September 7, 2007Project # 12406

Retail Meal Solutions:Opportunity Assessment

Additional Findings

Food Industry. Facts. Insights. Consulting.

Prepared by:

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Additional Findings description On August 31, 2007, Technomic issued the Retail Meal Solutions Common Interest Report. That

report outlined important study findings and key Technomic conclusions. This set of additional findings is a supplement to that report.

Within this document is research data that supports the findings in the Common Interest Report. In addition, data is provided in this report that was not addressed in the Common Interest Report. Examples of data not included in the August 31st report include:

Sponsor-requested market characteristics data Sponsor-requested consumer findings Sponsor-requested retailer findings Key category reviews Leading or emerging manufacturer overviews

Please note that while most data in this report is specific to retail meal solutions, some information does apply to larger supermarket or in-store deli trends.

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Additional findings index

Page

I. Market Characteristics 4

II. Consumer Findings 12

III. Retailer Findings 23

IV. Category Review 33

V. Manufacturer Overview 43

I. Market Characteristics

5

Retail store expansion In the U.S., the size of the average supermarket has been on the rise for a number of years. The

trend continues today. While some industry analysts and niche retailers contend that the ideal size of a non-traditional supermarket would lie in the range of 20,000 to 22,000 square feet, the current average supermarket size is more than twice that figure (Willard Bishop).

37,200

40,500

44,000

48,200

52,100

1996

Average traditional supermarket

square footage

1995

2001

2004

2007

Square Footage

6

Number of in-store delis The growth of retail meal solutions has been largely driven by the modification of the product mix

within deli or on-the-go departments.

Growth has not been due to a significant rise in the number of food retailers or retailer delis. As a matter of fact, the number of supermarket delis has risen by less than 1% annually for the past ten years. The chart below shows the number of supermarkets delis in the U.S.

27,200 25,440

2006 1997

Supermarket Delis / Meal-to-Go Departments

7

Retailer perception of RMS importance Retail meal solutions are considered a significant part of retailers’ overall merchandising and

marketing plans. Approximately 2/3 of all supermarkets consider retail meal solutions to be “very important” (Mintel International).

Below are the percent of supermarkets identifying RMS as “very important” to overall strategies.

67%

75%

64%

Total Supermarket chains Independentsupermarkets

RMS Marketing Importance (Percent Describing as Very Important)

8

Retail meal solutions expansion Retail meal solutions are expanding in number and variety within different venues. Unquestionably,

though, the number of offerings differs based on the venue. Traditional supermarkets and convenience stores, for example, have fewer offerings while some specialty and natural markets have in excess of 100 retail meal SKUs available.

The average number of retail meal solution SKUs offered by major retailers is 62 (Food Retailing Industry Speaks).

The table below shows the percentage of retailers offering 20+ retail meal SKUs per store.

50%

20%

Specialty and upscale retailers Traditional supermarkets

20+ RMS SKUs per Store

9

Prepared foods as percent of store sales The impact of prepared foods on a retailer’s overall business is continually growing. Prepared foods

as a percentage of sales varies widely depending on the type of venue.

“Our delis account for 10% of our total sales and prepared foods are closing in on 1/2 of that number.” — Buehler’s Foods

We’ve looked at that closely. We’re up to 5.5% of total sales.” — Roche Brothers

Below are the percentages of prepared foods as a percent of total store sales, by venue type (Gourmet Retailer).

39%

6% 6%

Specialty food stores Independent supermarkets Supermarket chains

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Prepared meals versus other deli sales Retail meals solutions, or prepared foods, have been an increasingly important element of in-store

deli sales. Most retailers include retail meals within what was once considered simply the deli department.

Sales of prepared meals represent over 50% of all deli department sales. The percentage has been rising for the past decade.

57%

47%

2006 1997

Prepared Foods as % of Deli Sales

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Frozen prepared foods As mentioned throughout the Retail Meal Solutions Common Interest Report, the definition used in

assessing the category did not include frozen foods. Consumers and retailers do not consider frozen foods to be a component of retail meal solutions.

