gluteNONETM

Gluten-Free Mixes

Let them eat bread ...

ContentsAlternativeApproaches p.4

FirstMoverAdvantage p.5

Gluten-FreeMixes p.6

TheMarket p.10

FourSegments p.11

CeliacDisease p.12

Facts&Figures p.13

Demand p.14

Gluten-FreeQualification p.14

MainstreamMarketplace p.15

Conclusion p.16

gluteNONE“for the love of bread”

Severalsurveysandfocusgroupshavecometothesameconclusion:Thevastmajorityofgluten-freeshoppersrequestbreadwithbettertasteandtexture.Whatceliacpatientsandtheglutenintolerantcravemorethananythingisadecentloafofbreadforasandwich.

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Alternative Approaches The advantages offered by Watson

Research,development,technologyandprocessdevelopmentarecornerstonestoWatson’ssuccess.Wehavebuiltareputationofbeingtheindustryproblemsolvers.Wearenowwellpositionedtobeyourgluten-freeproblemsolver.

OurResearchandDevelopmentLaboratoriesarecentraltoourcomprehensivecustomersupport.Tomakequalitybakedgoods,ittakesmorethanjustqualityingredients.Ittakesthesupportofexpertsinbakingtechnology...fellowbakers.Watsonwouldbehappytoshareourresearchandinformationonequipmentrequirements,co-packeroptionsandproductionmethods.Wecanassistontheregulatorysidebysharingoperatingprocedures,testingrequirements,certificationoptionsandlabelinginformation.Weprovideourcustomerswithon-goingsupport...completesupport.Usingspecializedequipmentandtechnology,wecanhelpourcustomersmakeformulaadjustments,customizeouringredientstosuittheirneedsandguaranteeoptimalperformanceeverytime.

Weofferourcustomersthebestingredientsystemsavailable,totalsupport,innovationandcuttingedgetechnology.

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First Mover Advantage Takingadvantageofthegrowinggluten-freemarketopportunityhasalwayspresentedchallengesandsignificantobstaclestobakers.Watsonhastakentheinitiativetoattacktheseproblemswiththesamededicationandtechnicalexpertisewehavedemonstratedforover70years.Wehavethoroughlyresearchedthemarketforgluten-freebakedgoods,regulatoryissues,theavailabletechnologyandtheequipmentandresourcesrequiredtomanufacturehighqualitygluten-freebakedgoods.Wewillhelpourcustomerstonavigatethroughthesechallengessothattheycaninturntakeadvantageofthissignificantopportunityformarketexpansion.

First-moveradvantage,orFMA,istheadvantagegainedbytheinitialsignificantoccupantofamarketsegment.Thefirstentrantcangaincontrolofmarketsharethatfollowersmaynotbeabletomatch.Watsonunderstandshowimportantitisforourcustomerstobeabletoenterthisemergingmarketquickly.CompletemixesfromWatsonshortenyourtimetomarket,reduceR&Dandmaterialtestingcostsandeliminate

theneedtoauditmultiplevendors.Watsondoesmuchmorethanjustmanufacturethemixes.Welendourexpertiseandknowledgeandassistthecustomerinovercomingtheobstaclespresentedbycross-contaminationinproduction,labelingrequirementsandmarketingstrategies.

Skillandtechnicalinnovationcanhaveaclearimpactonboththeprofitsandlong-termsuccessofanewproductintroduction.Abetterproductwillgainmarketsharequickly.Ahigherqualityandinnovativeproductthatisthefirstinitsmarkethasthepotentialtogrowenormously.

Watsonofferscompletesupporttothecustomerfrominitialdevelopmentthroughtoproductmarketlaunch.Wearetheretohelpensureasuccessfulventureforourcustomers.

AtWatson,ourgoalistohelpyoubecomeagluten-freemarketleader.

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Gluten-Free Bread

OurgluteNONE™breadmixesareveryadaptableandcanbeusedtomakealargevarietyoffinishedbreadproductsincluding:

• Sandwichbreads• Raisinandfruitbreads• Specialtybreads• Sandwichthins• Hamburgerandhotdogrolls• Englishmuffins• Bagels• Hoagierollsandwedges• Pizzashells

Theeasytousemixesrequireonlyyeast,oilandwatertobeaddedatthebakery.

Yourfinishedproducthasthetaste,textureandlookofconventionalbread.

Watsonalsooffersseveralcompanionproductssuchasnutrientpremixeswhichwilladdvalueandconsumerappealtogluten-freebakedgoods.Watson’smoldinhibitorswillallowgluten-freebreadtobesoldnon-refrigeratedversusfrozen,eliminatingtheneedformoreexpensivefrozendistributionsystems.

