United States Confectionery Market

January 2009

U.S. Confectionery Market Overview

2008-2009 USA Economic Trends

•

U.S. and world economies in recession

•

Stock market declines 30%+

•

Retail sales decline in second half of 2008

•

Unemployment ends year over 7%

•

Up from 4.6% at year-end 2006

•

Housing market bubble burst

•

Unstable oil prices

•

Year ends with historically low interest rates

•

Difficult to borrow – credit crunch

•

Consumer spending declines

•

Commodity prices higher

2008-2009 USA Retail Trends

•

Shopping trips declined

•

Spending shift to value channels

•

Increased coupon usage

•

Confectionery seen as a recession proof category

•

Organic sales decline

•

2008 Holiday retail sales declined

•

Other than gasoline purchases retail sales declined 1.5% in December vs 2.4% growth in 2007 Credit crunch and lost investments impacting consumer spending

Cocoa Prices at Historic Highs

Cocoa price per ton

$3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

2003 2004 2005 2006 2007 2008

Sugar Prices near Historic Highs

U.S. Cents per pound

45 40 35 30 25 20 15 10 5 0

2003 Refined beet sugar f.o.b. Midwest 2004 2005 2006 2007 2008

Corn Sweetener Prices near Historic Highs U.S. $ per pound

$10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0

2003 2004 2005 2006 2007 2008

Commodities Pricing

Milk Corn Syrup Peanuts Walnuts Pistachios Almonds

The 2008 U.S. Confectionery Market

The U.S. Retail Confectionery Category generates approximately $28 billion in retail sales % $ Change Retail Sales $28.0

+2.2% Manufacturers Shipments Domestic Manufacturer Shipments$17.5

$18.3

+1.0% +1.0% Imports Exports $2.0

$1.2

+0.2% +21.6% The profit margin is approximately 35% for the confectionery category.

Estimated sales in billions Estimates based on NCA Shipment Data and Global Trade Atlas Import/Export Data

2008 Confectionery Sales

Manufacturers $ sales grew 1% in 2008 Category Total Chocolate Non-Choc.

Gum Retail Sales Manf. Sales % $28.0 Billion $18.3 billion +1.0% $15.9 Billion $10.3 billion +2.9% $8.6 Billion $5.7 billion +3.8% $3.5 Billion $2.2 billion +4.1% Lb. Sales % 6.9 Billion -4.0% 3.4 Billion -1.9% 2.9 Billion -7.9% 0.6 Billion +0.1% NCA Estimates base on U.S. Dept. Of Commerce MA311D Report and NCA Monthly Shipment Reports

2008US Department of Commerce 311D Confectionery Report 2008 NCA Monthly Shipment Reports through November 2008

2008 Confectionery Sales

Retail Sales Summary Trade Measured FDMx FDMW FDMWC All Others Total Sales Total Sales Confections $8.8 billion $12.4 billion % Growth vs. 2007 +2.0% +1.4% $16.8 billion +2.2% $11.4 billion * $28.0 billion +2.2% Chocolate Confections $5.0 billion $6.9 billion % Growth vs. 2007 Confections vs. 2007 +1.9% +1.2% Non-Chocolate % Growth $2.5 billion $3.6 billion +0.2% -1.2% Gum $1.3 billion +6.1% $2.0 billion % Growth vs. 2007 +6.2% $8.6 billion $7.3 billion +2.3% * $4.9 billion $3.7 billion +0.1% * $3.2 billion $0.3 billion +4.9% * $15.9 billion +2.3% $8.6 billion +0.1% $3.5 billion +4.9%

Trade Channels: F – Supermarkets D – Drug Stores M – Mass Merchants W – Wal-Mart C – Convenience Stores

NCA Estimates base on U.S. Dept. Of Commerce MA311D Report and Information Resources, Inc.