Furthermore, the growth of frozen prepared foods has been slow. The following table shows two year frozen food growth, by category (2005):

Frozen Food Growth by Category (2005)Fr

ozen

Pre

pare

d Fo

od

Corn dogs -3.0%

Complete Dinners -4.3

Italian entrees 2.2

Meat entrees 3.8

Mexican entrees 4.7

Oriental entrees -5.7

Poultry entrees 5.2

Seafood entrees 17.0

Other entrees -1.0

Pasta -5.4

Pot pies -4.0

Sauces and gravies 5.4

Soup 30.0

Total 1.3%

Supermarket CAGR2005

II. Consumer Findings

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Consumer overview As part of the methodology for this study, Technomic conducted eight focus group sessions across

the country. In total, over 70 regular RMS customers discussed their purchase behavior, attitudes, and expectations during these sessions. For a complete overview of consumer RMS impressions, please see the Technomic Focus Group Summary dated August 10, 2007.

On the following pages are both quantitative and qualitative data points that describe the retail food purchases of consumers. Some data points relate to overall retail food shopping and others are specific to retail meal solutions/prepared foods.

Generally speaking, one can reach the conclusion that consumers are:

Shopping for food at multiple retail outlets Purchasing takeout at least as frequently as eating away-from-home Purchasing takeout from retailers at least occasionally Eating purchased retail meals in a variety of locations Purchasing retail meal solutions for multiple reasons Most often purchasing retail meal solutions from traditional supermarkets

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Consumer meal alternatives Consumers have tremendous choice in determining where to spend their dining dollars. According to

Greenfield Online, the majority of dinner meals continue to be consumed in the home. Lunch dining is apparently tracked less closely and lunch consumption occurs in a number of alternative locations. Below are the average number of times per week that dinner consumers are choosing different meal options.

Weekly Dinner Consumption (2005)

Din

ner M

eal O

ptio

n

Dinner per Week

Home cooked meal prepared from scratch 2.6

Carry-out from restaurant or retail eaten at home 0.8

Dining at restaurant 0.7

Eat leftovers at home 0.6

At home heating of frozen entrée 0.5

At home creation of salad 0.5

At home use of a meal kit 0.4

At home use of delivery service 0.4

At home consumption of canned goods (soup) 0.2

Skip dinner 0.2

Other 0.1

Total 7.0

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Consumer food buying The majority of consumers are not limiting their food purchases to only one retail location. As

discussed in the Common Interest Report, retail meal solutions alone are being purchased from stores near places of employment and at stores near home (at a minimum). The chart below identifies the percent of adults who purchase groceries from at least two different retailers every month (Mintel).

76%

24%

Every month Less than monthly

Percent of Adults Shopping for Food at 2+ Retailers

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Supermarket prepared foods usage The majority of consumers are purchasing prepared foods from retailers at least occasionally (86%)

(Mintel). One half of all consumers are making these purchases at least monthly. Heavy usage (weekly or more) is still low (11%) and has room for significant growth.

Almost Never36%

1-4 Times a Month

39%

Never14%

5-9 Times a Month

8%

10 Times a Month or

More3%

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Retail meal consumption According to consumers, retail meal solutions are a viable alternative during the lunch and dinner

dayparts. The location of the actual dining depends largely on the daypart.

During the lunchtime hours, meals purchased are typically consumed in a retailer’s dining area, in the consumer’s vehicle, or back at the consumer’s place of employment.

During the dinner hours, meals are typically eaten at home, at friends or family homes, or in the consumer’s vehicle.

