Long Range Plan Update to Dairy Forum. January 2011

Transcription

1 Long Range Plan Update to Dairy Forum January 2011

2 Industry Disclaimer We recognize the need to comply with anti-trust requirements Materials should be viewed by each company independently with each company reacting on their individual business situation 2

3 Completed Activities Stakeholder Interviews 4 Quantitative & Qualitative Research 4,500+ panel survey on current beverage consumption 40+ in-person consumer interviews to understand drivers / barriers of milk consumption Industry Insights Overall Food & Bev. Consumption Milk- Specific Opps. 2 Analysis & Aggregation of 85+ Existing Data Sources Understand the relative size and impact of the historical consumption drivers (last 10 years) Participant Ideation Workshop Creating 300+ Ideas / Concepts 3

4 Key Themes Uncovered through the LRP Work OVERALL FOOD AND BEVERAGE CONSUMPTION 1 Flat overall beverage consumption over decades means growing milk requires stealing share from other beverages 2 Water is highest volume and most ubiquitous milk competitor; soda, soy beverages, and energy drinks are the next tier of opportunities within beverages MILK-SPECIFIC OPPORTUNITIES 3 High growth beverage categories are characterized by more successful innovation and branding, particularly in the area of functional benefits INDUSTRY INSIGHTS 4 Underestimation of role that complements play in milk consumption 4

5 Annual Gallons Per Person 1 Beverage Stomach Size Has Been Consistent Over Last Decade 300 Per Capita Beverage Stomach Size ( ) This trend seems to be consistent not just for last 10 years but at least for the last

6 Percent of Total Beverage Consumption 1 Decline in Milk s Share of Stomach (Beverage) Share of Total Beverage Consumption ( ) 100% 75% 50% 25% 13.9% 14.0% 15.7% 4.4% 0.1% 4.5% 0.3% 4.7% 6.6% 6.3% 5.2% 9.6% 8.5% 8.5% 10.0% 9.5% 9.3% 9.9% 9.9% 9.5% 7.5% 11.5% 12.4% 14.1% 12.3% 14.1% 0.3% All Others Soy Beverages Tea Fruit Beverages Coffee Milk Beer Per Capita Change gal. Bottled Water Tap Water Carbonated Soft Drinks 23.8% 23.3% 20.4% 0% Note: Data above reflects two BMC datasets (except where noted otherwise): one dataset for and one for ; All Others includes energy drinks, value-added water, distilled spirits, wine, sports beverages, vegetable juices, powders, and miscellaneous others 6

7 Milk Consumption in Gallons per person 2 Drivers of Changing Milk Consumption Coffee 0.2 Children Under Six Total Change gal. 0.2 Per Capita Fluid Milk Volume ( ) 0.2 CSDs MilkPEP / Processor Marketing Flavored Milk 0.1 Tea 0.1 Snack Bars Other Growing Bevs. Vitamins 0.4 Soy Bev. Note: Figures represent the midpoint of the range they should not be interpreted as a hard number 0.4 Milk Category Changes Figures in Gallons per Person 0.5 Yogurt 0.5 Cereal 0.6 Water Water stole the most share from milk in the past decade Consump. Impact of Consumption Drivers 2009 Consump. Note: 1 MilkPEP s and processors positive contribution to consumption includes milk marketing and nutritional messages; 2 Milk category changes refer to cow-related concerns, lactose intolerance, etc.; 3 Pounds of milk converted to gallons using a factor of 8.6 lbs / gallon 7

8 Consumption in gal. 2 Example Driver Quantification: Water 1 By how much did water consumption grow since 2000? Per Capita Water Consumption ( ) Water Consumption increased by 12.1 gallons per capita from 2000 to 2009 Bottled Tap Value-Added 2 About how much of the water increase came from each beverage category? 60% 25% 10% 5% Fruit Beverages -3.2 gallons Carbonated Soft Drinks Per Capita Decline: -7.8 gallons Other Bevs gal. Determined weighted avg. based of per capita decline of each shrinking beverage, and then adjusted the distribution, assuming more substitution was occurring from high-sugar, unhealthy beverages Milk -1.8 gal. 3 What impact does increased water consumption have on milk consumption? Increased Water Consumption % from milk Volume substituted from milk to water Percent of milk s net change 12.1 gallons x 5% = 0.6 gallons or - 33% 8