CompletemixesfromWatsonshortentimetomarket,reduceR&Dandmaterialtestingcostsandeliminatetheneedtoauditmultiplevendors.Watsoncanalsoprovidestartingformulas,productdevelopmentassistance,equipmentrequirements,productionmethods,co-packerpartners,labelingrequirementsandmarketdata.

Mostofthegluten-freebreadsonthemarkettodayareheavyasabrickandcrumbly.WatsonhasworkedinconjunctionwiththeU.K.basedFayrefieldFoodTectobringbakersintheU.S.theopportunitytoproducegluten-freebreadsofunmatchedquality.

Watson’sgluteNONE™ breadmixesareformulatedtomeetceliacassociationstandards.

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Gluten-Free Specialty

OurgluteNONE™specialtymixesareveryadaptableandcanproducearangeofproductsincluding:

• Muffins

• Coffeecakes

• Brownies

• Cupcakes

• Cakes

• Cookies

• Sweetgoods

• Pancakes

Theeasytousemixesrequireonlyoilandwatertobeadded.

Yourfinishedproductwilltastesogoodthatyourcustomerswillneverbelievethatitisgluten-free.Youwillbeamazedatthehighqualityproductthatcanbeproduced.

Watsoncanprovidemorethanjustamix;weprovidefullsupportfromstartingformulas,productdevelopmentassistance,equipmentrequirements,productionmethods,co-packerpartners,labelingrequirementsandmarketdata.

Beyondbread,thegluten-freemarketoffersopportunitiesforthesalesofmuffins,specialtyproductsandsweetgoods.WatsonhasworkedinconjunctionwiththeU.K.basedFayrefieldFoodTectobringbakersintheU.S.theopportunitytoproducegluten-freebakedgoodsofunmatchedquality.

Watson’sgluteNONE™ specialtymixesareformulatedtomeetceliacassociationstandards.

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The Gluten-Free Market Four consumer segments

Therearemanyopinionsbeingvoicedastohowlargethegluten-freemarketopportunityreallyisandhowmuchitmayormaynotbeafad.Tounderstandthisopportunitybetterandevaluateitspotential,itisimportanttounderstandthatthereareseveraldifferentdriverstothismarket.TheNationalFoundationforCeliacAwarenessclassifiesgluten-freeconsumersintofourbasicsegments.

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Four Segments: 1. Celiac Disease.Thissegmentconsistsofindividualswithtrueceliacdisease.Whenlookingatthisgroupitisimportanttoknowthatatthistimeceliacdiseaseisstillvastlyunderdiagnosed.Thisisduetolackofawarenessinthemedicalcommunity,limitationsintestingtechnologyandthewidevarietyofsymptoms.Itisestimatedthat95%ofpeoplewithceliacdiseasegoundiagnosed.Therefore,thepeopleactuallydiagnosedwithceliacdiseaseintheUnitedStatesarereallyjustthetipoftheiceberg.Thediseaseismuchmoreprevalentthanthereported3millioncaseswouldsuggest.Withadvancesintechnologyandawarenessitisexpectedthat50%to60%oftheundiagnosedcasescouldbediagnosedby2019,accordingtoDatamonitor.This“celiacdisease”segmentalsoincludesfamilieswhoeatgluten-freetoreducecross-contaminationandsupportlovedones.

2. Non-Celiac Gluten Sensitivity/Intolerance.Thissegmentincludesindividualswithglutenintolerance,glutensensitivityandwheatallergies.Researchsuggeststhatanestimated10%to15%ofthepopulationmay

havesomedegreeofglutensensitivity,accordingtotheThe Food Intolerant Consumer.Somestudiessuggestthefigureisashighas20%ofthepopulation.TheCenterforCeliacResearchattheUniversityofMarylandputstheincidenceat7%,or20millionAmericans.

3. Health Concerns/Additional Disorders. Includedinthissegmentarepeoplewhoareusingagluten-freediettotreatsymptomsofirritablebowelsyndrome,multiplesclerosis,attentiondeficithyperactivitydisorder,attentiondeficitdisorder,rheumatoidarthritisandautismspectrumdisorder.

4. Gluten-Free Lifestyle. Thisgroupiscomposedoffaddietersand“healthylifestyle”gluten-freeeaters.Thissegmentofgluten-freeshopperismisinformedastotherealpurposeofgluten-freeproductsfortruemedicalneeds.Insteadtheyusetheseproductsfortheperceivedbenefitsofahealthierlifestyle.Theyarenotpurchasinggluten-freeproductsfortherightreasonsandwilllikelydropoutofthegluten-freeconsumerprofile.