The following highlights overall retail meal consumption behavior (NPD):

Retail meal eaten at home 36% Retail meal eaten in vehicle 29% Retail meal eaten at work 24% Retail meal eaten in ‘other’ location 10%

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Consumer perceptions of retailers: Traditional Supermarkets / Supercenters

Conveniently located

Can buy groceries and non-food items while you are there

Don’t usually run out of items

Reward card allows you to get discounts

Advantages

Not as much variety as specialty or upscale supermarkets

Not as many healthy or gourmet items

Staff not always knowledgeable or helpful

Not all are easy to get in and out of quickly

Disadvantages

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Consumer perceptions of retailers: Upscale and Specialty Supermarkets

Variety of foods

Healthy options

Premium offerings

Knowledgeable and friendly staff

Attractive environment

Advantages

High prices

Not always conveniently located

Disadvantages

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Consumer perceptions of retailers: Convenience Stores

Necessary stop (if convenience store offers gasoline)

Open 24 hours, 7 days a week

Advantages

Poor selection

Perceived not to be fresh

Low quality

Health concerns – too many non-food related activities

High prices

Disadvantages

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Consumer perceptions of retailers: Warehouse Clubs

Can make large volume purchases

Economical

Perceived fresh

Advantages

Need a membership

Difficult to get in and out of quickly

Not always top of mind as a foodservice option

Disadvantages

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Consumer perceptions of retailers: Takeaway Stores

Great food

Great atmosphere

Can eat inside or outside

Casual environment

Advantages

Not conveniently located

Not enough locations

Disadvantages

III. Retailer Findings

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Physical layout of retail meals solutions Newer construction supermarkets almost

always have retail meal offerings visible from the entrance of the store. Also, an increasing number of converted stores have moved retail meals to a more prominent in-store location.

There is considerable variety in the location of retail meals in other venue types: Warehouse clubs usually have foodservice

stations near the front of the store, and prepared meals-to-go are often located in multiple locations.

Convenience stores are able to place retail meals in any part of the store; because of store size, the section will be visible from the entrance regardless of location.

Supercenters are generally positioning delis and prepared meals near the front of the store.

Based on retailer interviews and site visits, the chart to the right estimates the percentage of all retail stores with retail meals in the front of the store or visible from at least one entrance.

Not visible from

entrance20%

Front of store or visible from

entrance80%

Visibility of RMS

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In-store services Convenience is driving many of the innovations developed by leading retailers. Among those in-

store amenities being made available by major retailers are (Food Retailing Industry Speaks):

In-store Amenities R

etai

ler S

ervi

ce

% of Retailers Offering

Catering 62%

In-store dining 60

Separate Prepared Foods checkout 58

Nutrition boards/nutrition fliers 33

In-store chef demonstrations 32

Pre-ordering (phone/fax/online) 28

Separate Prepared Foods department entrance 14

Designated parking 7

Drive-thru pickup 4

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In-store services In-store dining is an amenity that is offered by 60% of retailers. However, there is a dramatic

difference in the in-store dining practices of the different venue segments. Certain retailers such as warehouse clubs have in-store dining in virtually all locations. Other venues, such as specialty food stores, are adding seating on a steady basis. Specialty food stores consider in-store dining to be a means of getting customers to spend more time in the store, while at the same time enjoying the experience. The chart below shows the difference in dining practices of traditional supermarkets and specialty food stores.

78%

28%

Specialty food stores Traditional supermarkets

In-Store Dining Option

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Retailer in-store RMS promotion Retailers are beginning the on-site promotion of retail meal solutions before customers even enter

the store. Outside message boards or in-window signage is being used by approximately 50% of traditional supermarkets, upscale supermarkets, specialty food stores, and natural food stores.

In addition, leading-edge RMS retailers, such as Central Market, have in-store seating and cafes that have separate above-entrance signage that is clearly visible to all customers and “passers-by”.

Promotional activity in retail stores generally promotes the overall RMS offerings or individual store or local brands. Because there is almost always an emphasis on freshness, there has been a reluctance on the part of retailers to promote manufacturer branded items.

Sampling is considered a major advantage for retailers in their competition with Limited Service Restaurants. Many retailers tell Technomic that if a customer requests a sample, then they are very likely to end up making an RMS purchase (even if it is not of the first product that was sampled). Once a customer has begun sampling, they have generally “bought into” the idea of purchasing a prepared meal.