9 Milk Consumption in Gallons per person 3 Importance of Innovation, Branding and Occasions Per Capita Fluid Milk Volume ( ) Coffee 0.2 Children Under Six 0.2 MilkPEP / Processor Marketing CSDs 0.1 Flavored Milk 0.1 Tea New Category Snack Bars Other Growing Bevs. Vitamins Soy Bev. Milk Category Changes Yogurt Continuous Product and Packaging Innovation New Distribution Channel, Products, and Occasions / Experiences Channel and Product Proliferation Cereal Water Consump. New Category, Forms (UHT), and Placement in Stores Impact of Consumption Drivers New Brands, Distribution, and Forms (e.g., PUR) 2009 Consump. Note: 1 MilkPEP s and processors positive contribution to consumption includes milk marketing and nutritional messages; 2 Milk category changes refer to cow-related concerns, lactose intolerance, etc.; 3 Pounds of milk converted to gallons using a factor of 8.6 lbs / gallon 9

10 4 Complements Play a Significant Role in Milk Consumption + Positive Drivers - Negative Drivers Positive Milk Consumption Growth ( 00-09) 0.82 gal Range: Negative Milk Consumption Decline ( 00-09) 2.66 gal Range: Relative Impact of Positive Drivers Flavored Milk MilkPEP / Processor Marketing 1 12% 11% 28% Coffee Relative Impact of Negative Drivers Other Growing Bevs. Snack Bars Milk Category Changes 2 10% 4% 2% 23% Water Vitamins 13% Tea 8% CSDs 19% 23% Under 6 Age Cohort Soy Beverage 14% 18% Yogurt 18% Cereal Note: 1 MilkPEP s positive contribution to consumption includes milk marketing and nutritional messages; 2 Milk category changes refer to cow-related concerns, lactose intolerance, etc. 10

11 Key Themes Uncovered through the LRP Work OVERALL FOOD AND BEVERAGE CONSUMPTION 5 Occasions explain the variation in milk consumption better than demographics MILK-SPECIFIC OPPORTUNITIES 6 Opportunities exist to defend breakfast in the home, extend success in breakfast to lunch / dinner at home, and create new milk-drinking habits outside of meal occasions INDUSTRY INSIGHTS 7 Winning requires changing behavior specific to those occasions; generic messages are unlikely to move the needle 11

12 5 Core Milk Volume Today Nearly 60% of the milk consumed on a daily basis is included within the usage occasions represented by meals in the home and lunch at school: % of Milk Consumption by Usage Occasion Out of Total Daily Volume Figures Represent Daily US Fluid Milk Consumption, Ages 1-84 (2010) 60% of Self-Reported Volume Breakfast Lunch Dinner Before Breakfast Breakfast Mid-Morning At Lunch Afternoon At Dinner After Dinner Home 5.8% 30.2% 3.2% 7.3% 3.9% 17.5% 8.8% 76.8% On-the-Go 0.6% 1.7% 0.6% 0.5% 0.6% 0.6% 0.4% 5.0% Restaurant 0.2% 1.0% 0.1% 0.7% 0.3% 0.8% 0.2% 3.2% School 0.6% 2.1% 0.3% 4.2% 0.2% 0.6% 0.2% 8.1% Work 0.2% 1.1% 0.3% 0.8% 0.5% 0.4% 0.3% 3.5% Social Event 0.2% 0.5% 0.1% 0.3% 0.2% 0.1% 0.2% 1.6% Elsewhere 0.1% 0.4% 0.2% 0.5% 0.2% 0.2% 0.3% 1.8% 7.7% 37.1% 4.8% 14.3% 5.8% 20.1% 10.2% 100% 12