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Celiac DiseaseCeliacdiseaseisachronic,autoimmuneintestinaldisorder.Leftuntreated,celiacdiseasecanleadtoamultitudeofadditionalhealthproblemsrelatedtobothmalnourishmentandthebody’simmunefunction.Currently,theonlytreatmentforceliacdiseaseisagluten-freediet.Onceglutenisremovedfromthediet,thesmallintestinestartstohealandnormalhealthreturns.Gluteninthiscontextconsistsofaspecificcomplexofstorageproteinsknownasthegliadinsandthegluteninsandisfoundonlyintheendospermofwheatgrain.Barley,ryeandoatshavestorageproteinsthataresimilartowheatandthereforecancauseadversereactionsinwheatsensitiveindividualswhoingestthem.

Is gluten-free just a fad?Manypeoplecomparethecurrentgluten-freemarketinterestwiththelowcarbdiettrend.Whileaportionofthegluten-freemarketiscertainlyafad,averysignificantnumberofgluten-freeshoppersarebuyingtheseproductsduetoalegitimatemedicalneed.Whiletheprimarypurposeoflow-carbeatingisweightloss,whichrequiresatemporaryandelectivecommitment,forthoseinthefirstthreesegmentsdescribedonpage11,adoptingthegluten-freedietisalife-longmedicalnecessity.Eliminatingglutenfromthedietistheonlytreatmentavailableforpeoplewithceliacdiseaseandtheglutensensitive.Forthesereasons,gluten-freedietsenjoyanenduringvaliditythatlowcarbdoesnot.

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Celiac Disease Facts & Figures:

• 3,000,000peoplehavebeendiagnosedwithceliacdisease;thevastmajorityofthosewithceliacdiseasegoundiagnosed.Withsuchalargeportionofthepotentialmarketremainingundiagnosed,advancesintestinganddiagnosiswillbethedrivingfactorspromotingfuturemarketgrowth.

• AccordingtotheCeliacDiseaseFoundation,celiacdiseaseaffectsmorepeoplethanthosewithCrohn’sdisease,cysticfibrosis,multiplesclerosisandParkinson’scombined.

• AMayoClinicstudypublishedinGastroenterology,July2009,foundtherateofceliacdiseasehasquadrupledinthelast50years.

• ResearchersattheUniversityofMarylandSchoolofMedicineCenterforCeliacResearchfoundthattheinstanceofceliacdiseasehasdoubledevery15yearssince1974.Researchersalsofoundevidencethatcasesamongtheelderlyareincreasing.

• Foodallergiesaffectapproximately5%ofchildrenand4%ofadultsintheUnitedStates.Foodallergiesamongchildrenarebecomingmoreprevalentovertime,havingincreasedby18%inthelast10yearsaccordingtotheCentersforDiseaseControlandPreventionandtheNationalCenterforHealthStatistics.

The Size of the Gluten-Free Market in Total and for the Baking Segments:

• In2010therewere2,657newgluten-freeproductintroductionsintheU.S.market.In2009therewere1,747newproductlaunchesaccordingtoDatamonitorsproductlaunchanalytics.

• In2010thegluten-freefoodsandbeveragemarketreachedanestimated$2.64billioninretailsalesforcompoundannualgrowthrate(CAGR)of30%overthe2006to2010period,accordingtoPackagedFacts.*

• Gluten-freesalesareexpectedtoapproach$5.5billionby2015.PackagedFactsexpectsthegluten-freemarkettodemonstrateaCAGRof14%overallfrom2011to2015.*

• Freshbreadandrollscountfor11%ofthegluten-freemarketwitha12.4%growthrate.Salesofgluten-freebreadsandrollshavebeendampenedbypoorqualityofmostproductsavailableonthemarkettoday.Watsonfeelsthatgivenhigherqualityproduct,saleswillincreasesubstantially.

• Overhalfofgluten-freeshoppersreportedhavingpurchasedgluten-freebreads/cereals/grainfoodproductsinthepast30days.PackagedFactsFall2010U.S.ConsumerSurvey

*Theactualsizeofthegluten-freemarkethasbeensomewhatobscuredbyaflurryofproductre-launchestotingagluten-freeclaim.Manyof

theseproductswouldnaturallyhavealwaysbeenglutenfree.PackagedFactshasincludedonlythoseproductswhichcouldconceivablyhave

containedglutenorglutencontaminationintheirmarketsizeestimates.

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Demand forGluten-FreeBakedGoods

Currentsalesfiguresforbreadproductshavebeenimpactednegativelyduetothelackofavailabilityofqualityproduct.Thereareanestimated3millionAmericansthathavebeendiagnosedwithceliacdisease.IntheU.S.percapitabreadconsumptionis22kiloswhichequatesto32.5standardsizedloavesofbreadperpersonperyear.Applyingthissamerateofconsumptionoverthediagnosedceliacpopulationwewouldestimateademandfor107millionloavesofbreadperyear.KeepinginmindthattheCeliacSprueAssociationestimatesthat97%ofallceliacshavenotyetbeendiagnosed,thisfigurewillonlyincreaseasmorepatientsbecomeidentified.