Many retailers suggest the best in-store promotion available to them is simply utilizing display kitchens or maintaining meal displays that emphasize presentation. According to one prepared foods executive,

“We can have all the signs and banners we want, but if the food doesn’t look appetizing then it’s all for naught. Our departments try to show off color and fresh ingredients and chef activity. It all goes toward letting the customer know that they can buy a really good, reasonable meal that they can feel good about eating or serving to their family.”

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Retailer in-store RMS promotion A growing trend amongst retailers is heavy in-store marketing of differentiated service, namely on-

premise meal preparation. During interviews with key retailers, management were quick to point out that while in-store preparation is on the rise, it is still not commonplace. Therefore stores with on-site chefs (most notably specialty food stores and upscale supermarkets) are promoting that fact through signage. Most often, the signage reflects the freshness and culinary advantages associated with having an on-site kitchen.

75%

72%

2007 2005

Specialty and Upscale Markets Promoting On-site Preparation

Source: Technomic site visits, Mintel

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Retailer outside RMS promotion Retailers are promoting retail meal solutions primarily in-store and through a reliance on word-of-

mouth. However, there are some external promotional tools being used by larger retailers (primarily traditional supermarkets, upscale supermarkets, specialty food stores, and natural stores).

Below are the promotional activities most often mentioned by retail management as effective in promoting retail meal solutions.

Newspaper advertising and inserts Electronic media (primarily radio) Direct mail to targeted local zip codes Local community magazines In-store magazines Local “Clippers” Coupons

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Product label type Retail meal solutions are generally not manufacturer branded. Many retail concepts consider

manufacturer brands to be contradictory to the “freshly prepared” image they are trying to project.

For those chains with in-store preparation, use of manufacturer brands is seen as counter to the idea of in-store, “from scratch” preparation.

The majority of manufacturer branded products that are in RMS departments are in the grab-and-go refrigerated case. Products such as packaged salad kits, side salads, and dips and spreads often display manufacturer brands.

More traditional supermarkets and convenience stores use some manufacturer brands because they believe the brand recognition instills trust and familiarity in customers.

Specialty food stores, natural food stores, and upscale supermarkets are least likely to offer manufacturer branded retail meal solutions.

Entrees, appetizers, and soups are examples of categories with minimal manufacturer branding.

80+% of all RMS soups, for example, are private label products.

Store brands have been popular in RMS sections of the store, and their use is on the rise. Whole Foods, which has been a major catalyst in the expansion of retail meal solutions, markets a significant number of store-brand products (in virtually all categories).

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Technology/equipment requirements The in-store technology debate is one that has retailers split on how automated the prepared foods

ordering process should become. It seems that half of retailers prefer to have a personalized approach to customers, while the other half envisions more touch-screen ordering (limiting personal contact but improving speed and convenience).

Recently implemented or store tested technology initiatives include electronic RMS touch-screen ordering and RMS pagers that are activated when a customer’s deli order is complete (Publix).

In-store kitchen equipment needs are generally moderate in today’s prepared foods departments. Those stores that maintain in-store kitchens obviously have a greater array of equipment including ovens, deep fryers, griddles, grills, pizza ovens, and woks, among other things. Stores without in-store preparation are generally using only basic warming equipment, including microwaves.

Retailers’ future equipment needs fall into three areas: Emerging technology

− Some retailers believe certain technology such as infrared quick heating technology will improve speed of service.

Improved packaging− Some retailers point to tamper-resistant and product-enhancing packaging (improved

shelf-life) as the most important future equipment need. Labor-reducing equipment

− Retailers indicate untrained staff needs more user-friendly equipment, such as fryers with automatic filters; retailers recognize that LSRs currently use technology that has a necessary place in supermarket RMS departments.

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Price positioning Price is not the primary purchase consideration for a majority of prepared foods customers, therefore

stores (especially specialty food stores) are not attempting to engage restaurants or other retailers in price competition.

The table below shows average retail prices being charged customers for individual servings, according to venue type (Gourmet Retailer).

$5.59 $2.88 $4.77

$6.80 $3.61 $2.82

$7.78 $3.46 $3.55

$6.74 $1.99 $4.74

Entrees Side Item Dessert

Traditional supermarket

Independent supermarket

Specialty food store

Independent deli

Retail Venue

IV. Category Review

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Technomic estimates that between 2006 and 2009, the RMS sandwich category will experience a CAGR of nearly 9% (see Common Interest Report).