13 5 Relevance of Occasions (1 of 3) As we look more closely at market map trends, data cuts reveal patterns in behaviors across demographics that are linked to consumption occasions % of Reach For Milk Across Demographics and Occasions In The Home Figures Represent US Fluid Milk Consumption, Ages 1-84 (2010) Milk Consumption by Demographic Cohort Milk Consumption by Occasion Child Age 1-4 Child Age 5-12 Female Male 29% 26% 26% Before Breakfast 8% Teen Age Female Male Hispanic Non-Hispanic Hispanic Non-Hispanic 15% 18% 20% 24% Breakfast Mid-Morning 5% 32% Adult Age Adult Age Female Male w/ Children at Home Female Male Hispanic Non-Hispanic Hispanic Non-Hispanic 13% 15% 12% 11% 11% 11% Lunch Afternoon 9% 5% No Children at Home Female Male 10% 10% Dinner 14% Adult Age Female Male 9% 11% After Dinner 9% Adult Age % 13

14 5 Relevance of Occasions (2 of 3) An even closer look at the data confirms these consumption patterns In the Home (59% of Total Usage Occasions) Each cell represents: % of Instances that Milk is Consumed Out of All Beverage Types Consumed at Specified Usage Occasion on a Daily Basis Approx. # of Instances Where At Least One Other Beverage Type is Chosen at a Specified Usage Occasion on a Daily Basis (i.e., Size of Opportunity if Milk Stole All Competitors Share at Specified Usage Occasion) % of Reach For Milk and Opportunity Size to Steal Competitors Share Figures Represent US Fluid Milk Consumption, Ages 1-84 (2010) Before Breakfast Breakfast Mid-Morning At Lunch Afternoon At Dinner After Dinner Child Age %, ~4.5M 47%, ~7.1M 14%, ~8M 27%, ~7.8M 12%, ~9.6M 35%, ~8.4M 28%, ~7.3M Child Age 5-12 Teen Age Female 18%, ~2.3M 55%, ~5.8M 3%, ~5.6M 24%, ~5M 4%, ~8.6M 32%, ~7.7M 11%, ~6.9M Male 28%, ~3.4M 54%, ~6M 5%, ~5.8M 17%, ~5.7M 8%, ~7.6M 30%, ~8.3M 15%, ~7.4M Female Hispanic 7%, ~1M 37%, ~1.3M 7%, ~0.7M 8%, ~0.8M 7%, ~1.4M 11%, ~1.8M 12%, ~1.2M Non-Hispanic 8%, ~1.9M 47%, ~2.7M 6%, ~2.4M 13%, ~2.4M 3%, ~3.8M 21%, ~4.3M 7%, ~3.7M Male Hispanic 17%, ~0.7M 52%, ~1M 3%, ~0.6M 3%, ~0.8M 5%, ~1.8M 15%, ~1.8M 17%, ~1.3M Non-Hispanic 20%, ~1.9M 52%, ~2.7M 5%, ~2.4M 21%, ~2.4M 9%, ~4.1M 28%, ~4.1M 15%, ~3.8M Adult Age Female 8%, ~5.1M 30%, ~6.5M 5%, ~5.2M 8%, ~6.7M 6%, ~6.7M 13%, ~7.5M 10%, ~6.6M Male 7%, ~4.8M 42%, ~5.4M 9%, ~6M 8%, ~6.4M 5%, ~7.6M 18%, ~8.1M 11%, ~7.2M Adult Age w/ Children at Home No Children at Home Female Hispanic 11%, ~4.7M 31%, ~4.9M 7%, ~5.4M 6%, ~5.6M 5%, ~5.8M 9%, ~6.8M 11%, ~5.9M Non-Hispanic 7%, ~7.6M 28%, ~8.2M 5%, ~8.1M 5%, ~9.2M 4%, ~9.6M 11%, ~10.2M 7%, ~9.7M Male Hispanic 19%, ~2.3M 27%, ~3.3M 6%, ~2.8M 3%, ~3.3M 2%, ~2.9M 8%, ~4.9M 10%, ~3.9M Non-Hispanic 4%, ~6.4M 29%, ~6.5M 3%, ~5.9M 7%, ~5.4M 3%, ~6.3M 11%, ~9.3M 8%, ~7.7M Female 8%, ~12.5M 25%, ~13.7M 5%, ~11M 4%, ~11.7M 6%, ~12.5M 8%, ~16.3M 6%, ~15.4M Male 6%, ~11.6M 30%, ~10.4M 4%, ~9.1M 5%, ~10.3M 3%, ~12.7M 9%, ~15.9M 7%, ~15.3M Adult Age Female 7%, ~17.8M 23%, ~17.6M 4%, ~15.3M 7%, ~15.6M 3%, ~17M 12%, ~18.7M 5%, ~18.6M Male 6%, ~15.5M 27%, ~15.5M 2%, ~11.9M 7%, ~12.9M 2%, ~15.2M 11%, ~16.8M 8%, ~16.8M Adult Age %, ~21.7M 26%, ~21.1M 5%, ~21.5M 9%, ~19M 5%, ~23.7M 9%, ~21.9M 7%, ~22.7M 14

