Better-For-You Foods. It s Just Good Business. October 13, 2011

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1 Better-For-You Foods It s Just Good Business October 13, 2011

2 High Obesity Rates Persist Despite Efforts to Reverse the Epidemic

3 The Project The first effort to examine whether there is a business case to be made for selling better-for-you (BFY) products

4 Project Goals To determine if consumer packaged goods (CPG) food and beverage corporations that emphasize BFY products enjoy superior sales, financial and reputational benefits To accelerate CPG company conversion to lower-calorie, healthier product versions Ultimately to serve as an impetus to help reverse obesity rates among children and their families

5 The 15 Food & Beverage Companies Analyzed

6 Data Sources Categories Objectives

7 Conclusions Companies with higher than average sales of BFY products demonstrate superior: Sales growth Operating profits Returns to shareholders Company reputation

8 Product Portfolio Snapshot

9 Product Categorizations Lite No-/low-/reduced-calorie foods Good Wholesome products Traditional products made healthier Perceived by consumers as healthier Better-for-You (BFY) = Lite + Good Traditional Non BFY products NOT a set of new nutritional standards

10 Example Brands by Category Kraft Foods PepsiCo Unilever Lite Crystal Light Aquafina Breyer s Light Maxwell House Pepsi Max Lipton Tea (unsweetened) Roarin Waters Tropicana 50 Slim-Fast Good Boca Burgers Baked Lay s Dijonnaise Oscar Mayer Lean Turkey Quaker Oatmeal Lipton Dry Soups Wheat Thins SoBe Life Water Ragu Old World Style Traditional Oreos Doritos Klondike Bar Kraft Mayonnaise Pepsi Lipton RTD Teas Kraft Mac n Cheese Tropicana OJ Skippy Peanut Butter

11 BFY Products Comprise Almost 40% of Composite Company Sales Lite Foods 19.3% Total Better-For-You 38.6% Traditional Foods 61.4% Good Foods 19.3%

12 % of BFY Sales by Company 100.0% 80.0% Above Avg. BFY % of Sales 60.0% 40.0% Below Avg. BFY 20.0% 0.0%

Several Companies Making BFY Products a More Important Part of Their Portfolios 5.0 4.5 4.

13 Several Companies Making BFY Products a More Important Part of Their Portfolios Change in % BFY Kellogg's Campbell's Danone Sara Lee Hormel General Mills

14 Impact of BFY Products on Sales Growth

0% Share of Dollar Sales & Growth, 2007-2011 71.8% 61.4% 38.6% 28.

15 BFY Items Drove a Disproportionate Share of 5-Year Sales Growth 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Share of Dollar Sales & Growth, % 61.4% 38.6% 28.2% Percent of $ Sales Percent of $ Sales Growth BFY Traditional Source: Nielsen Food, Drug and Mass Merchandiser sales tracking

16 Companies Growing Their BFY Products Faster Than Traditional Ones Exhibited Greater Overall Sales Gains Impact of BFY on Total Company Growth, % Change in Dollar Sales 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 4.9% 2.2% BFY Growth > Traditional Products (7 Companies) Traditional Growth > BFY Products (6 Companies) Declines in Both (2 Companies) -2.0% -1.5% Source: Nielsen Food, Drug and Mass Merchandiser sales tracking

17 Impact of BFY Products on Operating Profits

18 Companies Emphasizing Better-for-you Products Recorded Superior Operating Profits Average Operating Profit Margin % Operating Profit Margin 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 15.3% 9.5% Latest 5 fiscal years Above Average % Sales in BFY products (8 companies) Source: Nielsen Data & Company Annual Reports (Excludes beverage companies due to higher margin structure)

19 All Companies Emphasizing BFY Products Reported Operating Profits > 14% % Operating Profit Margin 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% Average Operating Profit Margin Source: Nielsen Data & Company Annual Reports (latest 5 fiscal years) (Excludes beverage companies due to higher margin structure)

All Companies with Below Average % of BFY Sales Delivered Lower Returns 14.0% Average Operating Profit Margin % Operating Profit Margin 12.0% 10.0% 8.0% 6.0% 4.0% 2.