Growth Forecast:

Category review: Sandwiches

According to retailers interviewed, there is little expectation that the list of top selling sandwich meats will change much over the next several years.

However, there is expected to be a continued increase in the use of artisan breads in made-to-order sandwiches (artisan breads are not common in pre-packaged sandwich-to-go cases).

Wraps are also expected to see continued growth at or above overall RMS sandwich growth rates.

Retailers will have to continue to improve quality of sandwich offerings as LSR sandwich restaurants are continually developing new, well-received (by consumers) menu items.

9072 71

Ham Turkey Roast Beef

Leading Sandwich Meats (IDDBA) Leading Sandwich Breads (IDDBA)

60 5848

Wheat White Hoagies

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Category review: Sandwiches Sandwiches (both made-to-order and pre-packaged) are a key category for retailers’ meals-to-go

departments. For one thing, sandwiches are a major draw for the lunchtime prepared foods customer base. Also, sandwiches are considered by retailers to be an introductory category; many retail meal customers were first introduced to their prepared meals through a sandwich purchase. Sandwich purchases are considered a lead-in to other RMS purchases.

73%66%

59%

44% 39% 38% 34%

Taste Freshness IngredientQuality

Price Fast service Convenience Smell

Factors Influencing Consumer RMS Sandwich Purchases (IDDBA)

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Category review: Value-Added Meats

Value-added meats are forecasted to grow approximately 5% in the next 3 years, with growth primarily coming as a result of consumer demand for convenient protein preparation.

Retailers and consumers both express the need for increased convenience in meat entrees. Consumers have less available time for lengthy meat preparation and are seeking fast alternatives without sacrificing meat as a meal staple.

One reason that retailers give for the moderate growth of the category is the fact that category expansion has already occurred. Several retail chains have already expanded value-added meat offerings from only 1-2 items to as many as 6-8 items. These chains are gauging sales on an ongoing basis, but expect there to be a rotation of value-added meats as opposed to a major expansion of the number of items available to customers.

Also evident is that healthier meat preparations are on-trend more so than fried meats (aside from fried chicken).

Technomic estimates that between 2006 and 2009, the RMS value-added meats category will experience a CAGR of approximately 5% (see Common Interest Report).

Growth Forecast:

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Category review: Beverages

Please note, the forecast for RMS beverage sales is an estimate based on current RMS beverage positioning practices. Changes in retailer RMS beverage marketing could have an impact on growth rates.

Beverages are one of the more underutilized categories in retail meal departments. A number of retailers believe that beverage sales have not at all been optimized.

As noted in the Common Interest Report, convenience stores dominate RMS beverage sales. Convenience stores have become synonymous with fountain beverage and dispensed drinks. Other retailers have relied on bottled beverage sales.

Consumers are looking for a variety of RMS beverage choices.

In addition to soft drinks, consumers are interested in more healthy drinks to complement the healthier, fresh meals being purchased. Juices, teas, and waters are often mentioned as products that interest consumers.

RMS beverage packaging is also an issue. Fountain drinks are considered a reasonable option for an individual meal purchase, but consumers struggle with the idea of RMS beverage purchases when buying multiple individual meals or large family-size offerings.

Technomic estimates that between 2006 and 2009, the RMS beverage category will experience a CAGR of approximately 8-10% (see Common Interest Report). Hot beverages are expected to have slightly stronger growth than cold fountain beverages.

Growth Forecast:

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Category review: Salads

The growth forecast of 8% through 2009 includes all types of salads (prepared, salad bar, fruit salad, etc.). According to retailer estimates, salad bars and pre-packaged salads are expected to surpass that overall category figure. Some retail executives see salad bars and pre-packaged salads reaching compound annual growth rates of 10-12%.

Retail chains indicate that promoting salad as a healthy entrée has contributed to the current and expected growth of the category. Consumers are less interested in salads that complement an entrée, and are purchasing more salads that include proteins.