15 Relevance of Occasions (3 of 3) 5 Each cell represents:.which has allowed us to identify potential opportunities within the map that are primarily occasion-based In the Home (59% of Total Usage Occasions) Before Breakfast Breakfast Mid-Morning At Lunch Afternoon At Dinner After Dinner Child Age %, ~4.5M 47%, ~7.1M 14%, ~8M 27%, ~7.8M 12%, ~9.6M 35%, ~8.4M 28%, ~7.3M Child Age 5-12 Teen Age Adult Age Adult Age Adult Age % of Reach For Milk and Opportunity Size to Steal Competitors Share Figures Represent US Fluid Milk Consumption, Ages 1-84 (2010) Female 18%, ~2.3M 55%, ~5.8M 3%, ~5.6M 24%, ~5M 4%, ~8.6M 32%, ~7.7M 11%, ~6.9M Male 28%, ~3.4M 54%, ~6M 5%, ~5.8M 17%, ~5.7M 8%, ~7.6M 30%, ~8.3M 15%, ~7.4M Female Hispanic 7%, ~1M 37%, ~1.3M 7%, ~0.7M 8%, ~0.8M 7%, ~1.4M 11%, ~1.8M 12%, ~1.2M Non-Hispanic 8%, ~1.9M 47%, ~2.7M 6%, ~2.4M 13%, ~2.4M 3%, ~3.8M 21%, ~4.3M 7%, ~3.7M Male Hispanic 17%, ~0.7M 52%, ~1M 3%, ~0.6M 3%, ~0.8M 5%, ~1.8M 15%, ~1.8M 17%, ~1.3M Non-Hispanic 20%, ~1.9M 52%, ~2.7M 5%, ~2.4M 21%, ~2.4M 9%, ~4.1M 28%, ~4.1M 15%, ~3.8M Female 8%, ~5.1M 30%, ~6.5M 5%, ~5.2M 8%, ~6.7M 6%, ~6.7M 13%, ~7.5M 10%, ~6.6M Male 7%, ~4.8M 42%, ~5.4M 9%, ~6M 8%, ~6.4M 5%, ~7.6M 18%, ~8.1M 11%, ~7.2M w/ Children at Home No Children at Home Milk consumption at breakfast in the home is the highest of all consumption occasions (~140M competitive consumption occasions; 32% avg. milk penetration) Milk after dinner in the home is a sizable opportunity for adults that is underpenetrated (~116M competitive occasions; 7% avg. milk penetration) Female Hispanic 11%, ~4.7M 31%, ~4.9M 7%, ~5.4M 6%, ~5.6M 5%, ~5.8M 9%, ~6.8M 11%, ~5.9M Non-Hispanic 7%, ~7.6M 28%, ~8.2M 5%, ~8.1M 5%, ~9.2M 4%, ~9.6M 11%, ~10.2M 7%, ~9.7M Lunch and dinner at home is an underpenetrated opportunity among all consumers Male Hispanic 19%, ~2.3M 27%, ~3.3M 6%, ~2.8M 3%, ~3.3M 2%, ~2.9M 8%, ~4.9M 10%, ~3.9M Non-Hispanic 4%, ~6.4M 29%, ~6.5M 3%, ~5.9M 7%, ~5.4M 3%, ~6.3M 11%, ~9.3M 8%, ~7.7M Female 8%, ~12.5M 25%, ~13.7M 5%, ~11M 4%, ~11.7M 6%, ~12.5M 8%, ~16.3M 6%, ~15.4M Male 6%, ~11.6M 30%, ~10.4M 4%, ~9.1M 5%, ~10.3M 3%, ~12.7M 9%, ~15.9M 7%, ~15.3M (~304M competitive consumption occasions; 12% avg. milk penetration) % of Instances that Milk is Consumed Out of All Beverage Types Consumed at Specified Usage Occasion on a Daily Basis Approx. # of Instances Where At Least One Other Beverage Type is Chosen at a Specified Usage Occasion on a Daily Basis (i.e., Size of Opportunity if Milk Stole All Competitors Share at Specified Usage Occasion) Female 7%, ~17.8M 23%, ~17.6M 4%, ~15.3M 7%, ~15.6M 3%, ~17M 12%, ~18.7M 5%, ~18.6M Male 6%, ~15.5M 27%, ~15.5M 2%, ~11.9M 7%, ~12.9M 2%, ~15.2M 11%, ~16.8M 8%, ~16.8M Adult Age %, ~21.7M 26%, ~21.1M 5%, ~21.5M 9%, ~19M 5%, ~23.7M 9%, ~21.9M 7%, ~22.7M 15