2008 US Department of Commerce 311D Confectionery Report 2008 IRI Reports through 12/28/08

2007 Per Capita Retail Sales

$100 $80 $60 $40 $20 $0

$90.73

$51.32

$28.95

$7.97

Total Chocolate Non Chocolate Gum The average U.S. Consumer spent $91 on confectionery products in 2007

Department of Commerce Data is released in late summer. Please return in August for actual 2008 data.

2008 US Department of Commerce 311D Confectionery Report

Chocolate Candy represents approximately 58% of total confectionery dollar sales.

Category

2007 Confectionery Categories Analysis

Retail Sales $ Billions Domestic Shipments $ billions Shipment % Growth Vs. 2006 Imports $ billions Import % Growth Vs. 2006 $27.4

$16.5

+3.0% $2.2

-0.8% Exports $ billions Export % Growth Vs. 2006 $0.9

+15.0% Total Confections Chocolate $15.5

Non-Chocolate $8.7

Gum $2.4

$9.9

$4.7

$1.5

-0.3% -0.8% +4.1% $0.8

$1.2

$0.1

+4.6% -4.9% +8.1% $0.6

$0.3

$0.1

+18.9% +12.9% -15.4%

This analysis shows figures for 2007 shipments and retail sales. The chart will be updated in August.

NCA estimates based on Source: 2008 US Department of Commerce, Census Bureau 311D, Confectionery Report and NCA Manufacturer Shipment Reports

The Confectionery Market is Very Diverse All Other 19% Private Label 2% Next 11 -30 8% There are more than 300 domestic confectionery manufacturers Top 5 64% Next 6-10 7%

• • •

Manufacturer Market Share Concentration

The confectionery category is much more diverse than other similar sized food categories.

There are 300

+ suppliers

competing for the remaining

30% of confectionery sales

.

The

uniqueness of the confectionery category

is that each suppliers makes distinctly different items catering to the diverse tastes and demands of the consumer.

52 Week Sales December 30, 2008 Euromonitor

U.S. Confectionery The Retail Market

Retail Confectionery

Market Share by Trade Channel

Warehouse Clubs* 7.6% Drug Stores 9.3% Bulk 4.8% Vending 3.6% Dollar Stores* 3.0% Others 22.7% Mass X Wal-Mart 4.8% Supermarkets 16.2% Wal-Mart 12.8% Convenience Stores 15.2% *estimates

* * Others include: department stores, food service and ingredient sales, fundraising, give-aways, independent grocers, mail order/internet, military, specialty/candy stores, theaters and concessions NCA 2008 estimates based on IRI, U.S.

Department of Commerce, MSA Vending Data, NCA Shipment Report and other industry sources.

2008 Retail Channel Performance

Based on 52 Week Sales – January - December 2008

Channel Supermarkets Wal-Mart Mass X Wal-Mart Convenience Stores Drug Stores *Warehouse Clubs *Dollar Stores Vending *Bulk 2008 $ Sales $4.7

$3.7

$1.4

$4.4

$2.7

$2.3

$.9

$1.1

$1.4

2008 % Growth +1.6% -0.1% +0.1% +4.3% +3.7% +3.0% +2.1% -1.5% -0.5% The confectionery retail market has grown across all trade channels but convenience stores, club stores, dollar stores and chain drug stores have outpaced the overall retail market.

* Indicates NCA estimate

•Source: NCA estimates based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce. •Sales Figures in billions

Total Chocolate/Non-Chocolate/Gum Dollar Share

GUM 9% NON-CHOCOLATE CANDY 33% CHOCOLATE CANDY 58%

U.S. Department of Commerce Census Bureau 2008 MA 311D Report

Candy and Gum Ranked 3rd Among 2008 Food Categories

$0.0

$3.0

$ Billions

$6.0

$9.0

$12.0

$15.0

Carbonated Beverages Milk Candy& Gum Salty Snacks Cereal Ice Cream Soup Cookies Bottled Juice +0.9% +2.9% $4.50