Additionally, protein salads that have a unique or ethnic twist are considered popular. Asian chicken salads or Mediterranean chicken salads were mentioned as emerging items by more than one major retailer.

There have been a number of RMS salad component kits that have hit the market in the past 12 months. Retailers indicate that the price points are generally very strong from a consumer perspective and the kits including proteins have received a particularly good response from customers.

Technomic estimates that between 2006 and 2009, the RMS salads category will experience a CAGR of approximately 8% (see Common Interest Report).

Growth Forecast:

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Category review: Side Dishes

Side dishes are a difficult category to market, according to many retailers. Reasons for the difficulty include:

Many consumers continue to purchase entrée only Fattening side dishes do not fit healthy profile that RMS customers are seeking Vegetable side dishes are held to a very high freshness standard (consumers have not accepted

healthy vegetable preparations as fresh and healthy if they have to be re-heated at home) Without assistance, consumers are often unsure of how to pair entrees with side dishes

Retailers believe side dishes is a category that could greatly benefit from increased innovation and new product introductions. There is the perception that there are limited healthy, fresh side dish alternatives in the marketplace.

Technomic estimates that between 2006 and 2009, the RMS side dishes category will experience a CAGR of approximately 1-3% (see Common Interest Report).

Growth Forecast:

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Category review: Appetizers

Appetizers are often a category in which retailers offer customers few options. There is a very small opportunity for lunch appetizers (especially for individual meals) and only a limited opportunity for the dinner daypart. Appetizers are most often purchased by consumers for easy entertaining.

Because retailers are only offering a few appetizers to customers, they are typically looking for established favorites. Deviled eggs and egg rolls are two examples of traditional appetizer favorites.

Several retailers commented during the study that foodservice manufacturers were developing new appetizer products with unique sauces or flavors. These retailers, however, were uninterested in expanding deli case space for new appetizers.

Several retailers are seeing some strength in appetizers that are “fresh” versions of classic foods, such as fresh onion rings. While not a healthy item, this type of product is considered a homestyle food that will entice consumers to periodically indulge.

Technomic estimates that between 2006 and 2009, the RMS appetizers category will experience a CAGR of approximately 8% (see Common Interest Report).

Growth Forecast:

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Category review: Soups

Many of the retailers interviewed for this study identify soup as a strong RMS offering. Among the reasons given by retailers for its strong position are:

Versatility (excellent as both a hot lunch item and as a takeout dinner starter) Healthy perception (soup, whether natural or conventional, is considered a good-for-you food) Freshness Positioning (soup can be positioned as either “the entire meal” or as a pairing with sandwiches or

salad) Variety of sizes (more so than almost any other category, soup can be easily purchased in

several different container sizes)

Management at several retail chains noted that soup fits very well into the retail meal solutions department because it meets a number of different requirements of consumers. Keys for RMS success include “hot and fresh”, high variety, healthy, portable, fast and convenient – soup, as a category, satisfies the majority of those requirements.

Technomic estimates that between 2006 and 2009, the RMS soup category (including chili) will experience a CAGR of 15-20% (see Common Interest Report).

Growth Forecast:

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Category review: Sushi

Sushi is a very strong RMS category in the retail channel. Currently, over 50% of supermarkets offer either made-to-order or pre-packaged self-service sushi within their stores. In the past five years, the number of supermarkets offering sushi has risen 20% annually.

40% of all supermarket sushi is California rolls, containing avocado and imitation crab.

65%

33%

Specialty and upscale retailers Traditional supermarkets

In-store Made-to-Order Sushi

Technomic estimates that between 2006 and 2009, the RMS prepared meals category (driven largely by sushi sales) will experience a CAGR of 15-20% (see Common Interest Report).