16 6 Opportunities to Increase Volume & Value Breakfast Lunch Dinner I II III Defend the Base Extend the Base Create New Opportunities A B-I Breakfast at Home Breakfast in School* Low Current Milk Penetration, with High Potential for Growth On-the-Go B-II C Lunch in School* Lunch at Home Represent longer-term opportunities, with potential for some near-term spillover effects G E F Working Out / Sports After School at Home G On-the-Go Milk Strongholds to Defend C Dinner at Home Greatest Adjacent Opportunities D After Dinner Opportunities focus on consumption occasions because research revealed that different consumer groups look for similar benefits from a specific occasion. However, demographic differences will impact how we unlock these opportunities Note: *School opportunities require further investigation before being prioritized 16

17 6 Occasion-Based Marketing Success Stories Focused on on-the-go breakfast and sweet snacks at tea time (particularly in the UK) Fourth meal campaign helped increase franchisee sales from $4.5Bn to $4.9Bn between 2005 and 2009 Brand focused on hunger (i.e., snacking occasions) that has grown from $400MM to $2Bn over last 15 years Brand created specifically for gift-giving occasions 17

18 6 Qualitative Evidence of Occasion-Based Behaviors Milk at Breakfast Milk After Exercise Milk After Dinner Gain energy for the day Satisfy nutrient requirements for the day Feel focused for schoolwork Mothers key influencers Highest milk penetration across all occasions Highest among children Adults consume more milk at breakfast than any other meal Consumers looking for hydration and replenishment after exercise Benefits of protein and nutrition relevant across all demographics Teens and adults are both relevant targets for this opportunity Indulgent / relaxing snack after dinner Though most adults 25+ are relevant opportunities, gender may be an important tactical overlay Women tend to experience more guilt in their evening snacking 18

19 % of Total Instances 6 Competitive Set Across Opportunities Category Penetration by Opportunity Soda (Regular & Diet) Fruit Juice Water (Bottled & Tap) 50 43% 46% Milk 43% 48% % 35% 35% % 17% 16% Breakfast at Home 19% 1% 21% Breakfast in School 13% 13% Lunch in School 23% 20% 8% Lunch & Dinner at Home 12% 13% 3% 7% After Dinner at Home This occasion was not included in the panel research Working Out / Sports 18% 8% 5% After School / Work at Home 16% 4% 4% On-the-Go A B-I B-I C D E F G I. Defend II. Extend III. Create 19

20 Consumption in Gallons per Person Lifetime Value 6 Potential Annual Per Capita Consumption Growth Unlocking priority near-term and long-term opportunities could increase milk consumption by ~0.7 gallons per person per year (low estimate), with a high estimate of ~3.4 gallons per person per year Current & Projected Annual Per Capita Incremental Milk Volume - All Opportunities 1 25 High: Total Milk Consumption Low: 0.7 A: Breakfast at Home, which represents a significant portion of consumption to defend Extend and Create Opportunities Breakfast at Home represents about 30% of current milk consumption High Low Projected Annual Per Capita Incremental Milk Volume by Opportunities 1 (gal / person) Less Low Estimate High Estimate G On-the-Go ( ) D After Dinner ( ) Lunch & Dinner at Home ( ) (F) Feasibility to Implement C After School at Home ( ) E Working Out / Sports ( ) Total Change = gallons / person Note: milk category declined 1.8 gallons per capita over the last 10 years! More Note: 1 Lunch in School and Breakfast in School Opportunities are not included because further investigation is required to determine impact on consumption 20