20 All Companies with Below Average % of BFY Sales Delivered Lower Returns 14.0% Average Operating Profit Margin % Operating Profit Margin 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Kraft Sara Lee ConAgra Hormel Source: Nielsen Data & Company Annual Reports (latest 5 fiscal years) (Excludes beverage companies due to higher margin structure)

21 BFY Operating Profit Link Also Holds for High Margin Soft Drink Companies 45.0% 40.0% 39.8% Coca-Cola PepsiCo 35.0% Dr. Pepper 30.0% 25.0% 28.2% 26.5% 25.6% 20.0% 15.0% 10.0% 5.0% 16.9% 14.3% 0.0% % of Sales in BFY Products Average Operating Profit Margin Source: Nielsen Data & Company Annual Reports (latest 5 fiscal years)

22 Companies Emphasizing BFY Products Recorded Superior Operating Profit Growth Growth in Operating Profits % Growth in Operating Profit 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 50.6% 21.2% Latest 5 Fiscal Years Source: Nielsen Data & Company Annual Reports BFY Growth > Traditional Products (7 Companies) Traditional Growth > BFY Products (6 Companies)

23 Impact of BFY Products on Shareholder Returns

24 Companies Emphasizing BFY Products Outperformed the S&P 500 Index by a Larger Margin Performance vs. S&P 500 Point Difference vs. S&P Above Average % of Sales in BFY Below Average % of Sales in BFY Source: S&P Index daily figures; Yahoo Finance (latest 5 fiscal years)

Companies with Stronger Better-for-you Portfolios Deliver Superior Total Returns to Investors 60.0% Total Return Total Return % 50.0% 40.0% 30.0% 49.9% 34.2% 20.

25 Companies with Stronger Better-for-you Portfolios Deliver Superior Total Returns to Investors 60.0% Total Return Total Return % 50.0% 40.0% 30.0% 49.9% 34.2% 20.0% 10.0% 0.0% Above Average % of Sales in BFY Below Average % of Sales in BFY Source: Yahoo Finance, Ycharts and Annual Reports (Nestle & Danone); latest 5 fiscal years

26 Impact of BFY Products on Reputation

27 BrandPower TM BrandPower TM metric is a proven predictor of market value for CPG and beverage companies Tracks 5 important success measures: Reputation Familiarity Favorability Management Investment Potential

28 Companies Focusing on Better-for-you Portfolios Exhibit Superior Reputation & Favorability Scores BrandPower TM RATING Above Average % of Sales in BFY Below Average BFY Portfolios Source: CoreBrand BrandPower TM ratings Data not available for Dr. Pepper, Danone and Smuckers. Coca-Cola and Unilever excluded as they are outliers: Coca-Cola rating = 84.6; Unilever = 9.9.

29 Case History

30 Company has revamped entire portfolio to focus entirely on better-for-you products Stripped out all non-food, plus beer and confectionary businesses Sold Biscuit division to Kraft Purchased Royal Numico

31 Portfolio Profile

32 Exceptional 5-year Performance Financial Performance Metrics % BFY Sales Growth Operating Profit Growth Performance vs. S&P 500 Stock Price Appreciation Danone 99.6% +6.9% +61.4% % 15 Company Composite 38.6% +2.1% +34.9% % INDEX

33 Implications for Action This study provides powerful evidence that investing in developing and selling better-for-you products is good for business Food companies and analysts should adopt the % BFY metric to gauge improvements to product portfolios Public health officials and policymakers must be aware of and understand core food company goals in order to work more effectively with them to address the obesity epidemic.