Growth Forecast:

V. Manufacturer Overview

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Manufacturer overview On the following pages are brief profiles of some of the leading, or emerging, suppliers of retail meal

solution offerings. The companies profiled are:

Advanced Fresh Concepts (sushi) Chef Solutions/Orval Kent (salads, sides, and desserts) Gourmet Kitchens Inc. (entrees, sandwiches, appetizers, complete meals) Harry’s Fresh Foods (soups) Reser’s Fine Foods (salads and sides) Sandridge Foods (hot foods, sides, salads, desserts)

During the course of retailer interviews, participants were asked to name leading-edge suppliers. Clearly, the above companies that were described by retailers are not the largest of foodservice manufacturers. According to retail chains, there is little that differentiates the large manufacturers, giving smaller suppliers the opportunity to distinguish themselves based on quality, unique offerings, or collaboration.

Advanced Fresh Concepts

45

Manufacturer overview: Advanced Fresh Concepts Advanced Fresh Concepts (AFC) of Rancho Dominguez, California is the leading sushi supplier to

U.S. supermarkets.

The company provides supermarket sushi both as a supplier and as a franchiser of in-store sushi stations.

AFC specializes in Nigiri and Makimono sushi.

Annually, in order to meet supermarket demand, AFC purchases over 300 tons of fish, over 2 million pounds of rice, and nearly 25 million sheets of seaweed.

AFC key customers include: − Kroger− Safeway− Publix− Giant Eagle− Wegman’s

The company works very closely with its supermarket chain customers to determine the needs and preferences of consumers. Management has been aggressive in its “Americanizing” sushi. For example, in many regions, seaweed is being replaced with rice paper because of many consumers aversion to seaweed. Also, chicken (not traditionally a sushi ingredient) has been added as a product alternative to appeal to consumers who will not eat raw fish.

Advanced Fresh Concepts

46

Manufacturer overview: Chef Solutions/Orval Kent Orval Kent, a Wheeling, Illinois-based subsidiary of Chef Solutions, manufactures over

400 types of cold deli salads, ready-to-heat side items, fresh component salad kits, and sauces.

Management reports sales have reached $350 to $400 million annually.

Two major growth strategies being employed by Orval Kent are the expansion of refrigerated, ready-to-heat side items and the expansion of ready-to-heat sauces that retailers can use to complete an entrée/protein preparation. Ready-to-heat sides recently introduced by Orval Kent include mashed potatoes

and macaroni and cheese.

According to Orval Kent management, re-educating retailers has been a major aspect of company growth. Sources contend that re-education is primarily related to two things:

Willingness on the part of retailers to market non-traditional preparations as “fresh”− In other words, chains need to be willing to market foods that were

assembled from component kits as “fresh”. The company has seen reluctance from some retailers to describe meals made with components or add-on sauces as “fresh” or “healthy”.

Merchandising of “meals”− Orval Kent works closely with retailers on product placement. The company

argues that entrees in the fresh case and sides in the grab-and-go section do not optimize sales. Customers need to see meals together in order to perceive the offering as fresh and complete.

47

Manufacturer overview: Gourmet Kitchens Inc. Gourmet Kitchens Inc., a Chicago, Illinois-based company, markets a number of retail meal offerings

including hot meals, grab-and-go meals and snacks, and ethnic prepared foods. The company sells products under three brand names:

Gourmet Kitchens Inc. Last Minute Gourmet Expresa Latina

The company has been in business for almost 20 years and while it does sell to restaurants, the majority of its business is with supermarket chains, independent grocers, and convenience stores.

Although a small company (Gourmet Kitchens operates from a 75,000 square foot production facility), management believes it has distinguished itself from the competition because of its dedication to developing new, innovative prepared foods. Company sources state that its R&D personnel are continually monitoring consumer dining habits in order to “stay ahead” of trends.

Company sources state that products offered through the Expresa Latina brand have done “extremely well”. R&D has dedicated tremendous resources to predicting the retail behavior and needs of the fast-growing Hispanic consumer base.

According to management, customizing prepared meals programs for individual retail customers is a company strength that has led to very strong account penetration.

48

Manufacturer overview: Harry’s Fresh Foods Harry’s Fresh Foods, a manufacturer of soups, chilis and sauces, has emerged over

the past decade as a supplier of refrigerated prepared foods. The company has a reputation for developing high-quality, healthy offerings.