21 7 Activation of Opportunities: Breakfast at Home Opportunity to defend milk s high penetration at breakfast in the home by 1 reinforcing milk s existing strong, positive associations with this meal and 2 supporting the importance of starting the day with a healthy breakfast A Target Consumers All consumers, with focus on stand-alone milk for children & milk in cereal among year-olds Consumer Needs Nutritional options to feel healthy Energy & satiety Desired Behavior Choose milk at breakfast in the home, whether paired or by itself Current Annual Milk Volume: ~1.8B gallons Defending Current Milk Offerings at Occasion Estimated current annual processor revenue: $4.2B Estimated current annual processor margin: $130M $210M SAMPLE PROMOTION: Adapt print ads to more explicitly link milk to breakfast and highlight the meal s importance SAMPLE PLACEMENT: Experiment with placements closer to point-of-sale as a reminder to buy milk SAMPLE PARTNERSHIPS: Partner with companies selling complements commonly consumed at breakfast, e.g., oatmeal, cereal, coffee 21

22 7 Activation of Opportunities: After Dinner Opportunity to increase milk s share after dinner in the home by targeting adult consumers looking to relax at the end of their days through: 1 Current milk offerings 2 New, innovative milk based products D Target Consumers Adults aged 25 84, with specific focus on boomers aged Consumer Needs Relaxation Indulgence Satiation Desired Behavior Choose 1 milk or 2 new milk-based product instead of alcohol, tea, or coffee Potential Incremental Annual Milk Volume: ~40M 200M gallons 1 Current Milk Offerings 2 New Product(s) Potential incremental annual processor revenue: $80M $420M Potential incremental annual processor revenue: $330M $3B Potential incremental annual processor margin: $2M $20M Potential incremental annual processor margin: $30M $440M SAMPLE HOW TO WIN: Partner with hotel and restaurant chains to offer desserts with milk to reinforce associations SAMPLE HOW TO WIN: Consider creating single serve, microwavable, flavored milks and promoting through in-store trials 22

23 7 Activation of Opportunities: Working Out / Sports Opportunity to increase milk s share after exercising by targeting active teens and adults looking to refuel and replenish through: 1 Current milk offerings 2 New, innovative milk based products E Target Consumers All active teens, young adults, and adults, with specific focus on consumers aged Consumer Needs Replenishment Energy & refuel Hydration Desired Behavior Choose 1 milk or 2 new milk-based product instead of sports drinks or protein bars Potential Incremental Annual Milk Volume: ~12M 60M gallons 1 Current Milk Offerings 2 New Product(s) Potential incremental annual processor revenue: $50M $230M Potential incremental annual processor revenue: $160M $1.6B Potential incremental annual processor margin: $1M $11M Potential incremental annual processor margin: $15M $240M SAMPLE HOW TO WIN: Partner with professional sports leagues to exhibit successful expert milk use & raise awareness SAMPLE HOW TO WIN: Place milk products in vending machines near school and college gyms & in health clubs 23

24 Key Themes Uncovered through the LRP Work OVERALL FOOD AND BEVERAGE CONSUMPTION MILK-SPECIFIC OPPORTUNITIES 8 Broad category marketing has successfully supported milk consumption, but in an evolving competitive environment, the industry needs to drive both volume and value INDUSTRY INSIGHTS 9 Fragmented investment pools limit the investment in valueadded products 10 MilkPEP s role should evolve to effectively to support new priority opportunities 24

25 8 Strong Category Awareness Total MilkPEP marketing recall has remained extremely high (70-90% ranges) across key targets for years The got milk? and Milk Mustache campaigns have built enormous equities for the industry and almost-universal recall Reports show that fluid milk marketing efforts by MilkPEP and processors have made a positive and statistically significant impact on per capita consumption 1 Milk has had a longstanding prominent position in the food pyramid 2 Milk s cultural status has made it a staple beverage; it has remained the fourth largest beverage category after soda, water, and beer since 2004 Other longstanding categories (e.g. soda, juice) have experienced more significant declines in the last 10 years compared to milk 25

