Identifying Future

White Space

Opportunities

“SEE THE FUTURE” OF DAIRY

102nd Annual ODI Conference

Consider each phase of the supply chain*:

Project Objectives

Identify 5-8 year opportunities to drive the growth of dairy/dairy- based

products through the identification of macro trends and a greater

understanding of data-based key elements (e.g., food/eating behaviors,

demographic shifts, cohort groups, etc.) that have potential to affect dairy

sales

• Who will dairy consumers be in 3+ years

• What information will help dairy compete?

• What are barriers and challenges?

• What information, research will the Industry activate?

Macro Forces Production Distribution Shopping Consumption Post Consumption

*Caveats: Pre-competitive, US focused, total dairy & specific analyses on milk, cheese, yogurt and frozen 2

Loss of the Middles

A New America

Global Influences

Freedom to Live

Word of the Web

Responsibility &

Sustainability

Beyond Dieting

Overstressed Society

U.S dairy market will be marked by increasing change

by key macro forces

No Compromises

4

› Basic Safety

› Natural

› Absence of

Negatives

› Organic

› Sourcing

› Sustainable/Eco-

friendly

› Certified/Credentials

Safety

› Basic Health/

Wholesome

› Weight Management

› Prevention

› Performance

› Treatment

› Cosmetic

› Holistic

› Basic Taste/Variety

› Fresh

› Target Specific

› Real/Authentic

› Sensory

› Fun/Play Value

› Ethnic/Exotic

› Premium/Culinary

› Less Fuss

› Less Mess

› Portable/On-the-Go

› Long-Lasting

› Occasion Specific

› Complete

› Customizable/

Versatile

Convenience/

Freedom Wellness

Gratification/

Enjoyment

GfK Proprietary Consumer Need State Evolution

5

Evolution of Consumer Needs in Dairy: Wellness

6

WHAT WILL 2020 LOOK LIKE?

Source: US Census Bureau DMI Understanding the Dairy Opportunity Among Hispanic Consumers, 2010

1 in 5 Americans will be Hispanic 13% Black 6% Asian

The Hispanic population will grow by 1 million people/year

Hispanic population will contribute ~ 20% of dairy category volume

8

By 2020

-20

-10

0

10

20

30

40

50

Percent change in population by age 2010 to 2020

18-24 25-34 35-44 45-54 55+ 45% Increase Total population age 55+ pop. will increase 45%

30

35

40

45

50

55

60

65

70

75

80

85

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total US Population of Children <18yrs (2011-2020)

33% Adults age 55+ will represent 33% of the total US population

Source: Census Bureau Population Projections; www.childstats.gov

Children under 18 will grow by 8% by 2020

Age

Pe

rce

nt

Po

pu

lation

in M

illio

ns

9

By 2020

Obesity rate will

DOUBLE 75% of Americans

are overweight

50% 40% 20%

Chronic conditions will

affect almost 60% of the

population

% Growth of Chronic Conditions

Arthritis Heart Disease Diabetes

Men nationwide will increasingly be the

primary household grocery shoppers

(currently 31%) Sources: GfK Roper Reports, US

NPR’s Health Blog; GfK MRI 10

By 2020

70%+ of the US population will

have a smartphone or tablet

(2x the amount today)

Text by Thinking. Brain-machine

interface technology will convert

brain waves into digital signals

and display the resulting letters

on-screen

Source: Mobile Phone Tracker – International Data Corporation

Japan eyes 'mind-reading' devices, robots 'by 2020',

Mobile apps (such as UP) will

track your daily activity and

inspire you to live healthier

11

By 2020

Home appliances and devices

will track current grocery

supply, create shopping lists

and order supplies directly to

your home

Source: SAP Thought leadership Retail

2020

Meet Suzie: This is how Suzie grocery shops in 2020

Suzie owns a digital home terminal (DHT)

The DHT:

• Scans the refrigerator and shelves

• Recognizes that she is running short on

basic items like: milk, cheese, eggs

• Retrieves data from retailers, looking for

promotions and deals, and calculates

the best offer

• Upon approval, orders the groceries and

has them delivered to Suzie’s house

12

By 2020

• Augmented reality retail

shopping takes your image

and physical dimensions to

show you how items will look

on you

• Customers can select and

scan products from a virtual

billboard in subway stations in

South Korea and then have

groceries delivered to their

door.

• Retailers and manufacturers are

experimenting with moving dairy

near produce, grouping pairings

based on meals, creating a more

farmer’s market feel throughout

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By 2020

Trends and Needs Converge Overarching Themes Set the Stage for Identification of 20 White Space Areas

• The US market will be marked by increasing rates of change driven by key

macro forces in the market

• In this environment, the US dairy industry has significant opportunities to

innovate overall and by individual categories

• Dairy’s future will require more multi-faceted segmentation and

personalization to keep pace with these significant changes

• In the future, dairy needs to move beyond core messaging and core

benefits towards fusion of benefits that address emerging consumer

needs more effectively

14

Wellness Gratification Convenience Safety

Dairy Beverage Re-invented

Going Gourmet

Global Taste Adventures

Dairy ‘Micro-Brewed’

Powered by Dairy

Zen Nation

Continuously Delight Kids

Out & About

Dairy Dating

Take Me Home Tonight

Fresh Taste Guaranteed

Immersive Tech

Destination Dairy

Green 2020

Safety ASSURED!