Harry’s Fresh Foods was acquired by Basic American Foods in July of 2007. Harry’s existing management will remain in place and the near-term focus on the company will be unchanged.

The company has grown from only $1 million in sales in 1990 to over $100 million in 2006. The majority of company sales are in the western half of the U.S., with major expansion plans in place. Wal-Mart and Kroger are two retail customers that are supplied nationally.

Management sources at Harry’s report that sales of soups and chilis have risen 30-40% annually for the past 10 years.

Sales to supermarkets and warehouse clubs make up 80% of the company’s revenue, with the remaining 20% being generated by sales to restaurants.

Small batch processing and advanced cooling gives Harry’s fresh soups a shelf-life of 45-60 days. Batch sizes are approximately 10% of most major soup competitors.

According to one major retail customer, Harry’s soup at the chain’s RMS stations receives very high consumer marks for taste and texture.

49

Manufacturer overview: Reser’s Fine Foods Reser’s Fine Foods, an Oregon-based company, markets a number of prepared foods for

supermarkets and other retailers. They are best known for offering a leading line of salads, dips and side dishes. According to management, the most popular Reser’s products in retail meal departments are:

Traditional potato salad Traditional macaroni salad Traditional cole slaw BLT pasta salad Broccoli salad Greek salad Chinese chicken noodle salad

Two of Reser’s largest supermarket foodservice customers are Safeway and Kroger.

Management reports sales of prepared side dishes to retail rose 17% in 2006. According to company sources, Reser’s sales growth is contrary to the sales growth of most “side item suppliers”. Reser’s believes that most competitors saw flat sales in 2006.

Reser’s has been constructing new production facilities in recent years to accommodate growth. Perhaps the most significant was a $36 million plant in Topeka, Kansas (completed in 2006) that is producing over 1 million pounds of ready-to-eat side dishes daily.

50

Manufacturer overview: Sandridge Foods Sandridge Foods sells over 400 types of retail meal offerings including products in the following

categories:

Hot entrees (meatloaf, macaroni meals) Side items (salads, pastas) Fresh soups Salads Desserts

The company sells products to supermarkets in 23 states; a dramatic rise from 3 years ago when its customer base was restricted to a 400 mile radius from the company’s south Cleveland headquarters.

Management reports that in 2005 the company shifted its go-to-market strategy away from a restaurant focus to a retail foodservice focus. The change was made because Sandridge executives saw real growth potential in supermarket takeout.

In order to serve retail customers who are promoting “freshness” to their customers, Sandridge modified its operations to ensure that all orders are filled within 16 hours and shipped fresh. In the past three years, the company has overhauled its logistics and demand planning.

Management believes that one reason for its strong growth is the fact that it has acknowledged, and served, customers seeking both hot items and grab-and-go items. There has been a significant investment into high-quality grab-and-go packaging equipment as well as major investments into ready-to-eat meal development. There is a clear company emphasis on remaining on-trend with RMS offerings.

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Manufacturer perceptions Manufacturers, like retailers, recognize the significant growth opportunity in retail meal solutions.

The question that many are asking, however, is “how do we capitalize on the opportunity?”. There is a perception that many manufacturers are going after the same “prize”, but only those companies with existing deli relationships will be able to take advantage of the increasing consumer RMS demand.

Most manufacturers recognize the major consumer RMS drivers: convenience, quality, variety, and packaging, among other factors. On top of those drivers, manufacturers experiencing RMS success also point to the following as requirements:

Product or RMS program customization based on retailer or region Retailer merchandising assistance Optimal sales and marketing of products (positioning emphasis on “freshness”) Product differentiation

− Regarding differentiation, one industry marketing manager states,“Why should a store sell your product? It’s an important question that many

foodservice manufacturers overlook. Many companies just assume that their product will be well received. But look at potato salad, for instance. There are dozens of potato salads available to prepared deli departments. Is yours the lowest priced? Does it have the longest shelf-life or a unique flavor attribute? The point is, you better have something that sets your product apart because retail stores have any number of choices.”