34 Better-For-You Foods It s Just Good Business

35 Nestlé Infant Nutrition Rick Klauser Marketing Head, Nestlé Infant Nutrition

36 Our Mission: Our unwavering commitment to nourish a healthier generation, one baby at a time The nutrition a child receives in the first five years can affect their health forever Pregnancy Preschool 36

37 Start Healthy, Stay Healthy is Gerber s Commitment to Early Childhood Nutrition SCIENCE Elevate the nutrition conversation through scientific leadership EDUCATION Translate complex nutrition science for all stakeholders PRODUCT INNOVATION Integrate developmental and nutrition science for advanced product design 37

Start Healthy, Stay Healthy : Science Groundbreaking

nutrient intakes and dietary patterns Fills an

peer-reviewed journal articles 2002 Key Findings Lack

Snacks are critical Infant and Toddler dietary gaps

introduction of sweets Continuing lack of fruits and

38 Start Healthy, Stay Healthy : Science Groundbreaking dietary survey of 3,000 infants & toddlers Snapshot of nutrient intakes and dietary patterns Fills an important information gap Published in 25+ peer-reviewed journal articles 2002 Key Findings Lack of fruits and vegetables Sweets introduced very early Snacks are critical Infant and Toddler dietary gaps 2008 Key Findings Improvements in breastfeeding and introduction of sweets Continuing lack of fruits and vegetables Infant and Toddler dietary gaps Preschooler data reveals similar issues to Toddler 38

Start Healthy, Stay Healthy : Innovation

Inadequate intake of essential fats/high

serving of vegetables; cheese sauce made

canola oil Whole grain gap Snacks and pasta

25% of calories from snacks Healthier snack

39 Start Healthy, Stay Healthy : Innovation FITS Insight: Lack of fruits and vegetables Inadequate intake of essential fats/high sat fat Gerber Innovation: Lil Entrees one serving of vegetables; cheese sauce made with squash Graduates Grabbers - fruit puree in self-feeding package Dairy products with healthier fats Omega 3 from canola oil Whole grain gap Snacks and pasta made with whole grains Too many sweets and 25% of calories from snacks Healthier snack alternatives such as Yogurt melts, fruit and whole grain products 39

40 Start Healthy, Stay Healthy : Education Sharing with Research Community Informing Public Health Policy Customizing Resources for Families Educating Health Professionals 40

41 Start Healthy, Stay Healthy : Education Sharing with Research Community Informing Public Health Policy Customizing Resources for Families Educating Health Professionals 41

42 Start Healthy, Stay Healthy : Education Sharing with Research Community Informing Public Health Policy Customizing Resources for Families Educating Health Professionals 42

43 Start Healthy, Stay Healthy : Education Sharing with Research Community Informing Public Health Policy Customizing Resources for Families Educating Health Professionals 43

44 Start Healthy, Stay Healthy : Education Sharing with Research Community Informing Public Health Policy Customizing Resources for Families Educating Health Professionals 44

45 Interactive Nutrition Tool Generates nutritionallyappropriate menus Interactive and customizable by developmental stage Valued by consumers 600,000 gerber.com visits per month 60,000 Menu Planner downloads per month

46 Healthy Products Yield Healthy Profits Strong Sales Results +10% 9 out of 10 Moms say Gerber is their most trusted brand TOTAL Gerber & Good Start 46

47 47

48 General Mills Health Initiatives Susan Crockett, PhD, RD Vice President Senior Technology Officer, Health & Nutrition October

49 49 General Mills Overview World s 6 th largest food company $14.9 billion in FY11 global net sales 35,000 employees Marketed in more than 100 countries

50 Our Strategy Deliver health to meet consumer needs Taste, Convenience, Nutrition Address healthfulness of our total portfolio Reduce limiters Increase positives Food groups of need Address energy balance calories eaten and calories burned Educate about exercise Energy density & portion control 50

General Mills Product Improvement Model Research Stealth Health

Understand impact on diet & role of individual foods Authoritative

Maintain product safety, performance & functionality Inch down help

51 General Mills Product Improvement Model Research Stealth Health Sustainable in the Market Bell Institute dietary intake database Understand impact on diet & role of individual foods Authoritative nutrition guidance informs product development Avoid taste compromise Maintain product safety, performance & functionality Inch down help consumers change Must be appealing enough so consumers will buy it So product can stay on shelf 51

Continuous Health Improvement Cumulative* Achievement of GMI Sales Improved FY05-FY11 & F12-F16 Projection Key Drivers Nutritional Improvement FY05-FY11 Over 600 products

total fat/sat fat 2% sugar 4% Decreasing Limiters 66% Increasing Positives 34% *On a cumulative basis: products that have been nutritionally improved more than once are counted

