of Culinary Expertise • Retailers Need Manufacturer Support • Especially Traditional Supermarkets • Retail Meal Solutions Meet Demands of Consumers

42. Leading Nestle Customer Opportunities Top Concept Prospects RMS Product Needs

43. Leading Nestle Customer Opportunities Required Manufacturer Support

44. Thank You!Questions