Farmer Cooperatives 2001 Positioning for Performance

1. Farmer Cooperatives 2001Positioning for Performance “Meeting the Needs of our Food Customers” October 30, 2001 Steve Dunphy, VP Sales Land O’Lakes Dairy Foods

2. Introduction My background • New to Land O’Lakes • V.P. of Sales • 20 years consumer products experience • Kellogg, Pillsbury, Procter & Gamble • 6 years grocery retail experience

3. Introduction • Very exciting time to be in the Food Industry There will be clear winners and losers in the near future based on decisions we make as leaders in the food industry. Not a “business as usual” industry

4. Introduction • Consolidating Industry • Fragmented/Inefficient  Efficient • What Should That Mean to Us? • Many familiar food companies will cease to exist • Autos, brewing, retailing, etc. • “Whatever happened to Strohs, Nabisco, Quaker, Pillsbury?” • Superior financial performance is an imperative • Tremendous opportunity or tremendous threat

5. Retailer Consolidation (Source: 2000 Supermarket News)

6. Drug (60+% ACV) CVS Walgreen’s Rite Aid Eckerd Mass (70+% ACV) Wal*Mart Kmart Target Retailer Consolidation Clubs (99% ACV) • Sam’s • Costco • BJ’s

7. Acquisition 1. Unilever/Bestfoods 2. Kraft/Nabisco 3. General Mills/Pillsbury 4. Pepsi/Quaker 5. Kellogg’s/Keebler 6. Campbell’s/? 7. Heinz/? 8. Hershey/? Combined Sales $8 B/$8 B $31 B/$8 B $6 B/$6 B $12 B/$ 4 B $6 B/$ 3 B $7 B/ ? $9 B/ ? $4 B/ ? Retailer Consolidation • Is Driving Dramatic Manufacturer Consolidation

8. Retailer Consolidation • Is driving dramatic food broker consolidation • 3 National Brokers • Acosta • Advantage • Crossmark • But why is this important? Source:ASMC

9. It’s Important because... • Retailer Consolidation is resulting in lower returns for food manufacturers/marketers • Cost of doing business is up • Pricing power is down Source: Sandford C. Bernstein & Co.

10. It’s Important Because... • Manufacturer Consolidation will continue into the “Mid Cap” arena “I think there needs to be more consolidation among the mid-tier in order to do a better job of competing with the big boys” -- Ellen Baras, Analyst Biard and Company

11. How to Survive and Prosper? • Low cost supplier • Value Added brands • Customer relevance

12. Brands • Why Are Brands Important? • Brands Provide Superior Returns & Profit Growth Source: Swander Pace & Co. Study; GMA data base

13. Brands • “Leading” brands are of the most value #1 brand earns 20% ROS #2 brand approximately 5% Source: PIMS Study

14. Customer Relevance Ultimate Question • Can you help a retailer increase some store sales and profits?

15. Customer Relevance Sales Force Capability: Partner with top customer toward a common goal • Best Practice Sales Organization - P&G • High performance multi-functional teams • Relationships at all levels • Close to customer • Shared risks/commitment • Fully integrated plans Which Manufacturer Has the Best Sales Force/Customer Team? Pt.Change vs YAG -0.3 +10.3 +2.2 +0.6 +2.9 -0.9 -1.3 +1.3 -1.1 -2.7 Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

16. Customer Relevance Sales Force Capability: Understanding and utilizing joint profitability models • Best Practice Sales Organization - Kraft: offered best combination of growth and profitability • Basic profitability models to include: • Promotion analysis • Pricing • Product mix Which Manufacturers offer the best combination of growth and profitability? Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

17. Customer Relevance Sales Force Capability: Ability to understand and sell value added supply services and link business and customers strategies • Best Practice Sales Organization - General Mills & Kraft • Top customers are demanding value added services, I.e. Supply Chain Management Which Manufacturer Has the Best Supply Chain Management? Pt.Chg vs YAG --3.1 +10.4 +2.3 +1.8 +2.5 -1.8 -0.4 +2.0 -2.1 -2.6 Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

18. Customer Relevance Sales Force Capability: Ability to analyze and interpret data and translate into actual customer strategies • Best Practice Sales Organization - Kraft • Understand how consumers shop, translates into winning strategies for customers (Kraft Plus program). Understand data linkages innovation and approach Which Manufacturer Has the Most Innovative Programs and Approach? Pt.Chg, vs YAG +2.3 +6.3 +2.6 -4.4 -4.0 -5.5 -2.5 -2.5 +0.5 -2.9 +1.7 Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

19. Customer Relevance Sales Force Capability: Knowledge of customers and local markets that translates back to consumer insights and new products • Best Practice Sales Organization - P&G and Kraft • Collaborative customer/manufacturer new product development and insight development (consumer info) Which Manufacturer Has the Best Customer Information and Insights? Pt.Chg, vs YAG -0.8 +11.2 -1.6 +4.6 +3.3 -4.7 -2.4 -4.1 -0.6 +1.7 -4.5 Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

20. Customer Relevance Key Indicators • Do your brands draw consumers into my store? • Are your business systems and structures aligned with me? • Can you help me differentiate myself from the store across the street? Can you build my brand equity? • Do you provide “intellectual capital?” • Consumer/shopper insights • Profitability analytics • Value chain best practices • Do you have scale?

21. Customer Focus • WAS: Buy well • IS: Merchandise well • BECOMING: Market well

22. Summary • Consumers • Customers • Competitors DO NOT CARE THAT WE ARE CO-OPS

23. Summary • Low-cost supplier • Value Added brands • Customer relevance