DAIRY PRODUCT TRENDS AND INNOVATION

Southern Dairy Conference March 8, 2016 Cheryl Hayn

Checkoff Builds Demand for Dairy Products

Western Dairy Center

• University of Minnesota

• South Dakota State University

• Iowa State University

Wisconsin Center for

Dairy Research

Southeast Dairy Foods Research

Center

Northeast Dairy Foods

Research Center

Midwest Dairy Food Research

Center

• University of Wisconsin Madison

• Cornell University

• North Carolina State University

• Mississippi State University

• California Polytechnic State University

• Utah State University California Dairy

Research Center

Fluid Milk Yogurt/

Cultured Dairy Products

Other Dry Ingredients

Whey Ingredients

Milk Protein Ingredients Cheese

•  Six Leading Edge Scientific Dairy Research Centers Offer Comprehensive Support

•  Number of research projects in the pipeline

•  SEDRC headed up by Dr. Mary Ann Drake

Agenda Ø Macro U.S. Demographic and Societal Forces Driving Trends Ø Consumer Trends Ø Dairy Trends and Innovation o Milk and Dairy Beverages o Yogurt o Cheese

MACRO DRIVERS OF TRENDS

Changing Demographics and Family Dynamics

Increased U.S. diversity By 2030…

•  20% over age 65 •  22% Hispanic •  13% African American •  10% Asian/Other Race •  16% Foreign-born

Single parent

Mom as breadwinner

Blended families

More households are:

use  smartphones  to  decide  whether  to  visit  businesses  

Technology Explosion: Altered Paths to Purchase

own  a  smartphone  

64%

say  mobile  payment  is  highly  important  for  restaurants  

30%

of  shoppers’  journeys  start  online  

67% 21%

Source:  Pew  Research  Ins1tute,  Technomic  Consumer  Restaurant  Brand  Metrics     6

Innovation: Demand for New Ideas on the Rise

Three in four Americans Feel Innovation is ‘an easier/faster way of doing something’ YET, consumers feel new developments are going too fast •  Testing isn’t adequate •  54% consumers say greed/money is the real motivator

behind the innovation

Implications: Opportunities abound within dairy as consumers become more and more open to experimentation (taste/flavors, packaging, usage, etc.) Yet, it’s important to convey to consumers “shared values”

Instant Gratification

We are connected 24/7

Feel ‘it is important to be reachable wherever I am’.

2 in 3 Americans

Implications: •  From a product standpoint, think about dairy availability everywhere

•  24/7 access is imperative. Be equipped to give the information they seek or need at all times.

Resources and Sustainability

As consumers face scarcities of resources and increasing cost pressures,

68% of Americans expect “brands and

companies to be environmentally responsible these days”.

Implications: •  Be transparent – ethical and environmental credentials

are increasingly being scrutinized by consumers.

A FEW CONSUMER TRENDS

Consumers’ Fascination with Food Is Growing

They value the food experience and want the world to know

Focus on Health & Well-Being My most recent restaurant meal was healthy.

It’s important to feel good about the foods and beverages I put into my body.

54%   60%  

2012  2014   of  consumers  agree  65%  

Source:  Technomic  Consumer  Trend  Report  Series,  2015     12

Natural and Transparent Brands Win Consumers

68%  

Socially  Responsible  

71%  

Environmentally  

Responsible  

84%  

Product  Transparency  

65%  

Locally  Made  

78%  

Natural  

78%  

Brand  I’ve  Always  Used  

How important is it that the retail brands you buy are. . .

Source:  Technomic  Food  with  a  Story,  2015    

Protein Continues to Grow in Importance

54% Adults seeking more protein in their diet1

69% Adults prefer to add protein from foods that have it naturally1

25% Adults look for protein on Nutrition Facts label2

1 Hartman Health & Wellness 2015 2 NMI 2014

ü Muscle

ü Energy

ü Weight

Free-From Foods Gaining Presence FREE-FROM FOODS GAINING PRESENCE

GROWTH IN CLAIMS

gluten free

no allergens

sugar free

gmo free +101%

+43%

29%

+17%

dairy free +16%

no additives +9%

fructose free +3% Source: Innova

DAIRY TRENDS AND INNOVATION --- MILK

+27% IN SERVINGS AT QUICK SERVE RESTAURANTS

(2010-14)