26 9 We Need to Break the Vicious Cycle Industry dynamics amplify the challenges that milk brands face in investing in innovation: 1 Consumer perception of lower value-add in milk vs. other categories 6 Less innovation / branding in milk vs. other categories 2 5 Limited to no consumer brand preference Vicious Cycle Processor reliance on MilkPEP to build demand 3 4 Increased revenue and margin pressure on processors Limited processor investment in innovation and branding/marketing 26

27 10 No Shortage of Ideas A two day ideation session suggests that there is actually no shortage of ideas that could help drive innovation and value-added product development in fluid milk Five opportunity clusters encompassing 350 ideas / concepts were developed: Customer-driven product portfolio New ways for milk at home New ubiquity milk within an arm s reach Milk s image Important regulatory changes 27

28 Consumption in Pounds per Person 10 There is Hope: Yogurt Consumption Trends Per capita yogurt consumption has nearly doubled in the past decade, despite consumers having similar concerns about yogurt as they do for milk Annual Per Capita US Yogurt Consumption, CAGR +8% POSITIVE Consumer Perceptions Healthy & nutritious High in calcium and other essentially nutrients Great for meals and snacking Well-liked at breakfast and increasingly for lunch and snacks Aids digestion NEGATIVE High sugar content Flavored varieties often have high levels of sugar due high fructose corn syrup Hormone concerns Since Aug. 2009, all Yoplait yogurt is rbgh/rbst-free High fat content 28

29 10 Innovative Products Both General Mills and Danone have successfully launched several innovative products over the years, some examples of which are below: Go-GURT Yoplait launched in 1999 Yoplait yogurt packaged in portable, squeezable tubes that can be consumed without a spoon Market Response Became one of the most profitable products in the yogurt category, capturing ~5.5% of the category s share within a year of its launch Whips! Yoplait launched in 2002 Yogurt with the light mouth-feel and texture of mousse; positioned as an indulgent snack Market Response Well-received among consumers, generating USD ~86 MM in sales in its launch year, rising to the top of the category Activia Dannon launched in 2006 First probiotic yogurt clinically proven to aid in naturally regulating the digestive system in 2 wks Market Response Extremely popular among consumers, contributing to ~60% of the growth that took place in the yogurt category in its launch year Note: Yoplait is the General Mills leading yogurt brand 29

30 Number of Items Sold Per Store Number of Items Sold Per Store 10 Retailers Support of Yogurt The number of yogurt offerings has been on the rise in the U.S. across retail channels despite the SKU reduction trend witnessed in food products in general Retailers Expansion of Yogurt Offerings 1,2, Overall Food SKU Trends 1,2, Retailers continue to expand their in-store yogurt offerings Product innovations combined with the category s significant growth are considered key drivers of this trend Wal-Mart has acknowledged yogurt as one of the few win food categories, highlighting its importance to the store, and, thus, Wal-Mart s commitment to the category Note: 1 Across all food, drug, and mass outlets, excluding Walmart; 2 Period ending Dec 26,

31 10 Cycle of Industry Success Yogurt industry dynamics create a favorable situation for yogurt companies to innovate, build strong brands, and deliver high value products to consumers 1 Yogurt companies enjoy higher margins compared to milk 2 This affords greater investment in R&D and marketing 5 Consumers express brand preference Virtuous Cycle 3 In turn, innovation and brands prevail 4 Consumers come to expect highvalue products 31

32 Strategic Recommendations Make clear that MilkPEP has a dual mission on driving both fluid milk volume and economic value for processors This will require articulating different metrics for gauging the success of the MilkPEP program which go beyond fluid milk volume. It will also require a longer-term planning horizon. 33

33 Strategic Recommendations Focus on a small number of high-value opportunities to avoid fragmenting the already small milk spend (relative to beverage competitors) in innovation and marketing 34

34 Strategic Recommendations Target occasions as primary go-to-market lens ahead of demographics and seek to change consumer behavior specific to those occasions Each occasion opportunity will require changing a different consumer behavior and thus, will require a different strategy and supporting tactics Tie every activity to the key strategic priorities and end those that do not directly support those occasions 35

35 Strategic Recommendations Articulate key roles for different actors in milk processing system against each opportunity Expand role of strategic partners for the milk industry (e.g., cereal, coffee, cookies) 36