52 Continuous Health Improvement Cumulative* Achievement of GMI Sales Improved FY05-FY11 & F12-F16 Projection Key Drivers Nutritional Improvement FY05-FY11 Over 600 products improved FY05-FY11 67% 64% 60% 40% 45% 33% 16% 21% 80% other* 2% whole grain 17% vitamins/mi nerals 11% fiber 5% calorie/porti on control 5% gluten 2% sodium 32% trans fat 20% total fat/sat fat 2% sugar 4% Decreasing Limiters 66% Increasing Positives 34% *On a cumulative basis: products that have been nutritionally improved more than once are counted only one time Focused on doing the right thing to make our products nutritionally better *includes: serving veg/fruit, antioxidants, probiotic, protein, omega-3, GMI Better-for-You 52

53 Whole Grain Conversion 95% of Americans are not getting the recommended amount of whole grains All Big G cereals provide at least 8 grams of whole grain per serving* *48 grams recommended daily

Improving Yogurt Calcium & Vitamin D Yoplait is

vitamin D in every serving Sugar Reduction Over

content of kids yogurts Original Yoplait NOW

sugar reduction in Yoplait Trix & Yoplait Kids

54 Improving Yogurt Calcium & Vitamin D Yoplait is the only leading yogurt with a good source of vitamin D in every serving Sugar Reduction Over the years, Yoplait has steadily reduced sugar content of kids yogurts Original Yoplait NOW contains both 50% DV calcium & vitamin D 20% sugar reduction in Yoplait Trix & Yoplait Kids products, with a corresponding decrease in calories 54

55 Sodium Reduction Reduce sodium by 20% in Top 10 key product categories by 2015 Canned Vegetables Cereals Dry Dinners Frozen Pizza Mexican Dinners Refrigerated Dough Savory Snacks Side Dishes Soups Variety Baking Mixes 55

56 Reducing Sugar in Cereal KEY 2007 Sugar level 2008 Sugar level 2009 Sugar level 2010 Sugar level Goal Sugar level 13g Commitment to further reduce sugar levels 12g 11g 10g 9g Goal 56

57 Fiber That Tastes Great! Over $400 Million in Global Sales in 2011

Professional Education Promote Science Based Decisions Bellinstitute.

58 Bell Institute of Health & Nutrition Nutrition Science & Research Clinical Studies Dietary Intake Research Link to Existing Science External Education & Advocacy Government Nutrition Policy Health Professional Education Promote Science Based Decisions Bellinstitute.com WIC, Health Professionals, Foodservice FREE nutrition education materials CME Programs Distributed 2+ million samples/materials

6 billion grams of fiber ~13.2 billion servings of Whole Grain *based on FY10 data and U.

59 Improving Health in America In 2010, General Mills provided: > 1 billion full servings of vegetables ~ 2.4 billion servings of low-fat / non-fat dairy > 61.6 billion grams of fiber ~13.2 billion servings of Whole Grain *based on FY10 data and U.S. retail products; ½ cup = full serving of vegetables; 1 cup = serving of dairy; 16 grams = 1 WG serving 59

public health via continuous improvement By setting aggressive

60 Summary General Mills is dedicated to Nourishing Lives: By delivering healthy options in the products we create, By advancing public health via continuous improvement By setting aggressive goals for product improvement By making and measuring progress year over year 60

61 Better-For-You Foods It s Just Good Business

BBB Children s Food and Beverage Advertising Initiative: Synopsis of Participants Nutrition Guidelines (May 2009)

BBB Children s Food and Beverage Advertising Initiative: Synopsis of Participants Nutrition Guidelines (May 2009) Participants Calories 1 Fat Sat Fat Trans Fat 2 Sodium Sugar Burger King Corp. Kids Meal 560 < 30% Cadbury < 10% No Added 600 mg Campbell s Soup 5 150 Canned Pasta 300 Snack Crackers 6 Coca-Cola 170 3g