Milk Growing in Non-Traditional Ways

+58% IN OCCASIONS AT HOME & AWAY

(2010-14)

+17% IN DOLLARS IN EACH OF LAST 3 YEARS AT RETAIL

READY-TO-DRINK SPECIALTY COFFEES

Milk has Growth Areas at Retail With Opportunity to Further Leverage

When additional benefits are incorporated into milk, sales grow

“VALUE-ADDED” MILKS GREW 20% OVER LAST 3 YEARS

Source: IRI custom DMI milk database; milk concept tests

Lact

ose-

Free

Protein Glass

Refuel Non-Homogenized

Gra

ss-fe

d O

rgan

ic

Omega

Added Value Milk

•  Higher protein

•  Less sugar •  Lower

calories •  Lactose-free

Tea Lattes Inspired by Coffeehouses

Celestial Lattes •  Dirty Chai –chai spiked with espresso •  The Godfather –chai with espresso and cocoa •  Mountain Chai –chai with ginger, cardamom and

cloves •  Matcha Green – matcha green tea powder

20

Argo Tea •  Chai •  Earl Grey Vanilla Crème •  Green Tea Strawberry Crème

QSR Chains Are Featuring Tea Lattes – Hot & Frozen

Chocolate Tea Latte Tea combined with our Special

Dutch™ chocolate powder, steamed non-fat milk and foam

Frozen Spiced Chai Spiced Chai Is Mixed With Milk, Ice Then Blended Smooth, and

Topped with Whip Cream

QSR Chains Are Adding RTD Iced Coffee Beverages • Mocha, vanilla and caramel •  10-ounce or 32-ounce plastic bottles

22

Similar to Starbucks RTD Iced Coffee Beverages

Indulgently Flavored Milk

23

Prairie Farms •  Chef-inspired

flavors •  Dark Chocolate

Truffle •  Sea Salt

Caramel •  Vanilla Chai

Latte

Promise Land •  Mint Chocolate Chip

QSR Chains Feature Indulgent Lattes

24

Campfire Mocha Cooler

Chocolate & Marshmallow Choco Loco

Cookies ‘N Crème Mint Chocolate Bomb

Innovative Milk Products Across the Globe

Japan •  Fragranced

milk for scent-sensitive consumers

• Subtle aroma of apple or peach but without the taste of either

Singapore • Cereal and milk in one

beverage

25

DAIRY TRENDS AND INNOVATION --- YOGURT

26

27

Source: USDA NASS

4,757

0 500

1000 1500 2000 2500 3000 3500 4000 4500 5000

198

199

199

199

199

199

199

199

199

199

199

200

200

200

200

200

200

200

200

200

200

201

2011

20

120

120

1

U.S. Yogurt Production (Million Lbs.)

USDA  NASS  Yogurt  Produc@on  2015  YTD  :  +3.2%  vs.  YA  

Long-Term Growth in Yogurt Production

0.2 3.5

6.3 7.3

11.4 14.9 15.0 15.8

18.3 18.3 18.7

23.8 23.8

26.2 27.1

28.6 29.5

36.3 38.1

44.0 46.4 47.3 48.4

51.0 57.4

62.7

India South Africa

Japan China

Russia United States

Mexico Taiwan

Australia New Zealand

Greece Norway

Czech Republic Ireland

Germany Turkey

Switzerland France

Denmark Portugal

Austria Sweden

Saudi Arabia Finland

Netherlands United Arab Emirates

24.2

12.1 9.0

4.0

Europe Tot Americas Africa & Middle East

Asia-Pacific

U.S. Yogurt Market has Room to Grow Relative to Other Countries

Source: Datamonitor Database

Annual Per Capita Consumption (lbs) 2014

Average per person yogurt consumption is 14.9 lbs in U.S.

