What is the true size of the gluten-free market?

1. What is the true size of thegluten-free market?

2. The Size of the Market • Many products were gluten-free already • Can the market provide ROI to justify entry? • $2.64 billion at the end of 2010 • Poor product quality affects sales negatively

3. The Size of the Market • Only those with a true medical need • 18 million people with gluten sensitivities • 3 million with celiac disease • Domestic per capita wheat flour use is estimated at 134.7 pounds

4. The Size of the Market • 21 million households • 2.6 people per household • Whole families eat gluten-free • Emotional support – feelings of isolation • Products good enough for the whole family to enjoy

5. Is there a demand that is not being met?What is the need?

6. The Need A demand not currently met offers opportunity • Fortification and nutrition • A bread good enough for the whole family to enjoy • Fresh bread / shelf stable bread available through mainstream distribution • Products with poor quality or limited availability

7. Can the need be met?What technology is available to allow for a competitive edge?

8. Gluten-Free Breads • Weak and crumbly grain structure • Poor volume and eye-appeal • Dense and uneven grain • Undesirable eating qualities, e.g. lack of flavor and aroma, dry mouth feel • Excessive packaging for longer shelf-life • Substandard nutrition for health and wellness

9. What Are Major Challenges to the Formulator? • Optimizing appearance • Reducing dryness and crumbliness • Improving flavor and eating enjoyment • Extending shelf life • Dough make-up and handling • Nutritional aspects

10. Watson Technology • Unique combination of starches and gums for increased gas retention • Proprietary emulsifier blends for appearance and texture • Blends of proteins for structure, flavor and palatability • Special blends of baking powders and yeast • Incorporation of nutrients (vitamins, minerals, fibers) • Extension of shelf-life

11. Watson Solutions . . . gluteNONE™ Mixes • Breads and rolls • Pizza crust, pocket pita, tortillas, bagels, pretzels, coffee cakes, English muffins • Donuts, crackers, sandwich thins • Cakes, brownies, cookies, muffins • Breakfast bars, waffles, pancakes

12. What would the potential profit models look like?

13. Profit Model • Gluten-free products can still be very profitable. • Gluten-free groceries cost about 79 percent more than traditional products. • Gluten-free bread can cost about $6 to $7 a loaf and have half the servings of an average loaf. • If they are not spending that money now they are going to pay down the road in health care costs. • Medical expenses can be tax deductions.

14. What are the latest developments in the gluten-free market?How much of the market is due to fad dieting?

15. Latest Developments • Media coverage and celebrities • National restaurants successfully offer gluten-free dining options • Grocery stores offering gluten-free lists on their websites • Gluten-free sections in grocery stores • Gluten-free private label offerings • Economic slowdown – consumers try dietary self-help when mainstream medical assistance is out of reach

16. Latest Developments • Trend dieters help increase demand for quality products • Trend dieters lead to the misconception that this is only a fad • Think of the 21 million households

17. Latest Developments • Over a third of products picked up from the Summer Fancy Food Show 2011 were flagged with the low/no/reduced allergen claim, with the majority of these (97%) marketed as gluten-free. • Major companies in the market • Celiac support groups • Gluten-free food fairs • Gluten-free phone apps • Gluten-free at sporting events

18. Latest Developments • Federal government finalizes regulatory criteria for gluten-free labeling • No wheat, rye or barley & under 20 ppm of gluten • Started in 2007 • Comment period closed October 3, 2011 • Targeting 3rd quarter 2012 to issue standard • Companies seeking to label their products as gluten-free will need to comply with the requirements • FDA enforcement tools

19. Can you pull all the resources together before the window of opportunity closes?

20. Producing Gluten-Free Products • Robust allergen program in place • Allergen materials labeled and segregated • Watson is a member of the Food Allergy Research and Resource Program (FARRP) • Wait at least 24 hours after running a product containing gluten, before running a gluten-free product • Positive pressure in production room • Avoid cross contamination – brushes, scoops, clothing

21. Testing Pre-operational swabs • ATP Hygiene Test • Reveal 3D gluten test Product testing • EZ gluten test kit – Elisa Technologies • Samples sent out for testing – FARRP • R-Biopharm Gliadin test sensitive to 5 ppm gluten

22. Certification • Watson chose GFCO (Gluten-Free Certification Organization) – a program of Gluten Intolerance Group • Requires a questionnaire to be completed • Facility audit of equipment that will be used to produce gluten-free

23. What are the growth expectations for this market?

24. Growth Projections While growth rates will slow over the next five years, Packaged Facts projects that U.S. sales of gluten-free foods and beverages will exceed $5 billion by 2015.

25. Factors Stimulating Expansion in the Gluten-Free Market • Increasing diagnoses of celiac disease and food allergies • Growing awareness of these ailments among patients, healthcare practitioners and the general public • More products and better ones • Interest from big retailers • Friends and family members eating gluten-free to support loved ones

26. The Gluten-Free Consumer • Totally incremental sales – they are not eating traditional baked goods now • Very loyal to a brand • Trust and credibility are very important • Whole families eat gluten-free in support of a single member • They know they need to pay more and understand why • Committed, well educated and want to have better access to quality food

27. Thank you for your time.www.watson-inc.com/GFinfo.php Contact us at 1-800-388-3481