Best Supporting Actress

Creating New Segments

Gen Zoom

Smart ‘n Fit

Grazing on Dairy

White Spaces Span a Range of Need States

15

Dairy Beverage Re-invented (Tier 1) Re-inventing and re-positioning fluid/bottled milk to meet

emerging needs of consumers

Categories:

600-

400-

200-

0

200

400

600

800

1000

1200

1400

1< 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69

50-

0

50

100

150

200

250

300

350

Actual Change in Population (000's)

Aging Curve-Plain Milk

Aging Curve vs. Actual Change in Population

Plain Milk

16

67

65

56

54

38

38

29

26

To avoid sickness, disease

To lose/control weight

To feel more energetic

To feel good about self

To look good

To feel positive, happy

To relieve stress

To set good example for

kids, loved ones

Gen Zoom (Tier 1) Linking dairy to disease prevention and healthy aging, for a happier

and more active life

Boomers Eat Healthy to Healthy

Categories:

Diabetes

Arthritis

% main reason to eat healthy

Ingredient

17

Smart ‘n Fit (Tier 1) Making people aware of all the benefits of dairy as they

work to manage their weight, stay fit and remain healthy

We will still be overweight ~ 75%

76%

66%

66%

65%

64%

61%

58%

55%

52%

48%

47%

46%

45%

39%

Obesity/ Overweight

High cholesterol

Diabetes

Blood sugar imbalance

Heart disease

Intestinal irregularity

Lack of energy

High blood pressure

Cancer

Lowered immunity

Osteoporosis/ Bone health issues

Acid reflux/ Heartburn

Frequent cold and flu

The negative effects of stress

% consumers indicating they would use foods/beverages to

treat/prevent

(Among those concerned about the issue)

Categories:

Ingredient

Consumers Use Food/Beverages to Treat:

18

Powered by Dairy (Tier 2) Making dairy the go-to food/beverage for people who want

more physical or mental energy

Top 10 Growth Categories

Source: Kantar Worldpanel. Year ending Jun 2010

Ingredient

Categories:

Energy is Not Just for the Young

Sports Drinks Energy Drinks

22

Continuously Delight Kids (Tier 2) Making dairy products, especially milk, a tasty, fun treat for

kids so they consume dairy into adulthood

600-

400-

200-

0

200

400

600

800

1000

1200

1400

1< 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69

50-

0

50

100

150

200

250

300

350

Actual Change in Population (000's)

Aging Curve-Plain Milk

Aging Curve vs. Actual Change in Population

Plain Milk

Categories:

85% of all kids strongly agree/agree that they need more companies to make foods that are fun to eat and also healthy

97% of all moms say that it’s important that healthy foods

are as fun as some of my kids’ favorite foods 84% of all moms say that when it comes to food, making

my child happy is just as important as giving them the best nutrition ~ Source: JKI Mom Food Quick Dip Survey 2/09 ~ Source: JKI Kid-Trition Study

Moms and Kids Tell Us That They’re Looking

For Healthier Foods Are That Are FUN

24

Take Me Home Tonight (Tier 2) As ready to heat/eat meals are increasingly viewed as ‘home cooking’, making sure dairy is a part of these meal solutions

Categories: Grocery Stores = 20% of Take Out Meals

Ingredient

27

Grazing on Dairy (Tier 1) As people move from the 3-meal-a-day norm to more snacking,

make dairy the healthy, fun and satiating snack of choice

Categories:

17%

30%

21%

13%

8%

11%

Do notsnack

Onesnack

Two Three Four 5+

Distribution of Snacking Frequency on an Average Day % of snack food* using individuals

Source: The NPD Group/SnackTrack, 2 years ending March ’12

*Snack Foods are a pre-defined group of snack-oriented convenience foods (See Appendix)

On average we eat almost

500 snack foods

throughout the year

……those following a “most healthy” diet eat a wider variety

of healthy snacks……

Ingredient

28

Creating New Segments (Tier 1) Creating new forms and segments within dairy to provide

holistic solutions for tomorrow’s consumers

Categories:

New Categories = Disruptive Growth

+98%

$300MM/year

$ ½ B sales

Ingredient

35

Eight areas chosen at joint

R&I/H&W work session for

pre-competitive exploration

Future of Dairy – Where We Are Today

Future of Dairy

initial project: 20

opportunity areas

36

• Forum to Showcase Game Changing Opportunity Areas –

Over 100 attendees representing 43 Industry Companies

Immerse industry in Future of Dairy research and strategic roadmap

Facilitate additional pre-competitive exploration

Prioritize work needed moving forward

Industry Future of Dairy Forum

November 7- 8, 2012

37

Accelerate outreach to recruit industry volunteers for

participation in topic work teams

Tap the Innovation Center Board members for further

engagement and input

Input from industry will shape activation of additional pre-

competitive insight work in priority areas

One-one sessions with individual organizations to

customize insights to drive more “dairy-focus” initiatives

What’s Next?

38

QUESTIONS, COMMENTS

39

15th Annual Dairy Ingredients Symposium

February 21-22, 2013