28

Greek Still Expanding – Now 36% Category

3,171 mil pints

3,199 mil pints

3,367 mil pints

3,337 mil pints

3,239 mil pints

TOTAL YOGURT

GREEK YOGURT

183 mil pints

738 mil pints

429 mil pints

1,081 mil pints

1,190 mil pints

RETAIL YOGURT MARKET

2010 2011 2012 2013 2014

QSRs Are Now Offering Greek Yogurt • Starbucks Offers 3 Greek Yogurt Parfaits

30

Dark Sweet Cherry Fresh Berries & Honey

Strawberry

Greek Yogurt Adds Seeds/Grains

Yoplait Plenti •  Oats, flax and

pumpkin seeds

31

Chobani Greek Yogurt Oats

•  Up to 10 grams whole grains

•  New flavors added in Aug 2015

Powerful Yogurt •  Fruits, grains and

seeds •  Targets males

Stonyfield Farms

Super Seeds •  Softened Flax

Seeds

Chobani Adds Chocolate Added to New Yogurt

32

Vanilla Yogurt with Honey Roasted Nuts, Peanut Butter Clusters and Milk

Chocolate Chunks

Coffee Yogurt with Biscotti Pieces and Chocolate

Greek Yogurt Incorporated Into Other Foods

33

Yogurt with Vegetables Found Around the World

Australia Yummia Yogurt •  Layered yogurts with fruit and

vegetable pieces at the bottom •  Carrots, Beetroot and Sweet

Potato

34

U.S.: Stonyfield Farm •  Kids’ yogurt with vegetables •  Beets and Spinach

Yogurt with Innovative Flavors

35

Stonyfield Farm •  Gingered Pear Canada: President’s

Choice •  Drinkable caramel coffee

yogurt shots

Chobani •  Pumpkin Spice •  Plum (limited edition)

DAIRY TRENDS AND INNOVATION --- CHEESE

36

Per Capita Cheese Consumption has Nearly Tripled Since 1970

37

33.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1970

19

71

1972

19

73

1974

19

75

1976

19

77

1978

19

79

1980

19

81

1982

19

83

1984

19

85

1986

19

87

1988

19

89

1990

19

91

1992

19

93

1994

19

95

1996

19

97

1998

19

99

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

Total Cheese – Per Capita Consumption (Lbs.)

Source: USDA NASS

2013 data is preliminary.

11.4

Source: IRI DMI Custom Cheese Database, Total U.S. Multi-Outlet + Conv.

57.8 55.6

53.8 53.6

52.2 46.5 46.1 45.9

43.4 42.8 42.3

39.9 39.0

37.7 36.6 35.9 35.3

33.7 33.3

26.7

France Iceland

Luxembourg Germany

Finland Switzerland

Italy Estonia

Sweden Netherlands

Austria Cyprus Norway

Israel Czech Republic

Lithuania Latvia

Belgium United States

Canada

26.0 25.4 25.1 24.7 24.7

22.3 21.2 21.2 20.7 20.5

17.9 15.9

14.8 14.8 14.6

13.2 10.4 9.3

7.9 6.8

Australia Hungary

Poland Argentina

United Kingdom Slovakia Portugal Croatia

Egypt Spain Chile

Turkey Ireland

New Zealand Russia

Uruguay Iran

Ukraine Brazil

Mexico

Cheese  Per  Capita  ConsumpRon  by  Country  (Lbs.)  –  2012  

Asian countries such as China and Japan are listed at under 5 pounds of cheese per capita.

Room to Grow U.S. Per Capita Cheese Consumption

Room to grow

New Forms of Snacking Cheese

U.S. Burnett Dairy: Spaghetti-style format of low-moisture part-skim mozzarella

U.S.: Mr. Cheese O’s •  Crunchy on-the-go real cheese snack •  Four flavors

Snacking Cheeses Packaged In Side-by-Side Containers

Borden • GOOD2GETHER snack trays

combine real, natural cheese and crunchy mini-twist pretzels

Sargento • Pairs cheese with

roasted nuts and dried fruits

Snacking Cheeses Found at Starbucks

Cheese & Fruit Bistro Box Creamy Brie, bold Gouda, two year‐aged Cheddar

Protein Bistro Box

White Cheddar cheese

Pinwheels Bistro Box Prosciutto and mozzarella are

swirled together

Retail Cheeses Get Fiery!

Japan Introduced a Cheese To Improve Liver Function after Beer Drinking

• Cheese snack that helps liver function recovery after drinking alcohol, specifically beer

• Two flavors — ginger and soy sauce

• Enhanced with the amino acid ornithine

In Summary • Consumers are constantly looking for new and different • How can we tap into technology trends? • Make dairy beautiful and easy at mealtime • Value-added milk products are getting the attention of consumers

• Transparency, food safety key • We all must tell the farm story • But best told by dairy farmers themselves

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