Wecanlikewiseapplythe200poundspercapitaconsumptionofflourandcerealproductsin

theU.S.tothediagnosedceliacpopulationtoextrapolatea600millionpoundpotentialconsumptionofgluten-freeflourandcerealproducts.

Thenumberofceliacsufferershasbeenincreasingforseveralgenerationsandtherateoffoodallergiesisalsogrowing,addinguptoanexpandingmarket.Thedemandforgluten-freediningawayfromhomeisaffectingfoodservicetrendsandoperationsinsuchvenuesashealthcarefacilities,ballparks,collegecafeteriasandseniorlivingfacilities.

TheNationalRestaurantAssociationconductedaninternetsurveyof1,854professionalchefs(membersoftheAmericanCulinaryFederation)whoweregivenalistof214foodtrendsandaskedtorankthem.Gluten-freeranked#9andwaspronouncedtobeahottrend.Similarly,aCanadianchefsurveynamedgluten-freeatop10menutrend.

WhatQualifiesasGlutenFree?ThefoodindustryisstillwaitingforFDAgluten-freefoodlabelingstandardsthatwerescheduledtobefinalizedin2008.TheFDAproposestoadoptthewidelyacceptedstandardof20partspermillion(ppm)asthemaximumpermissiblegluteninafoodlabeled“gluten-free.”

Severalgluten-freeorganizationsexistandoffercertificationprograms.Mostoftheseorganizationshavetheirowncriteriaormultipleprogramsforqualification.Watsoncanassistyouinnavigatingtheseoptions.

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TheMarketplace

Gluten-FreeisMainstream

• TheUnitedStatesisthetopgluten-freemarketbynumberofproductintroductionsin2010,accountingfor48.07%oftheworldmarketforgluten-freeproducts.

• Retaildistributionhasshifteddramaticallyinjust2yearstowardmainstreamchannelsandawayfromhealthandnaturalfoodstores.

• Thebreakdownof2010gluten-freesalesintheU.S.byretailchannelshowsthat42%ofgluten-freefoodsandbeverageswerepurchasedatsupermarkets,37%werepurchasedatWalmartorwarehouseclubsandonly16%ofgluten-freeproductswerepurchasedatnaturalfoodstores.

• AreportbySymphonyIRIindicatedthenumberofdedicated,gluten-freeproductscarriedbysupermarketsandmass-merchandizershasrisensharplyin2010.

• From2008to2010,accordingtoModernBakingsupermarketbakeryresearch,gluten-freegrewby3pointsintermsofpercentageofbakeriesfieldingproductstoutingthisclaim(from35%to38%).Thisisremarkablewhenyouconsiderthatwiththeexceptionofwholewheat/wholegrain,allotherdietaryclaimsdroppedoverthesametwoyearperiod.y

• Basedondatacollectedbya2010ProgressiveGrocersurveyofin-storebakeries,approximately42%ofshoppersareaskingforglutenfreeoptions(2010BakeryOperationsReview).

ASpecialConsiderationforChildren

Foodallergiesaffectapproximately5%ofchildrenintheUnitedStates.Foodallergiesamongchildrenhaveincreasedby18%inthelast10yearsaccordingtotheCenters

forDiseaseControlandPreventionandtheNationalCenterforHealthStatistics.With

therateoffoodsensitivitiesamongchildrenescalating,non-allergenicfoodsforchildren

presentaconsiderableopportunityformarketers,asconcernedparentseliminateallpotentialallergensfromtheirchildren’sdiets.Mintelreportedthat21%ofinfant

foodlaunchesinQ3andQ4of2010madegluten-freeclaims.

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Wehaveseenanopportunityforourcustomerstosellproductintoamarketthatisnotabletoconsumeconventionalbread.Aproductlineextensionintothegluten-freemarketwillnotcannibalizeyourexistingproductsales.Itwillallowyoutoreachconsumersthatarenowpreventedfrompurchasingbreadproductsforthemselvesandtheirfamilies.

Manyofourcustomersmayhaveconsideredenteringthismarketinthepast,butfoundtheobstaclestoogreattosurmount.Wefeelthattogetherwecanbreakdowntheseimpedimentsandreaptherewardsofearlymarketentrywithavastlysuperiorproduct.

Watsonwouldbehappytoshareourresearchandinformationonequipmentrequirements,co-packeroptionsandproductionmethods.Wecanassistontheregulatorysidebysharingoperatingprocedures,testingrequirements,certificationoptionsandlabelinginformation.Wecanhelpaugmentyourmarketingplanwithdataandturn-keypresentationsyoucanusewithyourcustomers.

Wecanhelpprovidetheextramomentumneededtotakeyourgluten-freeproducttomarket.Weareyourgluten-freeproblemsolver.

301HeffernanDrive,WestHavenCT06516 1-800-388-3481www.watson-inc.com

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