+4.5% $4.30

+0.1% $4.00

+0.8% $3.80

+2.0% +7.2% $6.60

$8.80

$8.50

-0.1% +2.6% $13.50

$12.80

IRI Food, Drug & Mass Excluding Wal-Mart 12/28/2008

Candy and Gum Ranked 3 rd among 2008 Food Categories in Food, Drug and Mass Outlets

Candy and Gum is the Largest Snack Category

$0.0

$2.0

$ Billions

$4.0

$6.0

Candy& Gum Salty Snacks Ice Cream Cookies Snack/Granola Bars Bakery Snacks Dry Fruit Misc. Snacks +2.1% $2.30

$1.00

-0.3% +0.9% $4.50

+0.1% $4.00

$0.50

-3.6% $0.30

+25.6%

$8.0

$10.0

+2.0% +7.2% $8.80

$8.50

IRI Food, Drug & Mass Excluding Wal-Mart 12/28/2008

Confectionery Seasonal Merchandising

What Affects Seasonal Sales?

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Date/Day of Holiday

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The Economy

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Consumer Confidence

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Merchandising Strength/Visibility

Confectionery Seasonal Sales

(** in millions of dollars) 2005 Valentine’s Day - $970 Easter Halloween $1,761 $2,088 Christmas $1,375 2006 $971 $1,884 $2,146 $1,389 2007 $1,036 $1,987 $2,202 $1,420 2008 $1,024 $1,846 $2,209 $1,376 2009 projections $1,000* $1,990* $2,225* $1,400* Results and Projection as of January 2009 Source: Sales figures are compiled by National Confectioners Association based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce

Total Confectionery Seasonal Shares

Christmas 21% Valentine's Day 16% Halloween 34% Easter 29%

• •

NCA estimates based on December 28, 2008 IRI Data, NCA Manufacturers Shipment Reports and U.S. Department of Commerce MA311D Report Syndicated IRI data understates actual seasonal sales. It only includes packages with seasonal graphics, and does not count regular packs sold during the season

Seasonal Confectionery Trends

VALENTINE’S EASTER HALLOWEEN CHRISTMAS * IRI FD&M 2008 -0.2% -7.1% +5.4% +0.1% +2.6% -3.1% 2007 2006 +6.7% +0.1% +2.2% 2005 2004 2003 -4.0% -3.0% -7.6% +7.0% -7.6% +5.5% +2.2% +2.8% +2.3% +2.4% +0.7% +1.0% +2.4% -3.5% -1.4% NCA projects a 2.0% increase in 2009

Holiday Dates/Days

Holiday Valentine’s Easter Halloween Christmas Thanksgiving Shopping Days 2009 Sat.

4/12 Sat.

Friday 11/26 29

Indicates positive date for holiday sales

2010 Sunday 4/4 Sunday Sat.

11/25 30 2011 Monday 4/24 Monday Sunday 11/24 31 2012 Tuesday 4/8 Wed.

Tuesday 11/22 33 2013 Thursday 3/31 Thursday Wed 11/28 27

Indicates negative date for holiday sales Indicates neutral date for holiday sales

U.S. Confectionery Trends

Trends - for 2008/2009

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Everyday gourmet chocolate sales rose 28% in 2008

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Growth slowed in second half of 2008

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Dark chocolate sales continue to grow but at a slower pace

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Dark chocolate sales increased 12%

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Core mass brands grew in units and dollars

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Emerging trends

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Exotic chocolate flavorings: citrus, spice, salt, fruits

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High cocoa content chocolates

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Gourmet packaging for chocolates

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Single origin chocolates

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Increased offering of “Everyday Gourmet” chocolate items

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Consumers want gourmet product at a value price

Trends - for 2008/09

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Sugar Free gum - +11.0% sales

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Exotic fusion flavors

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Fortified products

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Value products grew significantly

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Theater Box candies

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Licorice grew 9.4%

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Gummies and chewy candy grew 7.6%

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Seasonal candy declines

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Reflection of difficult economy and unfavorable dates

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Seasonal confectionery down 2.9%

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More favorable dates in 2009

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Increased sugar-free product offerings

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Increase lower calorie products offered